Philip Andrews-Speed - The Strategic Implications of Chinas Energy Needs

Philip Andrews-Speed, Xuanli Liao and Roland Dannreuther

Adelphi Paper 346

First published 2002

by Oxford University Press for the International
Institute for Strategic Studies, Arundel House, 13-15 Arundel Street,
Temple Place, London, WC2R 3DX

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2002 The International Institute for Strategic Studies

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Library of Congress Cataloguing in Publication data

ISBN 0-19-851675-4
ISSN 0567-932X

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The publisher has gone to great lengths to ensure the quality of this reprint but points out that some imperfections in the original may be apparent.

China is to become increasingly dependent on imports of oil and gas. In the early 1990s China was a net exporter of oil; by 2020, it is probable that 60% of its oil and 30% of its natural gas will be imported. Ensuring that sufficient supplies of energy are provided at affordable prices, and without significant disruptions, is critical for China's economic development and prosperity. For the Chinese leadership, which has traditionally enjoyed a high degree of energy self-sufficiency, the challenge of ensuring a secure supply of imported energy is a new and increasingly significant factor in their foreign and security policy calculations. There is no longer the prospect of being a neutral and disinterested bystander to regional and global energy geopolitics. In a number of the most critical energy-rich regions, most notably in the Middle East, Russia and Central Asia, China now potentially has a direct economic interest in securing its energy requirements. Inevitably, external powers will have to adapt to the implications of China's changing energy needs and the prospect of a more dynamic and proactive Chinese presence in the global energy markets.

Developments in the late 1990s showed that China was not only thinking more seriously about its growing energy dependence but also acting more decisively. In particular, the state-owned oil company, China National Petroleum Company (CNPC), demonstrated its increasing confidence and its greater international engagement with major investments in overseas oil projects. In 1997, the decision by the CNPC to pledge $8 billion for oil concessions in Kazakhstan, Venezuela, Iraq and Sudan represented a significant change in strategic orientation and involved outbidding a number of major Western oil companies. In 1998, the first official visit of Jiang Zemin to Saudi Arabia highlighted the increased strategic importance of oil diplomacy in Chinese foreign policy. Jiang's celebration of the Sino-Saudi relationship as a 'strategic oil partnership' highlighted the geopolitical importance for Beijing of this diplomatic rapprochement. As in the Middle East, so in Russia and Central Asia, and even further away in Africa (Sudan) and Latin America (Venezuela), Chinese diplomacy has included a more substantive energy dimension which has provided a direct strategic rationale for its engagement. Closer to home, the resource dimension of border disputes, most notably in the South China Sea, and the fears of disruption of supplies along the sea lines of communication from the Middle East, have gained in strategic importance.

The principal objective of this Paper is to provide an in-depth analysis of China's energy security policy and to draw out and analyse the strategic implications of this policy, particularly as it potentially impacts on Western interests. There are three chapters in this Paper. The first chapter starts with an examination of the fundamental issues in energy security before moving on to provide an assessment of China's energy needs up to 2020, which includes projections for energy consumption, prospects for energy production and forecasts for levels of energy imports. This is followed by a critical assessment of the energy security policy that the Chinese government has pursued and the key decisions that have been made in implementing this policy. The main conclusion of this chapter is that, in comparison to the approaches taken by most Western states in their energy security policy, the Chinese government has adopted a more 'strategic' than 'market' approach to energy security. What is meant by this is that the government has placed most of its efforts on 'strategic' measures such as maximising domestic production of oil and gas, investing in overseas production, and enhancing political links with petroleum-exporting states. Considerably less progress has been made to promote more market-driven policies, such as the liberalisation of the internal energy markets and the introduction of measures to constrain demand in terms of transport policy. Only recently has the government announced the setting up of emergency response mechanisms.

The second chapter analyses the reasons why the Chinese government has decided to adopt this predominantly strategic approach. This involves an assessment of the Chinese policymaking process, identifying the key domestic actors in determining energy security policy and how they have contributed to policies and decisions. The analysis in this chapter provides the domestic policymaking context underlying and explaining the preference for 'strategic' rather than 'market-oriented' approaches to energy security. The chapter also demonstrates how China's growing import dependence has increasingly engaged the interest and involvement of the foreign and security policy community in Beijing. As such, energy security has moved from being a technical 'low politics' issue to a question of 'high polities'. Four case-studies are provided to illustrate how politico-security and strategic concerns have become entangled with the more strictly economic and efficiency considerations. These are the west-to-east gas pipeline from Xinjiang; energy projects in Central Asia; Sino-Russian energy linkages; and Chinese petroleum diplomacy in the Middle East.

The third and final chapter addresses the question of the implications, for the West, of China's energy security policy and its preference for a strategic rather than market-oriented approach to energy security. This involves a critical assessment of some of the most prominent fears and concerns of the Western strategic community; that China's import needs could lead to global energy scarcity; that China will use force, particularly in the South China Sea, to ensure security of supply; that it could lead Central Asia and Russia acquiescing to Chinese hegemony in exchange for guaranteed energy exports; or that China will be tempted to sell missile, nuclear and other destabilising technology in the Middle East in exchange for security of supply. The main conclusion of this chapter is that these fears, though legitimate, tend to be exaggerated and ignore the countervailing trends that suggest cooperation and integration are more probable outcomes of China's search for energy security than conflict and confrontation. Although such conflict and confrontation cannot be excluded, it is likely that, as an independent variable, energy security is unlikely to be the cause and that other considerations would be paramount, such as, for example, a severe deterioration in US-Sino relations.