Business
China's Energy Security
By Weiming Zhao, Bitter Lemons 8/5/08
May 8, 2008 - 10:16:37 AM

China has changed from a net oil exporter to a net oil importer. In recent years, 40 to 50 percent of the oil that China consumes is imported. Of that 60 percent comes from the Middle East. Saudi Arabia, Iran, Qatar and Sudan are the main suppliers.

Therefore China has a significant interest in the Middle East, and any changes in the situation there will affect China's energy security. It is only natural for energy factors to play a role in China's policy toward the Middle East. Although China's opposition to the Iraq war and to the use of force to resolve the Iranian nuclear issue is not purely based on considerations of energy security, this is a key factor. In a word, energy diplomacy constitutes an important part of China's diplomacy.

Similarly, energy security is also regarded as a strategically significant part of China's national security. China's energy security strategy comprises a number of requirements, of which the first is to increase domestic oil production. At the end of March last year, China announced that a new oil field with an estimated reserve of 2200 million barrels had been found in Bohai Bay. The daily output of this field is expected to reach 200,000 barrels in three years. At present, the oil yielded in China satisfies about 50 percent of domestic need; in future, China's oil self-sufficiency rate should remain no lower than the present level.

A second requirement is to restructure the energy mix. From now on, China will give priority to the development and exploitation of coal, wind power, water energy and bio-energy.

Third, China must establish a national system of energy reserves. China's current oil reserve mainly depends on the business reserves of three government-owned oil companies, China Petrochemical Corporation, China National Petroleum Corporation and China National Offshore Oil Corporation. Their reserve capacity is equal to only 21 days' consumption of the entire country. Added to the newly-established national energy reserve bases, the total reserve capacity in China can meet only 30 days' consumption needs. The petroleum reserve capacity of China is only one-sixth that of Japan, one-fifth of the United States, one-fourth of Germany and one-third of France. Thus, in this field China still has a lot of work to do.

Fourth, China needs to conserve energy more efficiently. According to the International Energy Agency, the energy consumption per unit GDP in China is as high as nine times that in Japan, 5.6 times that of the European Union, 3.3 times that in the US and 2.7 times that in Korea. So there is much room for China to develop energy conservation.

Finally, China needs to explore overseas energy resources so as to realize the multi-model approach to petroleum supplies.

In recent years, oil prices have been rising steadily. This is the product of a number of factors such as the growth of the world economy, a decline in oil production, a reduction of oil reserves, the devaluation of the US dollar, the impact of geopolitics and unexpected events and speculating in oil trading. Another factor worthy of mention is that the economy is developing very fast in some major petroleum-exporting countries, such as Indonesia, Mexico and Russia. In these countries, increased domestic energy consumption results in a decrease in exports. Some petroleum-exporting countries provide their citizens with plentiful gasoline allowances and offer prices as low as seven cents per gallon. Such policies unfortunately foster waste. The consumption per capita in some Middle Eastern petroleum-exporting countries has even exceeded that of the US.

Another phenomenon that merits keen attention is that in the current round of oil price rises, one power has taken no measures to control the price of oil as before but rather has added fuel to the fire and is enjoying the financial result. Some critics assume that the short-term strategic energy target of this power is to raise the oil price rapidly in order to strike at China's economy, lure China into capital outlays for overseas petroleum industries and then suppress the oil price to create a dilemma for China's economy.

It is unfair to ascribe the increase in oil prices to the economic rise of China. China's oil imports account for only six percent of the total volume of oil trade in the world. China's oil consumption is only eight percent of the world total. Energy consumption per capita in China is only three-fourths of the world average, one-fourth that of Japan and one-seventh that in the US. Yet China to a large extent shares much of the burden of high oil prices insofar as it has replaced the West as the world's factory and the prices of exported goods from China remain the same as before the rise of oil prices. This means that China is in effect granting a subsidy to consumers of goods made in China all over the world.

Although the multi-model approach to petroleum resources is one of the key aims of China's energy strategy, China is likely to depend even more on oil imports from the Middle East in the coming years. According to the Institute for the Analysis of Global Security in Washington, 70 percent of China's imported petroleum will come from the Middle East by 2015. Therefore, it will remain the basic posture of China's diplomacy for a long time to come to pay more attention to the development of the situation in the Middle East, to be more concerned with Middle East affairs and to establish closer relations with Middle East countries.

Source: Ocnus.net 2008