China’s Energy Diplomacy

Via Energy Daily, an interesting analysis of China’s energy diplomacy as part of the country’s quest for energy to feed its export economy as well as its strategic competition with India for both resources and regional influence.  In addition to building of a port in Pakistan, its extra-polite friendship with the rulers of Myanmar and now its offer to Iran to pick up gas from Pakistan if India shows no interest in doing so, China – in the last five years – has cornered almost all of Myanmar’s gas, struck a deal with a Canadian company to buy out its oil interests in Kazakhstan and negotiated with Russia, Indonesia, Nigeria and Angola to buy oil and gas assets even at a premium cost. As noted in the article:

“…China’s recent offers to Iran and Pakistan to buy their gas have caught analysts off guard. The official Indian reaction was muted and clever. They argued that taking gas over the Himalayas to China’s industrial heartland on the eastern seaboard is difficult. But, with friendly Pakistan and a pipeline routed along the Korakaram Highway, it is possible to join the proposed central Asian pipeline, which China will build.

There is one catch — by the time the gas reaches the Chinese users the cost of transporting it will have tripled the end-user price. Also, inhospitable conditions will add higher pipeline maintenance and operation costs.

Then why are Chinese policymakers moving in the wrong direction and making their nation vulnerable to all kinds of strategic pressures?

China’s building of the Gwadar port in Pakistan at the mouth of the Straits of Hormuz was more to protect its oil supplies coming from the Persian Gulf than to help Pakistan. It is a strategic location where China can police its own as well as Western supplies. At the moment Chinese interests are taking a back seat in the Middle East, but the Chinese are determined to alter this equation, especially if their supply line is threatened.

Myanmar is being cultivated as an exclusive oil and gas supplier to China. The extraordinary friendship the Chinese have struck up with the Myanmar rulers is not so puzzling once you understand that oil and gas are China’s main interest there. To this affect all loans advanced and all military hardware being sold have only one purpose — to allow them to grab as much oil and gas as they can.

Unfortunately this is not as easy as it looks for the Chinese. Here they are in competition with India. India also needs oil and gas supplies and will do anything to get them. To India, Myanmar’s supplies are closer than Iran’s, so India would prefer that a significant portion of these supplies come to India. Hence India has altered its policies and befriended the Myanmar rulers. Myanmar is of course fully aware of the situation and will play India and China one against the other.

Iranian supplies are much better and more reliable if the Chinese are prepared to pay the elevated prices and arrange for transportation. A 56-inch pipeline from southern Pakistan to Kazakhstan, a distance of 1,800 miles, will cost upward of $25 billion. Add to this possible terrorist strikes in Baluchistan and Pashtun areas of Pakistan, and the pipeline may immediately become uneconomical.

…China is also straightening up its commercial relationship with Russia. During President Vladimir Putin’s visit to China in 2006, multiple agreements on energy supply cooperation were signed. These included the supply of 40 billion to 60 billion cubic meters of gas to China via two pipelines. The first one, if completed in 2010, will supply Siberian gas to China’s northwest Xinjiang area. The second pipeline will end in the northeast province of Heilongjiang and is expected to be operational in 2015.…Other far away places like Angola, Venezuela, Ecuador and Peru are being tapped to supply China’s energy needs. As a matter of fact, in 2006-07 Angola was the country’s largest source of oil, supplying as much as 750 million barrels a day to China.

…As explained above, gas pipelines will connect China with Central Asia, Myanmar and Russia. China still aims to supplement these supplies with liquefied natural gas, which can be procured in the Middle East or elsewhere. A fleet of 30 LNG tankers has been planned to shuttle between China and its supply sources. A dozen or so LNG terminals to unload the gas are planned. The first one became operational in 2006.

Eighty percent of China-bound oil and liquid natural gas passes through the Indian Ocean. Therefore China is attaching special importance to building strategic naval assets in the Indian Ocean. The building of the Gwadar port in Pakistan was part of this plan. Its naval listening facility in Myanmar is also augmenting China’s blue water capabilities…”

This entry was posted on Tuesday, March 11th, 2008 at 8:06 pm and is filed under China, India, Myanmar.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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