China’s Energy Insecurity: Challenges in the Twentyfirst Century

by DIVYA GANGADAR

Introduction

In a highly industrial and mechanised world that we live in today, energy in all forms becomes crucial to the success of a nation. Energy security refers to the uninterrupted availability of energy sources at an affordable price. With the world’s largest population, a rapidly emerging middle class and the fastest growing export market, China has surpassed the US as the world’s top energy consumer.

According to the International Energy Agency (IEA), China and India are going to be responsible for most of the increase in energy consumption between now and 2030. In 2009, China accounted for 46 per cent of the global coal, zinc and aluminum consumption. It consumed more crude steel than the US, EU and Japan combined.
The regions of Beijing, Tianjin, Hebei, Shanxi, Neimenggu, Liaoning, Jilin, Heilongjiang, Shandong, Henan, Shanxi, Gansu, Qinghai, Ningxia and XinJiang account for 60-70 per cent demand in energy in China. Much of China’s industrial activity and economic prosperity is concentrated in these regions.

Over the next 25 years, 90 per cent of the projected growth in global energy demand is said to come from non-OECD (Organisation for Economic Cooperation and Development) economies. China alone will account for more than 30 per cent, consolidating its position as the world’s largest energy consumer. China has also made inroads into Japan, Brazil, Australia, Turkmenistan, Kazakhstan, Myanmar, Pakistan, Sri Lanka, Saudi Arabia, Poland, Nepal, Bangladesh and Afghanistan in order to ensure stable energy supplies. Despite these efforts, will the steeply rising energy needs of China be satisfyingly met when the world has begun to sense that it will soon run out of oil?

China is a member of formal/informal multi-lateral organisations including the WTO, APEC, BRIC, Shanghai Cooperation Organisation (SCO), and G-20. It is a recognised nuclear weapons state and has the world’s largest standing Army with the second-largest defence budget. China has been characterised as a potential super-power by a number of academics, military analysts, and public policy and economic analysts. An effective strategy is required for China to meet its energy demands, tackle challenges and emerge as a global actor in the twentyfirst century. In this context, this paper proposes to answer the following questions:

1. What are the traditional sources or methods of extraction of energy used by China?

2. What are the challenges or obstacles to China’s energy security?

3. What is China’s strategy to reach energy security?

4. What are the implications of China’s strategy on India?

Sources of Energy

Coal: China’s electricity generation still relies heavily on fossil fuel (coal, petrol and natural gas). China has abundant coal reserves and is a coal based economy. According to the IEA, coal constituted 69 per cent of China’s total primary energy demand in 2000 and is projected to decline to 60 per cent by 2030. Efficiency gains and structural shifts dramatically reduce coal intensity in China.

Alternative Sources: China sees hydropower as a major part of its ambitious plan to increase use of non-fossil fuel. Yunnan province is home to several proposed dams. The largest power project under construction is the Three Gorges Dam along the Yangtze river. When fully completed, it will be the largest hydroelectric dam in the world. The environmental impacts of the project are profound. With regard to wind power, China surpassed the United States in 2010 to become the world’s largest producer.  Extensive regions of northern and western China hold particularly large potential for wind energy, specifically the provinces of Inner Mongolia, Xinjiang, Gansu, and Tibet. However, the windiest areas are sparsely populated regions where the electricity demands are low. China has also invested heavily in solar power. Figures from the National Energy Administration of China indicate that in 2011, China’s installed solar capacity was about 10 per cent of the world’s total. Solar water heaters in China cover more than 125 million square metres (60 per cent of the world’s total). With respect to geothermal energy, China is still in its infancy of implementing and utilising it. However, Chinese Premier Wen Jiabao has stated that geothermal energy resources are widely found in China, thus offering a huge market potential. In April 2012, he even visited the Hellisheidi power station in Iceland. Around 70 per cent of Iceland’s energy needs are met from geothermal sources.

Nuclear Energy: China made remarkable progress in the 1960s in developing nuclear weapons. In a thirtytwo-month period, China successfully exploded its first atomic bomb, launched its first nuclear missile, and detonated its first hydrogen bomb. China has thirteen operating nuclear reactors producing nearly two per cent of its total power output. China is aiming for a tenfold increase in its nuclear generating capacity by 2020, with rapid growth projected to continue until 2050.
Oil and Natural Gas: In the 1950s, China imported oil from the Soviet Union. But, with the discovery of the Daqing oilfield in northeast China in 1959 and the withdrawal of Soviet advisers from China’s oil industry in 1960, China positioned itself to produce enough oil to fulfil its domestic needs. However, due to rapid economic growth and market reform, China was bound to become an oil importer. Today, China’s crude oil suppliers include Saudi Arabia, Oman, Iran, Angola, Sudan, Congo, Russia, Norway, Brazil, Vietnam, Indonesia and Malaysia. In September 2002, China awarded an $ 8.5 billion Liquefied Natural Gas (LNG) purchase contract to Indonesia. China has furthered its cooperation with Indonesia on gas exploration and trade.

Geo-Political Challenges in Attaining Energy Security

The South China Sea Dispute: The South China Sea contains deposits of oil and gas. China and South-East Asian nations have overlapping claims over the Spratly and Paracel islands in the South China Sea with each claiming the islands as their own. Estimates of the quantity of crude in the region range from 28 billion to 213 billion barrels of oil. In 2012, territorial disputes in the area increased between the Philippines and China, and between Vietnam and China. Taiwan, Malaysia and Brunei also have conflicting claims in the South China Sea, making the area a source of a potential military showdown. China is said to make use of outdated maps for proof of ownership over the islands.

Lack of Reserves: Even though China has many unexplored oil basins, its incapacity in the oil production technology has prevented the country from producing enough oil for domestic demand.  Furthermore, the low quality of its oil which contains high amounts of sulphur requires expensive refinery technology for desulphu-risation. Without a reserve that can work as a buffer, China’s economy is vulnerable to heightened tension in the Middle East, and also possible disruptions in the oil supply route.

Transportation Concerns: The security of the transport corridors is a big concern to China, chiefly in the Strait of Malacca, through which all Middle Eastern oil reaches China and other Northeast Asian customers.  The Chinese Gover-nment has stated that the “Malacca dilemma†is a key element to China’s energy security. The People’s Liberation Army (PLA) Navy has been assigned to secure the open sea lanes and to escort Chinese tankers navigating these strategic waters.  

Issues with Taiwan: David Zweig and Bi Jianhai (2005) observe that the Taiwan Strait can become a possible battleground between China and Taiwan if Taipei ever declares full sovereignty. With China increasingly reliant on foreign resources, Beijing is now also worried that Taiwan could threaten China’s supplies.  

Stiff Competition from the US: Typically, China is said to pick up secondary deals or move into markets from which the US is absent; thus in many places the two countries are not really in direct competition. However, China’s energy demand is so great that it affects global supplies and prices. As the biggest energy consumers, China and the US need to adopt some form of cooperation and dialogue. One strategy is to create joint reserves of oil. Members of the International Energy Agency (IEA) have already contributed to such a common pool.

Strategies to Overcome Energy Insufficiency

Legal Measures: The Chinese Government issued a series of laws aimed at promoting energy conservation and cleaner energy production, including the Energy Saving Law, the Renewable Energy Law, the Air Pollution Prevention Law, and the Environment Protection Law. In addition, the government has formulated a series of energy conservation standards, such as energy efficiency standards for buildings, energy efficiency standards for appliances (including refrigerators, air conditioners, and lighting), and energy consumption quotas on some energy intensive industrial products.

Policy Measures: The government has issued a series of policies to enable phasing out of energy-inefficient industries. For example, the Energy Conservation Appraisal and Assessment scheme evaluates the efficiency of various industrial sectors. The government also provides support to energy conservation projects through a series of dedicated funds, subsidies, and discounted loans for energy efficiency investments. China’s 12th Five-Year Plan (2011-2016), includes binding global energy targets, such as

• non-fossil fuel resources reaching 11.4 per cent of primary energy consumption;
• CO2 emissions per unit of GDP decreasing by 17 per cent.

The plan also proposes increasing the share of natural gas, and close several smaller coal-fired plants that are less efficient and polluting. 

Intelligence and Surveillance Measures: China has employed the use of communication and intelligence networks to monitor their sea and land trade routes. For example, in an effort to secure the Strait of Malacca sea-lane, through which China’s oil imports are shipped from the Persian Gulf and Africa, the country has built strategic electronic surveillance systems to monitor any maritime activity that could threaten their sea lane security.  

Diplomatic ties with Africa: In the year 2000, Beijing established the China Africa Co-operation Forum (CACF) to promote trade and investment with 44 African countries. Hongyi Harry Lai (2007) observes that unlike in the Middle East, the African oil industry is open to foreign investment. The US and EU have distanced themselves from African states due to concerns over human rights violations.  In contrast, China’s ties with Africa are free of ideological or security obstacles. China established diplomatic ties with Angola in 1983; assisted Angola in building inexpensive residential housing, and exempted it from debts. In 2003, Angola became the third largest external source of oil for China. China’s major oil companies Sinopec and China National Petroleum Corporation (CNPC) have invested heavily in Sudan’s oil industry.

Investing in New Explorations: China established the Yellow River station in the Arctic in 2004 for exploration in the region. The Arctic is believed to hold about 13 per cent of the world’s undiscovered oil and 30 per cent of its undiscovered gas reserves. The US is by far the most dominant oil and gas explorer in the Arctic and Antarctic regions. Experts have observed that China’s foray into these regions is a reflection of the government’s ongoing efforts to act in ways commensurate with their country’s new global status and extend its international influence.

Environmental Impact

CHINA is the largest producer and consumer of coal. Coal is an inherently dirty fuel requiring efficient combustion and advanced emission controls to prevent high levels of air pollution. Even the most efficient form of coal combustion produces a great deal of particular matter as well as sulphur and nitrogen oxides, and it is a leading source of carbon dioxide (CO2) emissions.

Philip Andrews Speed (2004) observes that levels of pollutants in many Chinese cities are above the maximum levels recommended by the World Health Organisation (WHO). Coal mining itself causes substantial local damage to land and water in the immediate vicinity of mines. The intensity of the environmental damage caused by China’s energy sector is almost certain to result in China becoming the world’s largest contributor to carbon dioxide emissions.

Implications for India

INDIA and China have a soaring population of over one billion and both countries face an ever growing demand for energy. China and India are the only two large coal-dominated energy systems in the world. Coal provides more than half of India’s energy and two-thirds of China’s. India has the world’s fourth largest wind power industry, while China is the global leader in harnessing solar energy for hot water.

Because of its political structure, China is able to move quickly whereas a democratic India often gets bogged down in political infighting. Kanti Bajpai (2012) observes that economic growth implies growing demand for at least three scarce resources—food, water and energy. At some point India and China could be in competition over them. Oded Shenkar (2005) observes that the advantages to India over China are visible. India has been a democracy for about 65 years; this is an advantage from a Western perspective that ties economic progress to democratisation, although so far the Chinese experience seems to challenge this belief.

India’s Andaman and Nicobar Command (ANC) in the Andaman and Nicobar Islands was established partly to check the growing Chinese presence in the waters close to India. Mokhzani Zubir (2004) observes that the ANC also is an infrastructure to facilitate India’s reach to the Strait of Malacca, which China has criticised. In January 2006, India and China signed a memorandum for “enhancing cooperation in the field of oil and natural gas†pledging to bid jointly for energy projects. The memorandum also encouraged cooperation in energy exploration, production, storage and stockpiling, research and development and conservation.
Kanti Bajpai (2012) observes that the key point is that India and China increasingly import their oil, coal, and natural gas requirements. The countries are already foraging for energy in Africa, the Gulf, Central Asia and Latin America, and could potentially end up in conflict with one another. He also notes that China has more clean coal technology which India needs and could get at cheaper rates than from anywhere else.

Conclusion

THE energy available in China is inadequate to meet its needs. The main problem engulfing energy security in China is the oil deficit. Oil will remain China’s second most important fuel over the next two decades. China is a cause of worry to the whole world because it has emerged as a rising economic power, surpassing even Germany and Japan and stands next to the US in its economic stature. It is also nourishing the dream of becoming a dominant superpower by replacing the US. Erica S. Downs (2004) observes that the future direction of China’s approach to energy security is difficult to predict. This is due not only to the opaque and fragmented nature of the Chinese decision-making on energy security, but also to the fact that energy security is a new topic for China’s leaders and its bureaucracy. China’s approach to energy depends on how the nation integrates itself into the global market, how it resolves its current conflict with neigh-boring countries, and the interests of Chinese oil companies whose profit motives may conflict with the national interest. Despite these concerns, China has positioned itself strongly enough to diminish the West’s dominance over the world’s resources. The dynamics of energy markets are being increasingly determined by emerging economies and China is leading this trend. The Chinese energy policy therefore becomes significantly important to the rest of the world. 

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Divya Gangadar is a Post-Graduate Researcher, Department of Political Science, St. Joseph’s College (Autonomous), Bangalore.