Dragon’s Hunger: China’s Need for Energy Diversification - Hikmet Can Çakan

Chinese leader Deng Xiaoping’s famous quote, “No matter if it is a white cat or a black cat; as long as it can catch mice, it is a good cat” marked the opening of the Chinese economy to the non-Communist world. Since the early 1980s, China’s economy has grown at an unprecedented rate, with a concomitant increase in energy consumption. When we consider the limited domestic resources of fossil fuels, these transformations resulted in the PRC becoming a net importer of oil in 1993, after years of being a net exporter. The gap between China’s domestic energy production and rapidly increasing consumption is expected to expand even further in the next two decades, as industrial production grows and more Chinese consumers become wealthy enough to afford energy-consuming products. According to BP Energy Outlook, China, by 2019, is the largest energy consumer in the world (22%) and the largest energy-demanding economy (in the last 22 years, with a growth rate of 5.9 per annum). However, we need to take a closer look at the supplier side of this energy consumption. I argue China’s need for energy diversification in three categories, namely, in terms of sources, suppliers, and transportation routes.

Beginning with the diversification of sources, China’s energy consumption heavily rests on coal, which has devastating impacts on its environment and population. At this point, China’s need for energy mix comes to light, to reduce the nation’s dependence on fossil fuels and contain pollution. The graph below demonstrates China’s energy consumption by sources in 2016.

According to the Energy Information Administration (EIA), China’s energy resources do not cover the PRC’s growing demand, particularly for oil and natural gas. Although China has substantial coal reserves (33 percent of global supply and the third-largest reserves in the world), its reserves of fat (2 percent to 3 percent of global supply) and gas (1 percent of global supply) are extraordinarily small. In 2018, China had record oil and gas imports and remained the number one crude oil importer in the world after surpassing the United States in 2017 and is the number two natural gas importer, behind Japan. Overall, China’s reliance on oil importation in 2018 accounted for 69.8% of consumption and gas imports for 45.3%, according to a report released by China National Petroleum Corporation (CNPC).

The need for supplier diversification arises mainly from oil and to some extent, gas imports. China imports at least 51% of oil from the Middle East. When ongoing conflicts and their destabilizing effects considered (e.g., chronic instability in Iraq, Saudi-Persian rivalry), dependence on Middle Eastern oil may threat China’s energy security. The US sanctions on oil-rich Iran and Venezuela also narrow down the spectrum of China’s oil import diversity. The graphs below show China’s oil and gas imports by countries.

Finally, according to the Pentagon report, China imports at least approximately 43% of this oil has to pass through the Strait of Hormuz, and 82% of all Chinese maritime oil imports must pass through the Strait of Malacca. The map below demonstrates China’s energy import routes.

From a geopolitical perspective, this overwhelming dependence on maritime transportation, and specifically on the Strait of Malacca, threatens the energy security of the country for the following reasons. China has an ongoing conflict in the South China Sea, and activities of the US Pacific fleet bear the potential of interception.

Besides, the Strait of Malacca itself presents some risks, due to intense piracy activities within the waterline and geographical setting that pose a risk of shipwreck. When relatively high costs of transporting oil and gas (LNG) through maritime routes added, China’s need for route diversification, primarily through the land, appears more transparent.

Having looked at the data presented, China’s need for energy diversification -by sources, suppliers, and transportation routes- appears genuine. For a country that seeks for a super-power status, by courtesy of its vast population, military, and enormous industrial capacity, energy security is of vital importance for its ambitions to come true.

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