Chapter 5: China’s Energy Security
5.3 The Impact of “Belt and Road” Projects on China’s Energy Security
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5.3 The Impact of “Belt and Road” Projects on China’s Energy Security
The common feature of the energy-related projects under the Belt and Road Initiative is that they primarily contribute to the reliability with which China can transport energy resources from abroad back to China.
Some projects are purely about transport. By providing an alternate route for maritime shipping that would otherwise transit through the Strait of Malacca, Gwadar has the potential to greatly improve China’s perception of its transport reliability. The proposed
Dubai-Gwadar-Urumqi oil route would be 3,600 kilometers, as compared to the current 10,000-kilometer Dubai-Shanghai-Urumqi route.294 One study estimates that the construction of an oil pipeline connecting Gwadar with western China would increase the proportion of pipeline imports from 12.25% to 20.07%, and reduce China’s reliance on the Strait of Malacca by 11%.295 However, this pipeline would not improve affordability. The cost to transport a barrel of oil 1000 kilometers to China by ship is cheaper than the equivalent journey through a pipeline ($0.163 by tanker and $0.793 by pipeline),296 so the per-barrel cost of the combined maritime-pipeline route through Gwadar would be greater than a purely maritime route, but it would reduce the transit time by a factor of 5.297
Like the planned pipeline from Gwadar, China-Myanmar oil and gas pipelines allow China to reduce the total transit time of Middle East oil, though not as dramatically and again
294 Bhutta, "Pakistan Working on Gwadar-China Oil Pipeline".
295 F. Shaikh et al., "Prospects of Pakistan-China Energy and Economic Corridor," Renewable & Sustainable Energy Reviews 59 (2016): 261.
296 More recent cost estimates could not be found. Gabriel B. Collins and Andrew S. Erickson, “Tanking Up:
The Commercial and Strategic Significance of China’s Growing Tanker Fleet,” Geopolitics of Energy 29(8) (August 2007) in Cole, Sea Lanes and Pipelines: Energy Security in Asia, 1.
297 The purely maritime route takes 32 days whereas the proposed pipeline would cut the journey down to 6 days. It is unclear whether there are significant benefits to be gained from the amount of saved time. Shaikh et al., "Prospects of Pakistan-China Energy and Economic Corridor," 258.
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at the expense of a greater cost per barrel.298 That said, the advantage of the China-Myanmar pipeline is that it is already completed and begun operating. Neither Pakistan nor Myanmar produce their own oil or gas, but both provide China with a means of bypassing the Strait of Malacca so that oil and gas from China’s existing suppliers in the Middle East and Africa can be delivered directly to inland locations in western China.
Central Asia and Russia not only provide China with energy resources, but also do so in a way that enhances transport reliability. Russia is perhaps China’s most important energy partner; in 2016, it overtook Saudi Arabia to become China’s primary crude oil supplier, shipping roughly 1.05 million bpd to China.299 Importing more Russian oil improves China’s perception of transport reliability at the expense of diversity.300 China will become more dependent on Russian oil, but if this oil arrives via pipeline, China will be able to avoid the Strait of Malacca.
The improved sense of transport reliability, overall supply, and affordability provided by the China-Central Asia Gas Pipeline also comes at the cost of diversity. The completion of Line D would provide more capacity than China actually needs at the moment: in 2015 China imported roughly 59.8 bcm of natural gas through pipelines and as liquefied natural gas (LNG).301 As it stands, more than half of China’s natural gas imports come in the form of pipeline gas from Central Asia (33.6 bcm vs. 26.2 bcm of LNG), and upwards of 80% of its pipeline gas comes from Turkmenistan.302 It should be mentioned that diversity suffers only when looking at pipelines that connect to energy exporters; pipelines that connect to ports can
298 The combined maritime-pipeline route is only a day faster for Middle East imports. Switching from a purely maritime route to a combined maritime-pipeline route would actually be slower for African oil imports. Ibid.
299 Aizhu Chen and Meng Meng, "Russia Beats Saudi Arabia as China's Top Crude Oil Supplier in 2016,"
Reuters, http://www.reuters.com/article/us-china-economy-trade-crude-idUSKBN1570VJ.
300 This is not true of natural gas; in 2015 largest supplier of pipeline gas to China was Turkmenistan and the largest suppliers of LNG were Australia and Qatar. "Bp Statistical Review 2016," 28.
301 Ibid., 29.
302 Ibid., 28.
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have a positive impact on diversity because they are open to oil and LNG tankers from any country.
Oil and gas pipelines differ in how they impact affordability. Maritime shipping is undoubtedly the most cost-effective way to deliver oil from one location to another, and the best way to move the vast volumes of oil that China requires. For example, the completed spur of the ESPO pipeline can deliver 15 million tons of oil to China each year, or 41,000 tons a day. A Suezmax tanker, like the ones that deliver oil to the Myanmar-China pipeline, can carry more than three times that amount of oil in a single trip (140,000 tons).303
Oil and natural gas differ in difficulty of transport, which has implications for affordability depending on the chosen mode of transportation. Cooling natural gas to its shippable liquid form is an extremely energy-intensive process, and LNG must be re-gasified at a purpose-built LNG terminal before it can be distributed via local pipelines. Another factor that would make LNG shipping more expensive than oil shipping is the difficulty and cost associated with manufacturing LNG tankers; an LNG carrier with a capacity of 138,000 cubic meters would cost roughly $150-160 million, twice the cost of a Very Large Crude Carrier (VLCC) capable of carrying “four to five times as much energy.”304 The low cost associated with shipping oil is likely supported by economies of scale as well: in 2016 oil tankers made up roughly 27.9% of the global maritime shipping fleet, while gas carriers of all kinds (to include LNG, liquid petroleum gas, and others) made up a mere 3% of the global fleet.305 Therefore, in the absence of definite figures comparing the cost of transporting maritime LNG and pipeline natural gas to China, it is reasonable to assume that gas pipelines contribute to both transport reliability and affordability.
303 "China Opens Delayed Myanmar Oil Pipeline to Get Mideast Crude Faster".
304 Cole, Sea Lanes and Pipelines: Energy Security in Asia, 80.
305 United Nations Conference on Trade and Development, Review of Maritime Transport 2016 (United Nations, 2016), 31.
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In transitioning from the “going-out” strategy to One Belt One Road, China has shifted from prioritizing affordability (in the form of equity oil) to prioritizing transport reliability. The overseas expansion efforts of China’s NOCs led to jointly-developed oil fields from which China could extract equity oil, but such projects have fallen by the wayside under the Belt and Road Initiative. Gabriel Collins and Andrew Erickson first identified the
possibility of such a shift back in 2007: they argued that protecting “midstream” assets such as tankers only requires that China develop “robust naval and aviation capabilities,” whereas attempting to protect “upstream” assets such as oilfields would require the deployment of ground forces to locations overseas.306 This shift has occurred within the bounds of the
“traditional” energy security concept in that China is still trying to ensure security of supply, but instead of securing the source of energy, it is now focused on securing energy routes.
306 Andrew S. Erickson and Gabriel Collins, "China's Maritime Evolution: Military and Commercial Factors,"
Pacific Focus XXII, no. 2 (2007): 57.
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