China and Neighbourhood

China Puts Mark on Eurasia Energy Picture

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Tuesday, 07 September 2010 11:40

By Fadil Aliriza

According to the International Energy Agency, China has outpaced the United States and become the world’s largest energy consumer. The country’s robust growth is fueled by energy-intensive heavy industry and infrastructure development and consumes a lot of steel, cement and aluminum, according to Christina Lin, a visiting fellow at the Washington Institute for Near East Policy. Lin tells the Hürriyet Daily News & Economic Review that China has begun to change Eurasia’s energy landscape.

BRIC_leaders_in_2008China has traditionally relied heavily on domestic energy resources, as about 75 percent of its energy consumption comes from coal. However, massive growth in recent decades has led Beijing to look abroad to feed its growing energy demand.

In 1993, China became a net oil importer. In 1999, the Communist Party of China developed the Zouchuqu Zhanlue, or “Go Out” energy-based foreign policy as it focused on the Middle East and Africa for energy imports. Observers have labeled the policy as the “look west” or “Silk Road Strategy,” given the geographic resemblance of China’s growing energy networks to the ancient trade route. Chinese government officials have also begun to reference the Silk Road to evoke common historic ties.

“The ‘look west’ policy is driven by economic rationale – demand for energy imports since 1993 as well as organic growth of China’s economy and economic integration with neighbors in Central Asia,” Christina Lin, a visiting fellow at the Washington Institute for Near East Policy, told the Hürriyet Daily News & Economic Review in an interview.

China has also recently begun to import more natural gas. As of 2006, natural gas only accounted for 3 percent of China’s energy consumption, most of which still came from domestic supplies. That year, however, China began to import natural gas. Beijing is taking steps to reduce its greenhouse gas emissions; as part of this goal, it plans to increase natural gas consumption to make up 10 percent of total energy consumption by 2020. This has spurred the development of a gas pipeline from Turkmenistan, the Central Asia-China Gas Pipeline, which links gas fields in Turkmenistan to Xinjiang. The pipeline was inaugurated in December 2009 and is expected to reach a full annual capacity of 40 billion cubic meters by 2012-13.

In June, Turkmen President Gurbanguly Berdymukhammedov announced a $2 billion trans-Turkmen gas pipeline project that would connect Turkmenistan’s western gas resources to the China pipeline.

The Nabucco gas pipeline project, which aims to supply Europe with gas from the Caspian region and the Middle East, had looked at Turkmenistan as a potential supplier.

“China has already built pipelines while Europeans argued among themselves. This is why Azerbaijan, like Turkmenistan, is looking toward China unless Nabucco moves ahead without further delay,” said Lin.

Lin said she believes China’s investments in the region do not have much political impact yet. Beijing’s long-term strategy, however, includes establishing a presence in the region.

“In the short term, China is focusing on energy investments and economic growth; in the medium term it is looking toward regional economic/political integration with Turkmenistan via the Shanghai Cooperation Organization; in the long term, it seeks broader integration over Eurasia,” said Lin.

Another factor driving China’s quest for regional energy supplies is that it fears maritime supply routes could be jeopardized by the United States Navy in the event of rising tension over Taiwan.

“China is distrustful of relying on maritime routes for its energy supplies since the U.S. Navy currently underwrites it,” said Lin. “Sino-U.S. relations have been bumpy over the years because of the potential for a military clash in the Taiwan Straits, which may result in a naval embargo on China’s energy supplies. As such, China is hedging against this maritime supply risk by building overland pipelines, railways and roads for its energy supplies from the Middle East.”

The advantage of state capitalism

China, apart from its geographical proximity and its robust growth, has another advantage over rivals. The close relationship between the Chinese government and Chinese businesses, characterized by some observers as state capitalism, helps Chinese companies win energy contracts, according to Lin.

“Having the government’s war chest of some $2.45 trillion as the highest holder of foreign exchange reserves helps Chinese companies tremendously. No-strings-attached soft loans and aid packages give them preferential access to energy resources and strategic mineral sectors,” said Lin. “The Chinese raise the bar and go beyond the scope of just an attractive operation that other companies cannot compete against, because Chinese state-owned enterprises are supported by China’s war chest.”

Last year, bilateral trade between China and Iran totaled $21.2 billion. Between 2005 and 2010, China signed $120 billion worth of contracts in Iran’s hydrocarbon sector. There are reports that trade has accelerated in 2010 so far. In June, Mehdi Safar, Iran’s ambassador to China, set a $50 billion trade goal for the near future.

As for new United Nations sanctions targeting Iran, Lin said she believes that China will, rather than violate the sanctions directly, seek to work around the sanctions.

“China will not so much violate the letter of the law, but perhaps the spirit of the law in forms of backfilling where others pull back in compliance,” Lin told the Daily News.


Hurriyet Daily News

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