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Geopolitics of Chinese Grand Energy Strategy: a Multivector Analysis

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Geopolitics of Chinese Grand Energy Strategy: a Multivector Analysis GEOPOLITICS OF CHINESE GRAND ENERGY STRATEGY: A MULTIVECTOR ANALYSIS United States President Donald Trump, the United States National Security Council, and the Pentagon To:​ John Ferguson, the Central Intelligence Agency Directorate of Analysis From:​ December 13, 2019 Date:​ Analyze and respond to China’s multivector energy strategy Re:​ Introduction [1] In 2009, China surpassed the US (which had held the title for more than 100 years) to become the world’s largest energy consumer and is the world’s largest oil and gas importer.1 2 While energy is just one of many major drivers of China’s foreign policy and the recent Belt and Road Initiative (BRI), it’s obvious from key projects and policy decisions around the world that China’s energy concerns are increasingly shaping its military and policy priorities. More specifically, Chinese security analysts have underscored that China needs to diversify sources, types, and routes and greatly hedge risk against a potential blockade of its energy supply leading China to finance and construct energy projects everywhere around the world from the jungles of the Mekong River to the melting Arctic ice on top of the world. [2] One common thread with these projects has been the common goal of allowing China to avoid shipping lanes and receive energy in different ways, bypassing critical chokepoints it views as inherently insecure and prone to seizure by a rival like the US. Specifically, perhaps one of the most outstanding locations is to address what former Chinese leader Hu Jintao termed as China’s “Malacca Dilemma.” China overelies on the Strait of Malacca—a critical artery through which more than 80% of China’s crude oil imports flow—and as the world’s largest trading nation, serves as a strategic lifeline for its export-oriented economy.3 Beijing fears that its main strategic rival, the US, could threaten its energy security by creating social and economic upheaval were it to impose a blockade (along with US ally Singapore) at will in the event of a crisis or military conflict. [3] Transporting energy overland rather than by sea is a significant improvement that Chinese strategists have been eagerly pushing for to hedge risk away from their nation’s excessive reliance on seaborne energy shipments, which Beijing views as being dominated by the US’s blue water navy, a force that China currently and won’t for a long time be able to counter militarily. And while China’s long-distance oil and gas pipeline network is still less than ⅕ the size of the system in the US (the world’s biggest oil and gas consumer), China is rapidly building energy pipelines in collaboration with neighboring countries.4 Just last week, China streamlined and restructured its oil and gas pipeline network under a new state-owned giant called the China Oil & Gas Piping Network Corporation to build and manage oil and gas pipelines.5 Its creation marks the largest industry reshuffle in the past two decades, which had been under consideration since 2014.6 It’s important to note that this announcement came just one week after the opening of the Power of Siberia pipeline between China and Russia.7 The thing to realize about large-scale energy infrastructure is that it binds states over borders in long-term relationships and pipelines are a physical bond between nations—equally as much a political statement as they are a collaboration in energy. [4] These energy projects are all part of a broader global effort by China called the Belt and Road Initiative (BRI), Xi Jinping’s global $1T project involving infrastructure development and investments in 152 countries (See Figure 1).89 The BRI will draw in countries that account for 70% of the world’s energy reserves10 and some data suggests that about ⅔ of Chinese spending on completed BRI projects went into the energy sector 1 “China: World’s Largest Energy Consumer; Surpasses the U.S.,” Institute for Energy Research, August 6, 2010, ​ ​ https://www.instituteforenergyresearch.org/fossil-fuels/coal/china-worlds-largest-energy-consumer-surpasses-the-u-s/. ​ 2 Jude Clemente, “China Is The World’s Largest Oil & Gas Importer,” Forbes, October 17, 2019, ​ ​ https://www.forbes.com/sites/judeclemente/2019/10/17/china-is-the-worlds-largest-oil--gas-importer/#7161df645441. ​ 3 Abdullah Khan, “The Malacca Dilemma: A hindrance to Chinese Ambitions in the 21st Century,” Berkeley Political Review, August 26, 2019, ​ ​ https://bpr.berkeley.edu/2019/08/26/the-malacca-dilemma-a-hindrance-to-chinese-ambitions-in-the-21st-century/. ​ 4 Muyu Xu, Aizhu Chen, and Dominique Patton, “China to launch new state oil and gas pipeline group next week: notice,” Reuters, December 6, ​ ​ 2019, https://www.reuters.com/article/us-china-gas-pipeline/china-to-launch-new-state-oil-and-gas-pipeline-group-next-week-notice-idUSK BN1YA118. ​ 5 Ibid. 6 Ibid. 7 Ibid. 8 Chris Devonshire-Ellis, “The Emerging Markets In China’s Belt & Road Initiative,” Silk Road Briefing, August 30, 2019, ​ ​ https://www.silkroadbriefing.com/news/2019/08/30/emerging-markets-chinas-belt-road-initiative/. ​ 9 Thomas S. Eder, “Mapping the Belt and Road Initiative: this is where we stand,” Mercator Institute for China Studies, July 6, 2018, ​ ​ https://www.merics.org/en/bri-tracker/mapping-the-belt-and-road-initiative. ​ 10 Gal Luft, “China’s Infrastructure Play: Why Washington Should Accept the New Silk Road,” Foreign Affairs, September/October 2016, ​ ​ https://www.foreignaffairs.com/articles/asia/china-s-infrastructure-play. ​ 1 with the emphasis also holding true for projects currently under construction.11 Most of these energy project’s energy emphasis has been on natural gas, a cleaner alternative to oil or coal that China sees as the transition energy source it needs to minimize negative environmental effects while China’s already-world leading renewable and green sector matures in technology and becomes a more economically viable option and greater share in its energy mix. China’s gas pipelines, which already run at maximum capacity during peak season, are expected to need to be able to handle 2.5x the current gas demand by 2040 and so in addition to increasing domestic gas production from 149 bcm in 2018 to 325 bcm in 2040, China’s gas consumption is projected to top 510 bcm by just 2030, forcing China to source gas from outside its borders.12 13 Figure 1: Mapping the Belt and Road Initiative [5] The BRI is so massive in scale it’s truly in a league of its own, fueling speculation that even many high ranking Chinese officials don’t fully comprehend the true vastness: It’s 22x the size of the American-led Marshall Plan that rebuilt Europe after WWII after adjusting for inflation.14 It’s important to keep in mind though that energy is just one piece, albeit a very important piece of a much more expansive agenda that also involves constructing 5G telecommunications and mobile networks, training and cultivating ruling political parties and elites, dispatching Chinese firms to build city-wide AI surveillance systems, dealing arms to African rebel groups, and soft power initiatives like educational scholarships to study in China and global Confucius Institutes to teach Mandarin. While many may be under the impression that Chinese geostrategists have devised all of this to be a grand strategy defined as the “highest level of national statecraft that establishes the art of how states use all of the 11 Thomas S. Eder and Jacob Mardell, “Powering the Belt and Road: China supports its energy companies’ global expansion and prepares the ground for potential new supply chains,” Mercator Institute for China Studies, June 27, 2019, ​ ​ https://www.merics.org/en/bri-tracker/powering-the-belt-and-road. ​ 12 Christian Shepard, “China launches state enterprise to manage oil and gas pipelines,” Financial Times, December 9, 2019, ​ ​ https://www.ft.com/content/4c2a8e50-1a59-11ea-97df-cc63de1d73f4. ​ 13 Louise Moon, “China combines three oil pipeline networks into a single operator in much-anticipated merger to improve efficiency in state sector,” South China Morning Post, December 9, 2019, ​ ​ https://www.scmp.com/business/china-business/article/3041244/china-combines-three-oil-pipeline-networks-single-operator. ​ 14 Graham Allison, Destined for War: Can American and China Escape Thucydides's Trap? (Boston: Houghton Mifflin Harcourt, 2017). ​ ​ 2 nation’s resources—military, diplomatic, political, economic, and other sources of power to secure what they perceive as their interests.”15 However, I believe that a reality closer to the truth is that the BRI actually has less policy coordination than we might be led to believe, instead endowing China with a strategic ambiguity to market and brand everything it’s doing globally under a convenient umbrella so sweeping and broad in scope that it lacks definition and any boundaries. Background on Chinese Energy Policy in the context of energy [6] Since economic reforms in 1978 under Deng Xiaoping, the rapid growth of the Chinese economy can broadly be divided into three stages: the first from 1978 until 1989, the second from 1989 until 2013, and the third having started in 2013. The first stage, led by Deng was the first phase of privatization with local labor-intensive light industry with relatively low energy intensity. Starting in 1989 under Jiang Zemin, however, and continuing through the 1990s and 2000s, China’s heavy energy-intensive boom necessitated a massive increase in demand from all the construction of massive infrastructure, cities, and factories. From 2011 to 2013, China used more concrete than the US used in the entire 20th century.16 Conveniently, this period coincided with the shale revolution in the US, keeping prices low, but that still didn’t stop China from adopting an energy-driven foreign policy under the broader “Going out” strategy pushing China to secure oil equity arrangements and developing relationships across the developing world for the first time.
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