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Asia's Energy Security the national bureau of asian research nbr special report #68 | november 2017 asia’s energy security and China’s Belt and Road Initiative By Erica Downs, Mikkal E. Herberg, Michael Kugelman, Christopher Len, and Kaho Yu cover 2 NBR Board of Directors Charles W. Brady Ryo Kubota Matt Salmon (Chairman) Chairman, President, and CEO Vice President of Government Affairs Chairman Emeritus Acucela Inc. Arizona State University Invesco LLC Quentin W. Kuhrau Gordon Smith John V. Rindlaub Chief Executive Officer Chief Operating Officer (Vice Chairman and Treasurer) Unico Properties LLC Exact Staff, Inc. President, Asia Pacific Wells Fargo Regina Mayor Scott Stoll Principal, Global Sector Head and U.S. Partner George Davidson National Sector Leader of Energy and Ernst & Young LLP (Vice Chairman) Natural Resources Vice Chairman, M&A, Asia-Pacific KPMG LLP David K.Y. Tang HSBC Holdings plc (Ret.) Managing Partner, Asia Melody Meyer K&L Gates LLP George F. 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The Boeing Company Harry Harding University of Virginia Rajan Menon Sheldon Simon City College of New York Arizona State University Donald Hellmann University of Washington Mary Minnick John White Lion Capital Harvard University the national bureau of asian research nbr special report #68 | november 2017 asia’s energy security and China’s Belt and Road Initiative Erica Downs, Mikkal E. Herberg, Michael Kugelman, Christopher Len, and Kaho Yu the national bureau of asian research The NBR Special Report provides access to current research on special topics conducted by the world’s leading experts in Asian affairs. The views expressed in these reports are those of the authors and do not necessarily reflect the views of other NBR research associates or institutions that support NBR. The National Bureau of Asian Research is a nonprofit, nonpartisan research institution dedicated to informing and strengthening policy. NBR conducts advanced independent research on strategic, political, economic, globalization, health, and energy issues affecting U.S. relations with Asia. Drawing upon an extensive network of the world’s leading specialists and leveraging the latest technology, NBR bridges the academic, business, and policy arenas. The institution disseminates its research through briefings, publications, conferences, Congressional testimony, and email forums, and by collaborating with leading institutions worldwide. NBR also provides exceptional internship opportunities to graduate and undergraduate students for the purpose of attracting and training the next generation of Asia specialists. NBR was started in 1989 with a major grant from the Henry M. Jackson Foundation. Funding for NBR’s research and publications comes from foundations, corporations, individuals, the U.S. government, and from NBR itself. NBR does not conduct proprietary or classified research. The organization undertakes contract work for government and private-sector organizations only when NBR can maintain the right to publish findings from such work. To download issues of the NBR Special Report, please visit the NBR website http://www.nbr.org. This report may be reproduced for personal use. Otherwise, the NBR Special Report may not be reproduced in full without the written permission of NBR. When information from NBR publications is cited or quoted, please cite the author and The National Bureau of Asian Research. This is the sixty-eighth NBR Special Report. NBR is a tax-exempt, nonprofit corporation under I.R.C. Sec. 501(c)(3), qualified to receive tax-exempt contributions. © 2017 by The National Bureau of Asian Research. Front cover image: Tanks oil in steppe © Ustinenko / istock.com. For further information about NBR, contact: The National Bureau of Asian Research 1414 NE 42nd Street, Suite 300 Seattle, Washington 98105 206-632-7370 Phone 206-632-7487 Fax [email protected] E-mail http://www.nbr.org nbr special report #68 | november 2017 asia’s energy security and China’s Belt and Road Initiative TABLE OF CONTENTS Introduction v Mikkal E. Herberg China’s National Oil Companies Return to the World Stage: 1 Navigating Anticorruption, Low Oil Prices, and the Belt and Road Initiative Erica Downs The China-Pakistan Economic Corridor: What It Is, How It Is Perceived, and 15 Implications for Energy Geopolitics Michael Kugelman The Geopolitics of Energy Cooperation in China’s Belt and Road Initiative 29 Kaho Yu China’s Maritime Silk Road and Energy Geopolitics in the Indian Ocean: 41 Motivations and Implications for the Region Christopher Len INTRODUCTION nder Xi Jinping, Beijing has launched its ambitious Belt and Road Initiative (BRI), which envisions an enormous expansion of China’s investment, trade, and diplomatic engagement across the Eurasian continent, as well as through the Indo-Pacific sea lanes from China all the way to the Middle East and Europe. The “belt” consists of the Silk URoad Economic Belt that will expand trade and investment overland to Central Asia and Europe. The “road” refers to the 21st Century Maritime Silk Road that will allow China to project economic, energy, and geopolitical influence throughout the East and South China Seas, the Indian Ocean, and the Middle East. Nevertheless, despite many official pronouncements, much rhetoric, and a host of slogans, BRI remains something of an enigma. Chinese leaders present the initiative as a “win-win” economic strategy of promoting the collaborative expansion of regional infrastructure, trade, and investment in order to boost collective economic growth and raise the standard of living. Xi talks about creating an inclusive “community of common destiny” throughout Eurasia whereby economic integration supports political stability and peace. In many ways, BRI looks very much like an effort to replicate on a region-wide scale China’s development model of the past 30 years that led to such spectacular economic results. Yet others see the initiative as less benign. Those who are suspicious of China’s growing power in Asia and globally are concerned that BRI is more about strategic ambition than commercial logic. They see it as a deeply mercantilist project to expand China’s economic power and geopolitical reach. Moreover, even if the initiative is not motivated by strategic ambition, this does not preclude it from having powerful strategic implications and outcomes. From this perspective, the expanding scale of Beijing’s efforts suggests that BRI is nothing less than an attempt to reshape the economic, geopolitical, and energy landscape of the Eurasian continent and Asian maritime environment with China at its center. From an energy security and environmental perspective, BRI promises to substantially affect future trade and investment across Eurasia, with significant implications for regional geopolitical dynamics. China has vital energy security interests vested in accessing energy supplies, particularly from the Middle East; protecting the overseas investments and activities of its national oil companies (NOCs); securing overland oil and natural gas pipeline supplies from across Eurasia; and safeguarding the Indo-Pacific sea
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