By Robert Okada
Introduction
Today, China remains the world’s largest consumer of energy and has become the world’s second largest oil consumer behind the United States[1]. China surpassed the United States as the world’s largest energy consumer in 2011 and as the world’s largest net importer of petroleum and other liquids at the end of 2013[2]. According to the U.S. Energy Information Administration, “China's oil consumption growth accounted for about 43% of the world's oil consumption growth in 2014”[3]. In light of phenomenal growth in global demand for energy, notably from China, the fierce competition and/or potential conflict over the limited quantity of oil and gas among major powers, particularly the United States and China, is likely. The United States’ status as the world’s biggest consumer of oil as well as the world’s second biggest consumer of energy is also an economic and military superpower with its dominant naval forces protecting sea lanes through which bulk of oil and gas bound for China is transported. In this paper, my goal is not only to identify China’s strategy to secure energy resources but also to propose how the United States can counter such strategy on a global level. The essay is structured as follows: First, I explain the trend of energy demand in China and the Chinese strategy to secure energy resources. Second, I identify the threats posed to the United States emanating from such strategy. Finally, I propose how the United States can respond to the Chinese strategy to mitigate the threats.
Background
China, a major power with more than 1.379 billion people, has a rapidly growing economy and an impressive GDP of 11.199 trillion dollars as of 2016[4]. Rapid economic growth has vastly improved the lives of people in China and brought about the fundamental changes in the Chinese society, including the increased demand for vehicles and energy resources within the country. While coal has supplied 66 percent of China’s total energy consumption in 2012 and China is the world’s top coal consumer, importer and producer, the growth in the Chinese demand for oil is phenomenal, which also seems to be affected by the government’s plan “to cap coal use to 62% of total primary energy consumption by 2020 in an effort to reduce heavy air pollution that has afflicted certain areas of the country”[5]. During the 1980s, China has been a moderate exporter of oil to other countries[6] but since China became a net crude oil importer in 1993, China’s import of oil has been growing large year after year[7]. While the EIA predicts that China's oil production will grow to 5.1 million bbl/d by 2020, the consumption will also rise by about 2.6% annually through 2040, reaching 13.1 million bbl/d in 2020, according to EIA forecasts[8]. As such, the country must rely on imports to make up for the 8 million bbl/d difference between consumption and production, and the fact that the production has peaked in China's mostly “matured” oil fields only make the country more desperate to secure its energy resources abroad[9].
The consumption of natural gas in China has also increased over the past decade as China has made a choice to supplement part of its inexpensive domestic coals used in generating electricity with imported natural gas. China’s energy policy on natural gas is mainly motivated by its goal to diversify the energy supply as well as its desire to improve China’s deteriorating air quality. While natural gas currently makes up 5 percent of its energy mix, the Chinese government has “set targets to increase the share of natural gas in the primary energy mix…to 10% by 2020 and 15% by 2030” in their 13th 5-year plan and the latest Energy Production and Consumption Revolution Strategy (2016-30)”[10]. EIA forecast also indicates that China’s natural gas consumption would grow from 19 Bcf/d in 2015 to 57 Bcf/d in 2040, becoming second in the world after the United States[11]. While China has the largest reserves of technically recoverable shale gas in the world, China’s imports of natural gas through pipeline is expected to rise to 7.3 Bcf/d in 2040[12]. In recent years, China has “sought to raise natural gas imports via pipeline and as liquefied natural gas (LNG)”[13].
China’s Energy Diplomacy
Given that China’s consumption of energy resources with respect to oil and gas exceeds their production at the domestic level, they must heavily rely on importation from other countries. Former Premier Li Peng’s has noted that “as the economy develops and people’s living standard rises, demand for oil and gas is certain to increase by large margins. While striving to develop our own crude oil and natural gas resources, we have to use some foreign resources.”[14] In his book “The Quest”, Yergin calls this strategy as the “go out” strategy[15]. As Zweig and Jianhai point out, Beijing's access to foreign resources is necessary for sustained economic growth and because economic growth is “the cornerstone of China's social stability”, it is an important task for the Chinese Communist Party (CCP) to secure access to such resources[16]. Starting with small investments in Canada, Thailand, Papua-New Guinea and Indonesia, CNPC also bought an oil field in Peru in the mid-1990s[17]. Today, Chinese national oil companies have vigorously pursued their campaign of purchasing international oil and natural gas assets through direct acquisitions of equity and have invested an estimate of $73 billion in these assets between 2011 and 2013[18] and are particularly active in Africa and Latin America[19]. Yergin also notes that “[a]s late comers into the international industry, the Chinese come equipped not only with oil field skills but a willingness and the financial resources to pay a premium to get into the game”, which has included government-funded development packages such as building roads and railroads in African countries[20].
However, China’ new energy demands can be a source of conflict as Zweig and Jianhai note that “[a]lthough China's new energy demands need not be a source of serious conflict with the West in the long term, at the moment, Beijing and Washington feel especially uneasy about the situation. While China struggles to manage its growing pains, the United States, as the world’s hegemon, must somehow make room for the rising giant; otherwise, war will become a serious possibility”[21]. Because the majority of imported oil to China passes through the Strait of Malacca, and there is American naval presence in the area, the Chinese government feels especially vulnerable to the possibility that United States may cut off China’s access to oil and, as a result, the Chinese government has also invested in building up their navy[22]. The National Security Strategy Report submitted by the White House in 2006 also warns that “China’s leaders must realize, however, that they cannot stay on this peaceful path while holding on to old ways of thinking and acting that exacerbate concerns throughout the region and the world”[23]. Specifically, China's oil industry has invested in countries “that the United States has tried to isolate for political reasons -- such as Sudan, Iran and Burma -- potentially undermining the isolation efforts”[24] and the National Security Strategy Report expresses concern toward China “[s]upporting resource-rich countries without regard to the misrule at home or misbehavior abroad of those regimes”[25]. This is not a coincidence because countries isolated by the Western world are ideal places to invest for latecomers like China. Blumenthal notes that Washington is especially concerned that “China is underwriting dangerous and repressive dictatorships from Khartoum to Tehran” and has encouraged China to become a “responsible stakeholder” in international affairs[26]. China has been the largest investor of Sudan’s energy sector, which in turn has enabled the Sudanese government to bolster its military[27]. In Iran, Chinese investments in the country can been seen as a “[f]ailure to bring collective will to bear against Iran” and can strengthen Tehran’s defiance of the international community[28]. Furthermore, as Secretary of State Condoleezza Rice has testified before the Senate Foreign Relations Committee that “I can tell you that nothing has really taken me aback more as secretary of state than the way that the politics of energy is -- I will use the word 'warping' -- diplomacy around the world…It is sending some states that are growing very rapidly in an all-out search for energy -- states like China, states like India -- that is, really sending them into parts of the world where they've not been seen before”, China’s strategy can be challenging for America’s diplomacy as they approach our foes and allies alike[29].
Consistent with Secretary Rice’s testimony, one such concern for our diplomacy can be observed in Saudi Arabia. Saudi Arabia possesses proven oil reserves of more than 266 billion barrels, accounting for 16% of the global proven oil reserves and currently produces 12 million barrels per day[30]. Saudi’s petroleum export comprises about 75 percent of its total export value as well as 60 percent of its government revenues[31]. This critical importance of oil to its economy and the regime necessitates Saudi Arabia to have close relationships with the world’s top two energy consumers, namely the United States and China. When 9/11 attacks made American policymakers question the nature of their relationship with Saudi Arabia[32], China has taken skillful advantage of it by having stepped up its diplomatic efforts to strengthen its position in Saudi Arabia which had been seeking a political as well as economic alternative to the United States. While the oil still remains the major part of the Sino-Saudi relationship, the Saudis and the Chinese quickly developed deeper economic relationships by expanding their cooperation and entering into a joint venture for the construction and operation of oil refineries and petrochemical projects[33]. Deeper economic ties beyond oil trade will make it very unlikely for the Saudis in the near to intermediate term to dismantle or curtail this mutually beneficial relationship with the Chinese.
Implications for the United States
Because the Chinese strategy to secure its energy not only undermines the American efforts to isolate its adversaries but also has serious implications with respect to geopolitics for the United States, urgent measures from Washington are required. I have three policy suggestions that the United States can implement to mitigate the threat as well as decrease the chances of future confrontation with China.
First, while the focus of U.S. and E.U. is shifting toward the Pacific Rim, “the US and NATO strategic planners can barely afford any significant reduction in the level of involvement in the Gulf”, as Professor Bininachvili has pointed out[34]. The United States should at least maintain the current level of involvement in the Middle East, while reaffirming alliances with our friends in Asia such as Japan and South Korea. While the shale revolution is good news for American policymakers, the Persian Gulf cannot be ignored due to its large conventional oil reserves. Furthermore, while America’s undisrupted access to oil in the region is crucial, denying such access to other superpowers including China is equally as important, as they “would thereby become even more powerful and thus more threatening” to the United States[35]. For example, while the United States and Saudi Arabia “have maintained a strategic partnership since World War II based on a common understanding — Saudi Arabia provides the U.S. with oil and the U.S. in turn provides a security umbrella to the Kingdom”[36], the strategic partnership can deteriorate if the United States decides to shift its focus to the Pacific Rim and gives less emphasis on providing the security umbrella to Saudi Arabia. The Saudis must then desperately search for other countries who are willing to provide the security umbrella, and if China can provide it, it is likely that the Saudis will make massive concessions to Beijing. Considering its massive proven oil reserves, its ability to produce and its spare capacity, Saudi Arabia is well capable of influencing market prices of oil and precipitating and/or ameliorating economic crisis on a global scale. As such, it is critical for the United States to not only maintain its alliance with Saudi Arabia and other countries in the Persian Gulf but also to strengthen it.
Second, the United States should encourage China to join the International Energy Agency. While the International Energy Agency is a group of the world's major oil consumers consisting of OECD member states, the voting shares of members have changed little since the group's founding in 1974. As a result, while the group has an association agreement with China, as well as a program of cooperation with India, “it gives outsize weight to small European states that were major oil importers in the 1970s but no longer are”[37]. “The result is a less functional institution on issues such as the coordination of stockpiles and technical standards”, according to Feigenbaum[38]. Energy analysts have also suggested that if China can join the International Energy Agency, many of the concerns of held by the Chinese government can be alleviated leading to less friction with the United States in the long term as well as provide stability for the oil prices which is also beneficial for the United States[39]. The Chinese membership in the IEA could also discourage China from taking measures such as hoarding oil that put the pressure on the world market[40].
Third, while being fully cognizant that the United States and China have different interests in many areas, the United States should carefully examine places where cooperation with China can be mutually beneficial, including bilateral and multilateral efforts. Former Secretary of Energy Bill Richardson has argued in Foreign Policy that focusing on areas where cooperation is fruitful for both the United States and China can only have a positive political and economic impact and gives energy technology transfer as an area in which the two nations can cooperate[41]. Professor Calder also states that, “[r]aising China's energy efficiency still further is very much in the world's interest, given both the rapid, sustained character of Chinese growth, which is sharply deepening China's energy dependence on other nations, and the manifest instabilities that could arise from a troubled Chinese energy relationship with the broader world”[42]. To that end, Japan has been “very successful at energy conservation, especially in the industrial sphere” and therefore, “including it in broader efforts to encourage Chinese energy conservation through its extensive development assistance programs in China is very much in the U.S. national interest” according to Professor Calder[43]. Energy expert Amy Jaffe also argues that the United States can view China not only as a great market for energy-efficient technologies in sectors like transportation but also as a partner in R&D for energy technologies[44]. Furthermore, analyst Emma Chanlett-Avery notes that cooperation and collaboration on energy research “might also be beneficial in fostering a cooperative, market-based approach to energy security, in addition to offering the promise of technological breakthroughs that eventually reduce global dependency on oil”[45]. Given that China has a large impact on climate change, the United States, while pushing China toward data transparency, could also cooperate in this area while driving “the growth of new energy and manufacturing markets” in America to make our economy more competitive[46]. Although any cooperation with China would require a careful cost-benefit analysis, both countries may focus on absolute gains which in turn can serve American interests and reduce the chances of confrontation with China in the long run.
Conclusion
In conclusion, China’s strategy to secure its energy resources can pose a serious geopolitical challenge for American diplomacy. On the one hand, China has made investments to acquire oil and natural gas in countries where the United States have tried to isolate for political and/or human rights concerns, which in turn can lead to instability within the international system. On the other hand, China has offered attractive packages around the globe, including our longstanding allies like Saudi Arabia which may complicate American diplomatic efforts. At the same time, because China feels vulnerable to the Malacca dilemma, they have also invested in building up their navy, which in turn is perceived as a threat by the United States. The United States and China can either cooperate with each other on security issues critical to their own respective national interests while competing commercially or engage in a hostile and politicized competition for global energy. Some analysts point out that China is a country determined to dominate Asia, Eurasia and the world[47] and without creative solutions, the United States may face more geopolitical challenges, including an increased chance of confrontation with China. Whether there will be conflict or cooperation, the U.S.-China bilateral relationship must be placed in their broader strategic, economic and political contexts. Because we live in an increasingly globalized and perhaps a more complicated world, solutions to the problems could also become more complex. In addition to strengthening ties with our allies around the world, encouraging China to join the IEA to increase the stability of oil prices and examining areas where U.S.-China bilateral efforts can be fruitful for both countries, it is also important for the United States to train future analysts, including analysts specializing in energy, so that the United States is able to read the situation correctly and execute policies that are consistent with American interests.
Robert Okada is a junior at Columbia University, where he studies Political Science.
References:
[1] U.S. Energy Information Administration. “China”. U.S. Energy Information Administration, 2015. Web. https://www.eia.gov/beta/international/analysis.php?iso=CHN.
[2] Ibid.
[3] Ibid.
[4] World Bank. “China”. World Bank, 2016. Web. https://data.worldbank.org/country/china.
[5] See supra note 1.
[6] Troush, Sergei. China’s Changing Oil Strategy and its Foreign Policy Implications. Brookings, 1999. Web. https://www.brookings.edu/articles/chinas-changing-oil-strategy-and-its-foreign-policy-implications/
[7] Ibid.
[8] See supra note 1.
[9] Ibid.
[10] U.S. Energy Information Administration. “China leads the growth in projected global natural gas consumption”. U.S. Energy Information Administration, 2017. Web. https://www.eia.gov/todayinenergy/detail.php?id=33472.
[11] Ibid.
[12] Ibid.
[13] See supra note 1.
[14] See supra note 6.
[15] Yergin, Daniel. “The Quest: Energy, Security and the Remaking of the Modern World”. Penguin Press, 2011. Print. p. 202
[16] Zweig, David and Bi Jianhai. “China’s Global Hunt for Energy”. Foreign Affairs, 2005. Web. https://www.foreignaffairs.com/articles/asia/2005-09-01/chinas-global-hunt-energy
[17] See supra note 15. p. 203.
[18] See supra note 1.
[19] See supra note 15. p. 203.
[20] Ibid.
[21] See supra note 16.
[22] Lee, Henry and Dan Shalmon. “Searching for Oil: China’s Oil Initiatives in the Middle East”. Belfer Center for Science and International Affairs, 2007. p. 12.
[23] The White House. “The National Security Strategy of the United States of America: March 2006” Web. https://www.state.gov/documents/organization/64884.pdf p. 41.
[24] Mufson, Steven. “As China, U.S. Vie for More Oil, Diplomatic Friction May Follow”. Washington Post, 2006. Web. http://www.washingtonpost.com/wp-dyn/content/article/2006/04/14/AR2006041401682.html?noredirect=on
[25] See supra note 23. p. 42.
[26] Blumenthal, Dan. “Concerns with Respect to China’s Energy Policy”. Edited by Collins, Gabriel, Andrew Erickson, Lyle Goldstein and William Murray. “China's Energy Strategy: The Impact on Beijing’s Maritime Policies” Naval Institute Press, 2012. p. 419.
[27] Ibid. p. 423.
[28] Ibid. p. 425.
[29] See supra note 24.
[30] U.S. Energy Information Administration. “Saudi Arabia”. U.S. Energy Information Administration, 2017. Web. https://www.eia.gov/beta/international/analysis.php?iso=SAU.
[31] Ibid.
[32] Wagner, Daniel and Giorgio Cafiero. “Is the U.S. Losing Saudi Arabia to China?” Huffington Post, 2013. Web. https://www.huffingtonpost.com/daniel-wagner/is-the-us-losing-saudi-ar_b_4176729.html.
[33] See supra note 1.
[34] Bininachvili, Albert. “Re-energizing NATO cooperation with the gulf region. What role for energy?”. Energy Security Forum Journal. No. 9. NATO Energy Security Centre of Excellence, 2014. Web. https://enseccoe.org/data/public/uploads/2017/02/esf_2014_july.pdf. p. 6.
[35] Ibid. p. 9.
[36] See supra note 32.
[37] Feigenbaum, Evan. “China and the World”. Foreign Affairs, 2017. Web. https://www.foreignaffairs.com/articles/china/2016-12-12/china-and-world
[38] Ibid.
[39] Chanlett-Avery, Emma. “Rising Energy Competition and Energy Security in Northeast Asia: Issues for U.S. Policy”. Congressional Research Service, 2005. Web. https://fas.org/sgp/crs/row/RL32466.pdf p. 21.
[40] Ibid.
[41] Richardson, Bill. “Does China’s Quest for Energy Security Threaten the United States?” Foreign Policy, 2004. Web. http://foreignpolicy.com/2014/12/10/does-chinas-quest-for-energy-security-threaten-the-united-states/
[42] U.S.-China Economic and Security Review Commission. “China's Energy Needs and Strategies: Hearing Before the U.S.-China Economic and Security Review Commission, One Hundred Eighth Congress, First session, October 30, 2003”. U.S. Government Printing Office, 2003. p. 95.
[43] Ibid.
[44] Ibid. p. 29.
[45] See supra note 39.
[46] Schell, Orville and Susan Shirk. “U.S. Policy Toward China: Recommendations for a New Administration”, UC San Diego: 21st Century China Center, 2017. p. 37.
[47] See supra note 42. p. 98.
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