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Thursday, June 7, 2012

Thirst for energy driving China's foreign policy


SINGAPORE — The United States and China, the world's top users of energy, are heading in opposite directions. It is a trend that has major geostrategic implications for the Asia-Pacific region.

The U.S. is more certain that most of its future oil and gas will be produced at home. It is becoming less reliant on imported oil and natural gas as it ramps up domestic output and consumes fewer liquid fuels because of falling demand and energy saving advances, particularly in transport and industry.

Meanwhile, China is becoming ever more dependent on oil and gas shipped or piped into the country, mainly from faraway sources of supply that are often in politically volatile parts of world, including the Middle East, Africa and Central Asia. As a result, Beijing's sense of insecurity about future energy supplies is rising.

China is modernizing its armed forces not just to reclaim Taiwan by military means if necessary. China wants to protect its maritime trade routes and secure access to offshore energy, mineral and fisheries resources in nearby seas, including the East China Sea — where it faces conflicting claims to jurisdiction from Japan — and the South China Sea, where its claims to jurisdiction are contested by the Philippines, Vietnam, Malaysia, Taiwan, Indonesia and Brunei.

China also wants to enhance its security by establishing an offshore zone of influence that it will be able dominate, instead of the U.S. and regional allies.

Despite America's recently declared strategic "pivot" to Asia, its relative power and influence is declining. This is unlikely to change even if China's growth slows somewhat.

As America gains energy security in a time of cost-cutting, it will have less incentive to continue expensive military protection of maritime supply lines in increasingly contested areas such as the seas off China's coast, the oil and gas-rich Persian Gulf, and around the Middle East and Africa, prompting China to extend its own military reach into the Indian Ocean, through which so much of its imported oil and gas comes.

This will heighten tensions with India. Stephen Walt, a professor of international affairs at Harvard University's Kennedy School of Government has projected the outcome of U.S.-China economic, military and energy trends in this way: "If China is like all previous great powers, including the U.S., its definition of 'vital' interests will grow as its power increases — and it will try to use its growing muscle to protect an expanding sphere of influence.

"Given its dependence on raw-material imports (especially energy) and export-led growth, prudent Chinese leaders will want to make sure that no one is in a position to deny them access to the resources and markets on which their future prosperity and political stability depend.

"This situation will encourage Beijing to challenge the current U.S. role in Asia. Over time, Beijing will try to convince other Asian states to abandon ties with America, and Washington will almost certainly resist these efforts. An intense security competition will follow."

The most recent sign of this regional struggle for supremacy is in the South China Sea where China and the Philippines, an ally of the U.S., have been at loggerheads for nearly two months over ownership and control of Scarborough Shoal, a reef and fishing ground that is far closer to the Philippines than to China.

Such disputes can be contained. Or they can lead to China prevailing over weaker, less determined opponents. Or they can result in armed conflict. If the U.S. or its ally Japan became involved, there could be a wider war that would destabilize Asia.

Is there a way for China to emulate the U.S. and become substantially less dependent on foreign oil and gas?

Until 1993, China produced enough crude oil to meet its needs. But as growth surged, oil imports rose. China now imports 55 percent of its oil consumption, a ratio that is set to increase.

Natural gas, the least polluting of fossil fuels, is on a similar trend line. By 2020, China's gas imports by pipeline and sea will make up nearly 33 percent of demand, up from around 20 percent now and none in early 2006, when China cease to be self-sufficient in gas.

Chinese leaders have called this foreign dependence their "Malacca dilemma." About 85 percent of China's oil imports, and a growing proportion of its gas imports, come by sea through the Indian Ocean, the Straits of Malacca and Singapore in Southeast Asia, and the South China Sea. Much of this vital energy supply originates in the Persian Gulf. The only way into and out of the gulf by sea is via the narrow Strait of Hormuz. The shipping channels here and in the Malacca and Singapore straits could be blocked or disrupted in a crisis. Japan is even more dependent than China on this maritime artery for energy imports.

By contrast, much of the recent rise in America's gas and oil output has come from exploiting reserves found deep underground in shale rock within the continental U.S. Advances in technology, including hydraulic fracturing in which water, sand and chemicals are pumped under high pressure into the shale to break up the rock and release gas or oil, have enabled these reserves to be unlocked.

China has the world's largest known shale gas reserves, much bigger than those of the U.S. in second place. The Ministry of Land and Resources in Beijing estimates that China's exploitable reserves of shale gas amount to 25 trillion cubic meters (tcm). But a recent report from the International Energy Agency (IEA) puts them at 36 tcm, about 12 times China's conventional gas deposits and enough to last for well over 100 years at current consumption.

China has only just started to tap its shale gas resources. It aims to pump as much as 100 billion cubic meters by 2020, about the annual production rate today from conventional gas reserves that are easier to exploit.

However, the IEA says that based on what is known about China's geology, shale gas resources may prove more difficult and more expensive to develop than those in North America.

The most promising shale reserves are in the water-short north and west of China. There is concern that exploiting them on a large scale will cause pollution and deplete scarce water supplies.

Even if China succeeds in well-regulated, high-growth shale gas production and countrywide distribution by pipeline, the IEA concludes that projected Chinese energy demand is so big that all it will do is limit gas import dependence to 24 percent by 2020, instead of 51 percent in a low production scenario.

So Japan should plan for strategic jousting to intensify in Asia-Pacific seas and spread to the Indian Ocean.

Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.


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