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In the last few years China has pursued a policy of acquiring international oil reserves. In following this policy it has invested in a number of countries, including Sudan, and has developed a good relationship with Iran, in November 2004 the two countries reached a US$70 billion deal to develop oil fields and LNG (Iran has some of the largest natural gas reserves in the world). China has also invested in oil industry acquisitions in Indonesia (PetroChina International), Australia (the Gorgon LNG Field), Venezuela and Peru. One of the most important deals was the agreement in August 2005 by the China National Petroleum Corporation (CNPC) to purchase the Canadian company PetroKazakhstan, which owns oil and gas fields in Kazakhstan, for US$4.18 billion, as I have noted in my Podcast on the development of Central Asian oil reserves. This purchase ties in with the completion of a 1,000 kilometer oil pipeline from central Kazakhstan to Xinjiang in NW China. China has also sought to acquire other strategically important minerals, for example its purchase for US$7 billion of Canada’s Noranda, a zinc, nickel and copper producer.
The U.S. reacted strongly to CNOOC’s bid for the U.S. oil company Unocal, in the summer of 2005. Though Chevron finally purchased Unocal, China’s need to secure long-term oil supplies will mean that this will not be the last time that China bid’s for U.S. owned oil assets.
China currently imports 40% of its oil requirements, and these oil imports have been growing at 30% per annum. China is now the world’s second largest consumer of energy, but its rate of increase of demand is running some four to five times of that of the rest of the world, and a recent article in Nature described its energy appetite as “insatiable.” China still relies on coal for about 65% of its energy requirements, a situation that it wishes to change, by increasing the proportion coming from oil and gas, and non-carbon generating sources such as nuclear power, hydro and wind. By 2050 China would like to be using oil and gas for 40% to 50% of its energy.
Today the main problems that China faces are firstly the failure of energy supplies to expand quickly enough to support the growth in its manufacturing economy, and the pollution problems created by its continued reliance on coal. Chinese plans to quadruple the economy by 2020 require at least a doubling of the energy supply. Efforts are being directed to use coal more effectively, to produce gas from coal in a process called “polygeneration.” However the biggest threat of all is to global warming; China has the potential to off-set the efforts of the rest of the world to reduce CO2 emissions by further increasing the burning of coal. In fact China may overtake the U.S. as early as 2020 as the world’s largest producer of greenhouse gases, and it is currently exempt from the Kyoto Agreement cutbacks as it is a developing country. As I noted in a Podcast on the effects of Hurricane Katrina global warming now represents the biggest threat that we face on this planet.
In the short term, while China continues to go for growth however it faces real bottlenecks to increasing its coal production from over-loaded railway facilities and from the depletion of key mines, and the difficulty of building new power stations quickly enough to meet the very high increases in electricity demand. China also plans to build up to 32 new nuclear plants by 2020, but these will not significantly replace coal as an energy source. The Peoples Daily has warned the Chinese population of the risk of a “severe energy shortage” in the period to 2020.
China alone was responsible for nearly 40% of the growth in world oil demand in the period 2000 to 2004, the rapid expansion of the Chinese motor industry is one of the factors driving up demand for petroleum products, China is projecting that it will have a total of 140 million cars by 2020. Most of China’s oil is imported from the Middle East and the Chinese believe that the supply route would be vulnerable in times of international tension, for example if it were to apply pressure on Taiwan, thus the attraction of the Kazakhstan pipe line. This may also encourage the Chinese to create the naval assets to protect this vital line of communication, something that may bring China into potential conflict with the U.S. and India. Russia is another favored supplier to China, as its oil reserves in Siberia are close to China, and the two countries signed a major bi-lateral treaty in 2001 providing for increased Russian arms sales to China. The strategic interests of Russia and China, particularly China’s appetite for Central Asian and Siberia oil, may draw these two continental powers closer together, especially if they see U.S. policies as hostile to their joint interests. Alternatively there is the view expressed by Peter Aldhous in Nature, he pointed out that Chinese dependence on Russian oil and gas could lead to conflict. Kazakhstan and the other Central Asian republics would, in such a case, just be the meat in the sandwich, caught between these two major powers. The Shanghai Cooperation Organization (SCO) may be an indication of the geopolitical future of this region. In fact in July 2005 the SCO called for the U.S. to set a deadline for withdrawal from its military bases in Kyrgyzstan and Uzbekistan, this SCO declaration came after Western criticism of the brutal behavior of Uzbekistan’s government in May 2005. However the reality behind the declaration is China’s wish to remove U.S. troops from locations near its Western borders and Russia’s desire to reassume authority over the Central Asian area.
China also wishes to enforce its control over Xinjiang, its western-most province, which has a separatist movement, its native population is mainly Muslim Uighurs. Human Rights Watch says that involvement in separatist activity “is increasingly equated by [Chinese] officials with ‘terrorism.’” In the past Kazakhstan has acquiesced to Chinese requests to suppress its own domestic Uighur social organizations and has returned Uighur refugees to China.
The Great Game is still being played out in Central Asia, long after the British left India, but this time the players are China, Russia and the U.S., it looks increasingly as if the U.S. is the odd man out. It entered the area in order to fight terrorism, that no longer appears to be a real threat in Central Asia, and the U.S. in any case has alternative bases in Afghanistan, and currently lacks sufficient manpower reserves to deploy a long-term force in the area.
I believe that the geopolitical future of Central Asia will be determined by the economic and strategic realities of China’s need for secure supplies of oil and uranium and the wish of Russia and Kazakhstan to supply China’s needs. In order to guarantee their own security and political interests, none of these three countries have a wish to see Western influence become stronger in Central Asia.
China’s economic growth and future political direction is also interwoven with its energy shortages, its lack of energy resources and its instinct to seek security of supply. In the same way that Japan attached the U.S. in 1941 as part of its plan to secure control over the oil fields of the Dutch East Indies (Indonesia), a nervous and insecure Chinese government could also in future take military action to safeguard what it saw as its strategic interests. It is the responsibility of the rest of the world to work with China in order to meet its reasonable requirements and reassure it that it has security of supply; this may be increasingly difficult as the world passes the peak of oil supply and as the final large oil reservoirs are depleted. Ultimately we may face conflict for energy reserves in Asia.