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Does China’s Quest for Energy Security Threaten the United States?

Why Washington needs to be concerned about Beijing's need for fuel.

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While the United States and European Union strongly oppose Russia over its expansionist agenda in Ukraine, China has cautiously avoided having to take a side as the rhetoric became more and more heated. Russia’s increasingly fraught relationship with the West has strengthened China’s hand, allowing them to import cheaper gas from Russia, as evidenced by the deal struck on the sidelines of the recent APEC Summit. As the world’s second-largest economy and number one energy consumer, China is pursuing all possible avenues to ensure its energy security. As the international community isolated Moscow for its actions in Ukraine and its sheltering of Syrian dictator Bashar al-Assad, the Chinese in May 2014 seized the opportunity to strike the $400 billion gas deal they had been negotiating for over a decade. This attitude is indicative of Beijing’s recent approaches to some of the world’s energy producing regions to secure energy supplies, sometimes in competition with American and Western interests.

But to better understand China’s foreign policy globally and in its near-abroad more specifically, one must take a closer look at its energy needs.

As the world’s second-largest consumer of oil behind the United States, China is projected to become the largest net importer of oil by the end of 2014. Beijing’s imports from the Middle East will soon surpass those of the United States. With over half of its oil imports coming from the Middle East, most notably Saudi Arabia, Iran, Oman, and Iraq, one cannot underestimate the geopolitical implications of these relationships. With the backdrop of America’s uncertain strategy in the Middle East, Beijing is maneuvering to secure its energy needs by building a strong interdependent relationship with countries in the region. Furthermore, the decline in oil prices orchestrated by Saudi Arabia has been very beneficial for China. Domestically, China is investing heavily in its internal oil pipeline network to improve infrastructure and increase capacity. This will increase oil imports via pipeline links with Kazakhstan and Russia — cutting down transit times and further strengthening ties by signing long-term bilateral energy agreements.

Growth in natural gas demand has also been robust in recent years. China is now the third-largest liquid natural gas (LNG) importer, and is looking beyond its traditional partners in the Asia Pacific to places like Qatar. With LNG entering China through nine terminals, Beijing is making headway in satisfying increased demand with another five terminals under construction and more currently in varying stages of construction and planning.

China’s dramatic increase in gas demand is also causing a spike in domestic gas exploration, mostly around alternative gas sources. China is currently spending four times as much as the United States to develop unconventional gas sites. Beijing, it seems, looks to imitate the shale gas revolution that has brought the United States much closer to achieving energy independence. But with oil prices continuing to fall at their current rates, China’s gas production may not be cost effective in the near to short-term future.

For this, China has linked its foreign and energy policies to establish a working relationship with the United States to develop its shale reserves. A 2010 memorandum on shale gas between the U.S. State Department and China’s National Energy Administration outlines both countries’ commitment to exploit unconventional and cleaner energy sources. Through this agreement, the United States will help China develop its shale gas resources — estimated at 25.1 trillion cubic meters, the world’s largest — by lending its experience and expertise, which also would help China reduce its carbon emissions.

The reduction of greenhouse gases and the fight against climate change remain a major source of tension between Beijing and the international community. The landmark deal the United States and China reached in mid-November to reduce emissions is a rare point of agreement and has far-reaching implications, illustrating the influence these two powers have in directing the global climate change debate. China, however, remains the world’s number one coal producer, consumer, and importer, accounting for nearly half of global consumption, mainly for use in coal-fired power plants. Even though Beijing plans to cap coal use in comparison with other fuels by 2017, the U.S. Energy Information Agency, a government statistics agency, expects that China’s coal consumption will continue to rise over the next few decades.

China’s new energy demands have equally impacted its approach to working with international energy producers as well. In the last several years, overseas Chinese energy companies have actively acquired assets in various countries. A flurry of diplomatic activity and official visits to and from Beijing usually precede such moves. This further demonstrates Beijing’s use of its foreign policy as a tool to secure its energy demand, while further gaining global influence by building interdependent relationships with energy exporting countries. This trend is set to continue as China’s national energy companies continue purchasing assets in the Middle East, the Americas, Africa, and Asia. According to a report by the CNPC Economic Technology Research Institute, a subsidiary of the oil behemoth China National Petroleum Corporation, Chinese energy companies invested an estimated $34 billion in overseas assets in 2012.

Beijing is skillfully and pragmatically trying to assert its global influence and assemble allies in order to build strategic geopolitical alliances and partnerships to secure a steady supply of energy from proven and potential offshore sources, as well as to control maritime activity in its immediate region. However, this competition for resources is raising alarm among neighboring countries.

China’s designation of disputed waters in the South China Sea as its main offshore site for natural gas exploration has also heightened tensions with the Philippines and Vietnam, both U.S. allies. China’s dispute with Japan in the East China Sea over the sovereignty of the Senkaku or Diaoyu islands remains unresolved despite the agreement reached in November to de-escalate the situation; the desire to exploit nearby offshore energy reserves remains a key driver of this row. The United States has played a delicate balancing game in both disputes, careful to publicly diffuse tensions and not upset Beijing while simultaneously reiterating support for our key allies in the region like Japan and the Philippines.

Earlier this year, China gained leverage and influence over Myanmar when it began importing gas from offshore gas fields through a 500-mile-long pipeline, a project that cost $2.5 billion. The deal attracted criticism because Myanmar will be exporting gas to its giant neighbor while it faces major electricity shortages at home. The project raised further concerns after the military suppressed local farmers protesting about compensation for lost land — worryingly, at a time when the West is heralding an opening up of the country.

Beijing is also actively engaging with the latest member of the autocracy club in Southeast Asia, the Thai military junta. In October the new leaders — who staged a coup to oust the democratically elected government in May — announced their intention to offer new concessions onshore for the exploration of oil and gas. Understanding the lifespan of the military junta is short-lived, Beijing kept its options open by inviting former prime ministers Thaksin and Yingluck Shinawatra in November. Photos of the two cuddling a panda went viral. With the United States absent from the scene, China is well positioned to fill the political void while further enhancing its energy portfolio.

Despite the “pivot” to Asia, Washington has not adequately increased its influence in the region — especially where energy is concerned. And China’s energy security should be a concern for the United States. Washington and Beijing must find ways to better cooperate, based on a clear understanding of each other’s needs and priorities. A better understanding of China’s foreign policy through the prism of its energy needs would enhance Washington’s diplomatic efforts with Beijing on issues and geographies that concern it most. Focusing on the areas where cooperation can lead to fruitful outcomes for both parties — such as the energy technology transfers required to wean Beijing off its destructive reliance on coal, and exploiting where our geopolitical interests align — can only have a positive political and economic impact for both partners.

AFP / Stringer

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