Graduate School of Social Sciences

The Sino-Qatari Relations Within the Framework of ’s Security Strategy in the Middle East

MSc Political Science: International Relations - Thesis Research Project: The Political Economy of Energy

Author: Niccolò Mannari – 11697547 Supervisor: Dr. M. (Mehdi) P. Amineh Second Reader: Dr. R. J. (Robin) Pistorius

Amsterdam, The June 22nd, 2018

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2 Table of contents

Acknowledgements 6 Abstract 7 Maps 8 List of figures 11 List of abbreviations 12

Chapter I: Research Design 15

1.1 Introduction 15 1.2 Literature review 17 1.3 Theoretical and conceptual framework 22 1.4 Outline of the argument and hypothesis 27 1.5 Research method and operationalization 27 1.6 Structure of the work 28

Chapter II: The People’s Republic of China: energy industry, sector and NOCs 29

2.1 Introduction 29 2.2 Overview of China 29 2.3 Chinese state-business relation 30 2.4 Power and energy sector in China 32 2.4.1 33 2.4.2 Energy situation 35 2.4.3 Natural gas sector focus 38 2.5 Chinese 42 2.6 State class and NOCs 44 2.7 Conclusion 46

Chapter III: The State of : power structure, energy sector and Sino-Qatari relations 49

3.1 Introduction 49 3.2 The State of Qatar and its relations with China 49 3.2.1 Power structure in Qatar 49 3.2.2 Energy relations between China and Qatar 52 3.2.3 Diplomatic ties 52 3.2.4 Economic ties 53 3.3 Energy sector in Qatar 56 3.3.1 Overview of the energy sector in Qatar 57 3.3.2 Energy mix and energy situation 58 3.3.3 Qatari gas market and natural gas reserves 59 3.3.4 NOCs and their relationship with the state 63 3.4 Conclusion 63

3 Chapter IV: Chinese presence in the Qatari economy 65

4.1. Introduction 65 4.2 Chinese economic activity in Qatar 65 4.2.1 Trade 65 4.2.2 Chinese involvement in non-energy sectors 68 4.2.3 Chinese NOCs in Qatar 69 4.2.3.1 CNOOC’s 2009-2034 LNG spot trade deal and other activities 69 4.2.3.2 CNPC’s 2011-2036 LNG spot trade deal and other activities 72 4.2.4 Sino-Qatari financial affairs 74 4.3 Security and military cooperation between China and Qatar 76 4.4 Conclusion 77

Chapter V: Qatari domestic challenges and regional geopolitical risks to Chinese supply security in the Peninsula 79

5.1 Introduction 79 5.2 Qatari domestic challenges 79 5.2.1 Political challenges 79 5.2.2 Financial/Economic challenges 80 5.2.3 Societal challenges 81 5.3 MENA/ geopolitical risks 82 5.3.1 The 2017 GCC countries diplomatic crisis 82 5.3.2 - conflict 83 5.3.3 The commercial sea route from Qatar to China 84 5.4 Geopolitical economic actors in the Middle East 85 5.5 Conclusion 87

Chapter VI: Conclusions 89

References 95

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5 Acknowledgements

The journey that brought me to the completion of this thesis was full of wonderful people that helped me go through five months of intensive and hard work. And I want to thank them all in this short, but very important passage. First and foremost, I want to thank my parents Andrea and Cristina for giving me the opportunity to come to Amsterdam and the UvA to enjoy an amazing year. I will never be able to show you how much I appreciate you. I also want to thank my professor, Dr. Mehdi Parvizi Amineh, for his efforts and energy, and for the passion on energy matters that he instilled in me during these eight months together. Then, I want to thank the “China group”, Bart, Jim, Lucas and Niek for their suggestions and constant remarks. In conclusion, I want to thank the people that helped me go through this whole thing with their smiles, jokes, kisses, hugs and opinions: Sebastian, Xiddu, Ella, Pietro, Matilde, Guglielmo and my brother Lorenzo. Thank you all.

Niccolò Mannari 21st of June 2018

6 Abstract

This thesis sets out to explain the current situation of the Chinese energy supply security strategy in Qatar focusing on the development of the Sino-Qatari relations from 2003 to 2018, as well as analyzing in depth the current deals that two of China’s most important national oil companies, CNOOC and CNPC, inked with Qatari counterpart Qatargas in 2009 and 2011. Central in this thesis is the focus on the internationalization of Chinese national oil companies and their ties with the central government of . This will be done with the help of concepts taken from critical theories in order to shed light on the state-market complex in China, as well as in Qatar. I also found very helpful the resource scarcity model to explain how and why China has to seek outside its national border to secure its energy supplies, crucial to sustain the enormous growth of its economy. I described how the Chinese government system works, how the different agencies and ministries operate with the common goal of pushing China towards a brighter future and a constant economic development, while also establishing diplomatic relations with energy-rich countries like Qatar. Subsequently, I discuss the State of Qatar and how its authoritarian regime controls the oil and gas companies that own the huge natural gas resources the country has. I then delved into the Sino-Qatari relations and their importance for both countries, both strategically and commercially. Additionally, the thesis will analyze the Chinese presence in the Qatari economy in many sectors, from trade to investments, from finance to energy and finally, security. The thesis will conclude with an analysis of the possible threats and risks that Chinese national oil companies might face in Qatar and in the extremely instable Middle East region.

Key Words

China, Qatar, Energy Supply Security, National Oil Companies, Natural Gas

7 Map 1: China

Source: ReliefWeb (2013)

8 Map 2: Qatar

Source: ReliefWeb (2013)

9 Map 3: Middle East region and related oil/gas pipelines and fields

Source: EIA (2012)

10 List of figures

Figure 2.1 demand by resource in China 32

Figure 2.2 Comparison China-RotW primary energy demand by fuel and final consumption by sector 35

Figure 2.3 Energy capacity by technology in China (historical and projections) 32

Figure 2.4 Chinese domestic natural gas consumption by end-use in 2015 35

Figure 2.5 Key government bodies overseeing energy issues 39

Figure 3.1 Board seats of Qatar Exchange Listed Companies held by family 49

Figure 3.2 Qatar’s import partners 52

Figure 3.3 Qatar’s partners 52

Figure 3.4 Top 10 importing countries of Qatari LNG 58

Figure 3.5 Top ten gas projects in Qatar in terms of remaining capex/boe (in US$) 59

Figure 3.6 Qatari gas/oil fields and pipeline system map 60

Figure 4.1 China-Qatar bilateral trade (in billion US$) 65

Figure 4.2 Map of China’s natural gas and LNG receiving terminals 69

Figure 5.1 The “String of Pearls” route and the oil and gas shipping lanes to China 83

11 List of abbreviations

AIIB Asian Infrastructure Investment Bank b/d Barrel of oil per Day bcm Billion cubic meters BP British BRI CC Central Committee CCASG Cooperation Council for the Arab States of the Gulf CCP CCPIT China Council for the Promotion of International Trade CDB Chinese Development Bank CHEC China Harbor Engineering Corp. CRCP China Railway Construction Corp. CSCEC China State Construction Engineering Corp. CEO Chief executive officer CIA Central Intelligence Agency CME Coordinated Market Economies CNOOC Chinese National Overseas Oil Company CNPC Chinese National Petroleum Company EIA Energy Information Administration EIU Economist Intelligence Unit EU European Union FDI Foreign Direct Investment FYP Five-Years Plan GECF Gas Exporting Countries Forum GCC Gulf Cooperation Council GDP GHG GTL Gas-to-Liquid ICBC Industrial and Commercial Bank of China IEA International Energy Agency IMF International Monetary Fund IOC International Oil Company IPO Initial Public Offering IR International Relations LME Liberal Market Economies LNG Liquefied Natural Gas LPG Liquefied Petroleum Gas 12 Mbpd Million barrels of oil per day MENA Middle East North Africa Mtoe Millions of Tonnes of Oil Equivalent NEA National Energy Administration NEC National Energy Commission NOC National Oil Company NPC National People’s Congress OBOR One Belt One Road OD Organization Department PSA Public sharing agreement PSC Politburo Standing Committee PNG Piped Natural Gas RCC Clearing Center RMB Renminbi QEWC Qatar Electricity and Water Company QIIB Qatar International Islamic Bank QIA Qatar Investment Authority QIIC Qatar Islamic Insurance Company QIPCO Qatar Investment & Projects Development Holding Company QH Qatar Holding QP QSTec Qatar Solar Technology SCO Cooperation Organization SOE State Owned Enterprise SASAC State-owned Assets Supervision and Administration Commission SPR Strategic Petroleum Reserve Tcf Trillion cubic feet UAE UK UN US (of America) US$ (or USD) United States Dollar VoC Varieties of Capitalism WTO

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14 Chapter I

Research Design

1.1 Introduction The aim of this research is to analyse and describe the energy supply security strategy that the People’s Republic of China has developed in the State of Qatar thanks to the activities of its national oil companies, focusing on the supply of natural gas from Qatar to China. As a consequence, I will examine the operations carried out in Qatar by the Chinese government, in the fields of diplomacy, security and strategy, and by Chinese enterprises, in relation to the economic aspects (trade, investment, finance). I will focus on the efforts of Chinese national oil companies in Qatar to understand the energy strategy of China in the country, which is primarily directed at the natural gas. Finally, I will discuss and take into account the challenges to Chinese energy supply security within Qatar (domestic threats) and in the whole Persian Gulf region (geopolitical risks). The main objectives of this thesis are: - discover the dynamics within the political economy of energy in China and Qatar; - understand the relationship between Chinese NOCs and the government; - outline diplomatic and economic relations between China and Qatar; - delineate the energy supply security strategy of China in Qatar; - assess the challenges and risks for the energy supply security strategy of China in Qatar and in the Persian Gulf region.

The timeframe will be set to the period 2003-2018, because before 2003 the relations between the two countries were limited to basic diplomatic relations. From 2003 onwards under the presidency of Hu Jintao this relationship evolved thanks to the signings of many agreements covering economic, political and cultural affairs; the relationship grew. The most significant phase in the history of Sino-Qatari bilateral relations, began in 2014, when the relationship flourished, entering a new era embarking on strategic economic and security partnership. When studying energy supply security in China, the state emerges as a principal actor both because of the vital importance of energy security to its economic development and national security, as well as the monolithic nature of the political system. Therefore, to describe thoroughly the Chinese strategy in Qatar I need to start from the state-market complex in China.

15 Within the government the most important body to take into account is the Communist Party’s Politburo Standing Committee (PSC) and its commissions related to energy policy and state-led companies. Given some slight similarities between the governmental systems of China and Qatar, the Qatari ruling family, the Al Thanis, is also perceived as a key actor. In addition, other fundamental actors of this research are the two Chinese NOCs working in Qatar: CNOOC and CNPC (through its subsidiary PetroChina). Furthermore, I will study their Qatari counterparts: Qatargas (merged with RasGas on January 1, 2018) (Gulf Times, 2018) and Qatar Petroleum. I believe that this thesis can be socially relevant because it shows the growing importance of natural gas within the energy security of China, especially for its strategy aimed at reducing CO2 emissions by replacing with natural gas (The Globe and Mail, 2018). In addition, it will help understand and forecast the behavior of China in the Middle East in a period of great instability and uncertainty for the region. The 2017 Qatar-GCC crisis shook all countries that import vast amounts of oil and gas from the region, and I believe it is interesting to see if such deadlock induced a drop in natural gas imports firstly from Qatar to China, and secondly from the region as a whole. This thesis will also try to explain possible outcomes of the recently approved extension of the presidential terms by the Chinese government, consolidating the power of current president Xi Jinping and its strategy for both the domestic economy and the world economy in coming years (The Economist, 2018), also in light of its speech during the 2017 World Economic Forum in Davos in which he made the case for a “Chinese leadership role in the world scenario” (Reuters, 2017). Moreover, it will clarify what China has been up to in Qatar and in the Persian Gulf region as a whole in recent years, economically and geopolitically speaking. In addition, this thesis will add to the academic and scientific relevance explaining the key role of Qatar for the Chinese energy supply security strategy, adding to a lack of literature on this topic that I reported during the research of data and literature for my work. Most of the literature I found on the Sino-Qatari relations is mainly empirically descriptive, and not theoretical nor analytical; hence, this research will contribute to the development of scientific knowledge on this understudied case. I will try to focus my attention on the outcomes of the bilateral energy relations between China and Qatar, in order to analyze if such partnership jeopardized the other bilateral relations that China has in the region.

16 Research question What is the energy supply security strategy of the People’s Republic of China in the State of Qatar and what are the risks and challenges to this energy cooperation? - How is the political economy of energy in China shaped by the state-market complex and what is the energy supply security situation of China? - How is the energy industry structured in Qatar, what is the natural gas market situation, and what are the Chinese interests in the country? - How the energy relations between China and Qatar developed? What bilateral activities and projects have been started by Chinese and Qatari NOCs in the natural gas sector? - What are the challenges to the Chinese Energy Supply Security in Qatar? And in the region? To what extent the 2017 GCC-Qatar crisis affected the Sino-Qatari energy relations?

1.2 Literature review To build a strong and cohesive thesis, I need to start reviewing the academic literature already present on the topics of energy studies and political economy. This literature focuses on the political economy of energy of China (mainly) and of Qatar (secondary). In addition, the relation between the State and the Business class in China is crucial to understand the energy policy processes and energy security strategy of Beijing. Moreover, this literature focuses on the role and activities of CNOOC and CNPC in the country, and the same for Qatargas and Qatar Petroleum within the Qatari state. This literature review is structured with the Chinese-related literature first, followed by the Qatari literature. The Chinese resource scarcity literature is analyzed first; as a consequence, the energy (supply) security of China follows; thirdly, the energy policy is described; an examination of the foreign policy, focusing on the going-out strategy, follows; in conclusion the State-NOCs relations in China will be discussed. The Qatari part will take into account the existing literature on the political economy of and the relation between the Al Thanis and the NOCs.

China Resource scarcity China became a net importer in 1993 because of its rapidly increasing economy, that needed to be fueled with energy, namely oil and coal. The increasing domestic energy demand, accompanied by a decreasing domestic supply, forced China to go abroad and reach agreements with energy-rich countries in order to supply its huge domestic economic growth. Authors like

17 Lee (2012), Chen (2014), Yao and Cheng (2014), Geng and Qiang (2016), Zhang (2016) and Amineh and Yang (2014) wrote extensively about this topic. Lee (2012) explained how the survival of the current political system in China depends on the safety and security of the energy supply from foreign states to mainland China. Chen (2014) also highlights the impossibility of China to support the economic growth with the domestic reserves, even with a thorough development of the technology, because of the insufficient amount of either oil or gas. So, the prospects for increasing the domestic production are limited to either coal, the most polluting resources in the energy portfolio of China, or renewable energies like hydro, solar or wind. Amineh and Yang (2014) spotlighted on the fact that energy and its procurement are vital for the Chinese ruling élite, given that without the constant flow of oil and gas from other countries the gargantuan economic “machine” would stop, threatening the survival of such élite. Zhang (2016) also explained other reasons behind the surge of in China from the 1980s and the 2010s: for instance, the Chinese population during this timeframe doubled; in addition, the energy intensive industry in China grew considerably; finally, alongside these two factors, the gross domestic product (GDP) of China increased by more than 20 times between the 1980s and the 2010s.

Energy security The concept and definition of energy supply security is debated in the academic world. Yergin (1988) defines this concept as “The objective (of energy security) is to assure adequate, reliable supplies of energy at reasonable prices and in ways that do not jeopardize major national values and objectives”. The International Energy Agency (IEA) states on its website (IEA, 2018) that energy security is “the uninterrupted availability of energy sources at an affordable price”. Willrich (1976) wrote “Assurance of sufficient energy supplies to permit the national economy to function in a politically acceptable manner”. Lovins and Lovins (1981) introduced a definition that argued that energy security is to be reconsidered with more dimensions than merely the ability to keep oil flowing (or energy availability). I believe that the Yergin definition of this concept is the most accurate as it depicts and economic side as well as a political and strategic side to the energy supply security strategy.

Energy policy After acknowledging the systemic resource scarcity, it is important to shine a light on the literature on domestic . Alongside the Chinese documents on the matter, mainly the so-called Five-Years Plan (FYP), Andrews-Speed and Dannreuther (2011), Lee

18 (2012), Meidan (2016), Zhang (2016), Amineh and Yang (2017) discussed the topic of the Chinese energy policy, all agreeing on the fact that energy policy is central for the economic growth of the country in the new millennium. In the FYP, the Chinese Communist Party (CCP) outlines the State plans for all policies, mainly economic and energy related. The goals and targets of the CCP serve as an objective for all bureaucrats of China. In the two last FYPs, written in 2010 and 2015, new policies have been implemented in order to reduce the use of coal and to put incentives on renewable energies, not only to reduce , but also to decrease the dependency on foreign energy imports. Lee (2012) states that China is increasingly developing its renewable energies sector, thanks to its FYPs, in order to reduce the domestic consumption of imported energies, namely oil, in order to deploy them for industry-related purposes instead of households heating. Meidan (2016) states almost the same, describing how China intends to focus on renewable energies in order to reduce the energy intensity and invest on renewables to potentially become world leaders. Zhang (2016) adds that energy policies must be seen as tools to develop the interests of the political and business élites of China, through the activities of the national oil companies (NOCs).

Foreign policy and going-out strategy The current literature on the foreign (energy) policy of China sees Lee (2012), Cao and Bluth (2013), Meidan (2016), Lin (2017), Amineh and Yuang (2017), describing some of the aspects of the Chinese behavior in the international relations. As abovementioned, the fact that China needs to import huge amount of energy forces the government to shape its foreign policy in the direction of establishing bilateral relations with energy-rich countries, exchanging goods and investments with oil and gas supplies. The cooperation between such states can be achieved either by force or by friendly agreements (Amineh & Yuang, 2017). Coa and Bluth (2013) emphasize on the friendly cooperation that China perpetrates with its image of a peaceful country, focused on a mutually-advantaging economic cooperation. China is keen to establish long and stable trade relations with other countries. Meidan (2016) agrees and explains how the Chinese Development Bank (CDB), the Asian Infrastructure Investment Bank (AIIB) and other Chinese initiatives go in that direction. Lee (2012), however, disagrees and states that China’s action in the global scenario are challenging the West and its institutions: Lee gives some examples, such as the increasingly aggressive behavior of China in the Sea and in the Indian Ocean, regions where China has different interests, from oil fields to the security of trade routes.

19 Lin (2017) also focuses on the effects of the still ongoing Chinese going-out strategy in the foreign policy of Beijing. The going-out strategy encourages companies to invest outside of China, in order to find new markets to sell the huge amount of goods that domestic companies produce. The abovementioned initiatives, the CDB and the AIIB, along with the One Belt One Road initiative (BRI), go in the direction of opening new markets for Chinese and find new opportunities for Chinese construction companies to build infrastructures. In addition, Lin states that these new institutions and initiatives are aimed at increasing China’s influence from Africa to East , and from the Arctic Sea to the Indian Ocean, while at the same time helping Beijing to secure the energy supplies to China.

State-NOCs relation in China The academic literature is still uncertain on how to describe this relation. The discussion tries to determine whether NOCs in China are independent, dependent or state-led. Chen (2014) and Zhang (2016) go in the direction of relative independence of NOCs in relation to the central government. Chen notices that Chinese NOCs compete one another in foreign countries for new projects and for energy supply deals, meaning that they would not do so if the control over them was the same. Zhang describes the interaction between the State and the NOCs, noting that there is still a thorough supervision over the activities of the NOCs; nevertheless, such companies have become more powerful and independent in recent years, thanks to reforms of the energy sector in China. On the order side, scholars and experts like Lewis (2007), Harris (2010), Lee (2012), Taylor (2014), Amineh and Yuang (2017), argues that NOCs are under strict control of the government, given that energy-related activities are of huge concern for Beijing officials, mainly for security reasons. Lee (2012) states that energy-related issues and strategies are too important to be left to market forces alone, and stresses that the government controls and directs the actions of the NOCs.

Qatar Political economy of energy and foreign policy Countries that possess a large amount of natural resources are considered to suffer from the so- called “resource curse”, also know as “rentier state”. This theory seeks to explain the impacts of external payments (or rents) on state-society relations and governance (Gray, 2011). Ramady (2014) tried to apply it for Qatar, stating that the heavy dependency of Qatar on its gas exports has forced the country to find purchasers for its gas and investors for its gas basins (Ramady,

20 2014). New conglomerates with IOCs and NOCs from around the globe serve to this exact purpose, finding new, reliable and long-term investments in the country in order to grant financial and capital flows to . Chinese companies are doing so as well, making agreements on LNG supplies to China for many years to come (Ibid.). In addition, other scholars like Altunisik (2014) and Coates Ulrichsen (2016) explained how Gulf States in general revolved their foreign policy around their natural resources exports, and how some of these states, mainly Qatar, Bahrain and the UAE, rose to prominence in the world scenario thanks to the huge reserves of gas and oil. Kamrava (2013) argues that Qatar, between the three abovementioned countries, has assumed an almost hyperactive diplomatic profile, while at the same time focused on boosting its position in the finance and trade realms. This happened, on one hand, thanks to the massive revenues accrued from Qatari hydrocarbon exports, specifically liquefied natural gas. On the other hand, this happens thanks to the cohesion of the institutional élite that streamlines the policymaking process and ensures political and diplomatic agility.

Al Thanis ruling élite Institutional élite that is also extremely powerful and influential in the energy sector, owning the major company in the country, Qatar Petroleum (QP), who owns also Qatargas, the company supervising the natural gas sector. DSouza (2017) states that the Qatari royal family, the Al Thanis, have strict control over the whole political apparatus, as well as drives and manages all the state-owned companies, such as QP. DSouza also describes how the Al Thanis put member of other families with whom they hold strong ties in powerful posts of companies, institutions and state agencies, in order to control all activities of the strategic sectors of the state.

Sino-Qatari relations The energy relations between China and Qatar are relatively recent, hence there are relatively few works that specifically investigate this topic. Scobell and Nader (2016), as well as Olimat (2017), state that the relationship between the two countries actually started in 1988 with the recognition of the PRC as the only China, excluding from all diplomatic ties. In the course of the years the economic and diplomatic ties revolved mainly around energy. Initial agreements were made by president Hu Jintao and premier Wen Jiabao during the first decade of the 21st century, but with the election in 2013 of current president Xi Jinping the relationship flourished (Ibid.) and important gas supplies were signed by the two parties (Wood, 2017). Other works from prominent authors on Sino-Arab relations, such as Kamrava (2017) and Reardon- Anderson (2018), briefly mention Qatar, but do not delve deep into the Sino-Qatari relations.

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Gap in the literature The literature review has focused mainly on China’s resource scarcity problem and therefore its energy supply security strategy, NOCs and their relationship with the political élite; regarding Qatar, its political economy of energy and its foreign policy were at the center of the literature review, while also focusing on the way the Al Thani family rules the country. However, literature on the Sino-Qatari relations, the similarities between the two countries and the state-NOCs relationship in both China and Qatar, is insufficient and/or mediocre, given the fact that also prominent scholars and authors stress the relevance of China and Qatar not only in the Middle East region, but also in the world scenario. Therefore, this thesis wants to fill the existing gap on the Sino-Qatari relationship delving deeper into the bilateral cooperation between the two countries and not on the China-Middle East relationship as a whole. This thesis will also try to make some other contributions on if and how events that occurred in recent years affected the cooperation between China and Qatar, and the activities of Chinese NOCs in the Peninsula, as well as in the Persian Gulf region.

1.3 Theoretical and conceptual framework To design and structure a well-organized thesis a theoretical framework is needed. Theory and concepts are fundamental in order to select the proper information, data and actors, and to connect the dots until the completion of an exhaustive research. To do so, I started from a broad view on different theories, and I progressively scaled it down to find the suitable concepts for this research. As previously stated, China’s energy security is the starting point of my research, as it is the main reason why China is operating outside national borders with its NOCs. China’s energy security dictates the country’s energy strategy, hence its domestic policies targeting both consumers and domestic suppliers. My research tackles a multidimensional subject that includes a set of concepts, each of which needs to be theoretically addressed on its own to bring about a coherent theoretical basis for my research. In the beginning I will explain why the classical theories of International Political Economy are not suitable to help me understand the Chinese energy supply security strategy in Qatar. Then I will describe the concepts that instead helped me writing a coherent thesis. The first theory analyzed is economic nationalism. Economic nationalism focuses on the role of the state and the importance of power in shaping outcomes in the international political economy, in the same way of the International Relations (IR) theory of Realism, of which is a

22 more detailed “version”. The state is the main actor and the interest of the nation is the main driver for its activities; because the international system is anarchy-based there is no space for cooperation, states are in conflict one another. Therefore, the world is a zero-sum game in which the gain of power and influence of one state is the loss of power and influence of another. This is why the interest of the nation is crucial, because it helps them defend strategic sectors from the competition of other states. (O’Brien & Williams, 2016). This theory seems to be suitable to explain the behavior of China and its NOCs but looking closely it is a simplistic description of a much more complex system. This theory lacks explanations of the transnational activities undertaken by many states, China included, and by giving the prominent role to the state, institutions and economic markets are underestimated in their power to influence the international system. The second theory is liberalism. Liberalism centered either on the individual or on a wide range of actors, from the state to the companies to interest groups. Instead of believing in an anarchic international system, liberalists see the world as a system of interdependence in which states and peoples can cooperate. The world is no more a zero-sum game, it is a positive-sum game in which the gain of power and influence of a country can help other states do the same. Cooperation and free trade are tools with which states can help build a bigger and richer market for everybody to attain to. Economic progress is pursuable only through interaction, cooperation and interdependence. The free market is the main aspiration of liberalists as for their beliefs a free market is self-regulatory and efficient (O’Brien & Williams, 2016). Liberalism focuses too much on the market and its influence that underestimates the power of the state. Moreover, the Chinese energy market is not free, and Chinese energy companies are national companies, therefore the Liberalist theory does not apply to my research. The critical theory is a set of cultural and post-structuralist political economy approaches that are labelled as radical as they challenge established forms of organization; in this case I will analyse the Marxist theory of philosopher and political theorist Karl Marx and its criticisms of Liberalism. The Marxist theory is centered on the interest of the working class and the worker. Marx focused on the oppression of classes across societies and stated that capitalists are guilty for the exploitation of the working masses. In critical theory the same concept is applied to states and exploitation between them, therefore the international system is conflictual (O’Brien & Williams, 2016). This last concept of the critical theory can be helpful for the development of my thesis. In addition to such theories, the Varieties of Capitalism (VoC) framework created by Hall and Soskice (2001) is a handy tool to understand the relation between state and business classes. In

23 this framework, capitalist economies are divided into Liberal Market Economies (LMEs) and Coordinated Market Economies (CMEs). The whole debate of comparative capitalism in the academic literature revolved around three main perspectives: the “modernization approach”, the “neo-corporatism” and the “social systems of production approach” (Hall & Soskice, 2001). The first focuses on the structure of the state and its capacity to secure national growth. The second stresses the capacity of the state to negotiate favourably with employers and employees’ association groups. The third spotlights on the behaviour of firms and how they operate and generate trust (Hall & Soskice, 2001). Hall and Soskice however criticize these three perspectives stating that they fail to adequately model the interactions between the main actors of the capitalist market. Therefore, Hall and Soskice built a new framework for studies of comparative capitalism. In this framework, a relational view of firms is the starting point of the analysis. The relation of companies with other actors, such as their own employees, labour unions and other companies, are the unit of analysis. This framework will be used to explain the state/market relations in China because it is funded on actors and their behaviour. Hall and Soskice describe five spheres in which firms nourish relations to successfully engage in the capitalist economy. The first sphere is the “industrial relation”. The second sphere focuses on “vocational training and education”. The third is the sphere of “corporate governance”. The fourth sphere is rather broad and focuses on the coordination problems that appear with “inter- firm relations”. The last sphere of coordination problems is the relation with “employees”. Based on these five spheres, Hall and Soskice (2001) identify two ideal types, the LMEs and the CMEs. These ideal types are based on the idea that the relationships of firms differ across nations and can roughly be clustered into these two ideal types. The first ideal type, the Liberal Market Economy (LME), utilizes the market and hierarchy as the main tool of coordination. Based on market signals (for example price signals) the actors adjust their willingness to supply or demand goods and services. The second ideal type, the Coordinated Market Economy (CME), relies more heavily on non-market institutions to solve the coordination problems. Differently from LMEs, in which demand and supply define the equilibrium of results for firms, in CMEs, strategic interaction between firms and other actors are at the heart of the equilibrium of coordination. This consists in extensive relationship of collaborations, instead of competition, to advance and progress. The different ideal types of capitalism emphasize the presence of institutions related to cooperative behavior among actors. These institutions provide information, monitoring and the sanctioning of defections on which firms coordinate their relationships (Hall & Soskice, 2001). Based on the complementarities of institutions the states

24 can be divided into one of the two ideal types. This framework can be applied empirically to China. In order to apply it empirically, it is needed to describe the five spheres of the VoC. The first sphere in the VoC is the “industrial relation”. This relation is centred on the problem of how firms should coordinate bargaining on wages and working conditions (Hall & Soskice, 2001). Ahrens & Junëmann (2010) state that in China this relation looks more like a CME, even if there has been a move towards LME in the recent past. In China, managers are, to some extent, judged based on their role in the community regarding employment. This provides an incentive to coordinate with the working force on wages and working conditions. Nevertheless, unions are state-owned associations and have a top-down structure. Moreover, employment protection in China is even lower than in LMEs. China can, therefore, be seen as more leaning towards an LME, despite having some characteristics of a CME. The second sphere is “vocational training and education”. Hall and Soskice (2001) argue that in LMEs, education is more focused towards general skill. In CMEs, firms are also more focused on products that require specific skills, due to coordination and better employment protection (Hall & Soskice, 2001). Therefore, skill-specific education tends to pay off more than in LMEs. Currently, in China there is a mismatch between the demand and supply of working skills. The industry is more focused on specific skill, but the Chinese education system focuses on general skill. Nevertheless, China is more LME-like. The third sphere in the VoC framework of Hall and Soskice (2001) is “corporate governance”. In LMEs firms rely mostly on short-term market-based capital. They look at investors to provide this capital. In CMEs, on the other hand, firms tend to rely more on longer-term finance from banks. With regard to the energy sector in China, the oil companies are mostly state-owned. Therefore, China can be seen as a CME. The fourth sphere described in Hall and Soskice (2001) is the relation between the management and employees in firms. In CMEs, the employees of a firm are involved in the internal decision- making process, and their relationship is based on cooperation. On the contrary, in LMEs the system is top-down and the relationship between employers and employees is not cooperative (Hall & Soskice, 2001). In China, the relation between the management and the employees is even more top-down than in most LMEs, so China is more alike to LME. The fifth sphere regards “inter-firm relations”. In this sphere, the relations between firms is fundamental (Hall & Soskice, 2001). In LMEs, these relations are more based on competition, a fluid labour market and the legal system, while coordination and trust are more important in CMEs (Hall & Soskice, 2001). In China, companies normally don’t fight one another, they just work towards the same goal of common development. Therefore, China shows CME

25 characteristic. China can be seen as a mix between LME and CME, which cannot be placed into one of the ideal types of Hall and Soskice; therefore, China’s state market relations can best be described as a special type of capitalism, often referred to as “Chinese capitalism” (Witt, 2014). In the end we can say that neither LME, nor CME can perfectly describe China. Nevertheless, these theories result to be still too broad and general. Within the critical theory an approach that blends geopolitics, geo-economics, international relations and economics can be found: the critical geopolitics. Through such set of concepts and tools, conceived by Harvey in 1985, the International Political Economy is connected to geographical aspects and geo- economic drivers in order to reach a more complete set of concepts, able to describe the behavior of countries in the world scenario. The concepts of “capitalist logic of power” and “territorial logic of power” set two different set of ideas to understand how certain states are managed: the former states that countries prefer to interact one another in an exchange of capitals and goods, whereas the latter believes that keeping all means of production and most of the capitals inside the domestic borders is more efficient and more secure. Still, this argument is not enough valid for the Chinese case, as China shows elements of both arguments. It is with Amineh and Yang (2017) that we have a complete and suitable set of concepts to analyze China and its behavior. As previously said, China needs to fuel with energy its industrial growth, but the scarcity of such resources force Beijing officials to go abroad and make deals to supply homeland China with oil and gas. In exchange China let capitals flow outside of the national borders and to the energy- rich partners across the globe. Such attitude has changed overtime, as until recently China was closed to the world, and vice versa. Amineh and Yang (2017) used the concept of lateral pressure to describe how and why China has changed approach: they say that the pressure on the government coming from social and economic forces, willing to expand their consumption and production, pushed Beijing to expand its economic activities and diplomatic ties outside national borders in order to still keep the same control over the country. Control that is shared in China between the state class and the business class, in a fluid exchange of personnel from one to the other. This relation between the élite and the people is then a top-down type. The fact that China uses such approach shows how intertwined politics and economics are, and how the state and its status quo are on top of all goals and interests, even economic. These concepts are useful to explain the behavior of China domestically, as well as in the world scenario, given the fact that national interests always come first. Another helpful theory is the “resource scarcity” model developed by Amineh and Houweling (2007), which provide an analytical classification of the main types of energy scarcity and helps identify their fundamental causes. They present three main forms of scarcity: demand-induced

26 scarcity, supply-induced scarcity, and structural scarcity (Ibid.). This theory seeks to highlight the different implications and challenges of each type of energy scarcity on energy security and on the economy as a whole and how it is possible to bring about viable plans and policies to mitigate these challenges. China is facing an increasing demand-induced scarcity as its population and industrial growth have been rapidly growing over the past decades and are expected to grow further ( 2017). This model links China’s economic industrialization with its need of pursuing energy supplies outside its borders in resource rich countries like Qatar.

1.4 Outline of the argument and hypothesis H1: China’s efforts in diplomacy and FDI with Qatar ensured a considerable supply of gas to diversify the domestic energy portfolio and secure the energy supply strategy of Beijing. H2: The similarities in the nature of the political systems in both countries uphold the cooperation between China and Qatar. H3: Sino-Qatari relations were affected by the 2017 Qatar-GCC Crisis, especially in relations to the natural gas supplies to China.

1.5 Research method and operationalization I will use a mixed method for my thesis as different issues can be discussed properly with different methods. I will use both qualitative and quantitative methods for the second chapter in which I will talk about the power structure of China, its state-society complex, its energy market, as well as the decision-making process of the companies operating in it. I believe that both data and policy reviews, secondary literature with articles, books, think tank summaries and interviews can be extremely helpful. The third chapter will see the same approach in relation to the Qatari and its NOCs The fourth chapter will see a more in-depth research on the concrete activities that Chinese NOCs and companies have in Qatar, therefore I will need do take the most out of datasets and databases that I have been collecting since day one of the courses. I will use them together with other articles and yearbooks of the companies, as well as with secondary literature contents. The fifth chapter will focus on the geopolitics of the Persian Gulf region (mainly Iran-Saudi Arabia relations) and the challenges it brings, along with domestic challenges of Qatar, to the energy supply security of China. The sixth chapter will consist in the conclusions.

27 1.6 Structure of the work This thesis is organised in six chapters, of which the first one will be derived by the updated research proposal and will see addition in the coming months, especially during the last weeks. In each chapter I will find the answers to the question and sub- questions that I have asked in the related part. In chapter two I will focus on the power structure and state-market complex of China, addressing also the domestic political economy of energy. The energy sector will be described, likewise the relation between the state and the NOCs, CNOOC and CNPC, both active in Qatar. Firstly, I will make an introduction; secondly, I will take into account the power structure and state- market complex; thirdly I will review the energy situation and market and its three major companies in order of importance for my research: CNOOC and CNPC/PetroChina; finally, I will conclude with some remarks, while also answering the first subquestion: “What is the energy supply security situation?” In chapter three I will make the same outline for the analysis of the State of Qatar. Starting by an introduction I will then analyse the power structure and state organization; I will go through the energy situation and market of Qatar and its main actors Qatargas and Qatar Petroleum; in the end I will answer the sub-question: “How is the energy industry structured in Qatar, what is the natural gas market situation, and what are the Chinese interests in the country?” Chapter four will see the description and analysis of the activities carried out by Chinese NOCs in Qatar, what are their Qatari counterparts, what are the economic (trade, investment, finance) bilateral activities and future projects between the countries in the natural gas sector and in trade. I will then conclude answering to the sub-question: “In light of the previous sub-questions, how the energy relations between China and Qatar developed? What bilateral activities and projects have been started by Chinese and Qatari NOCs in the natural gas sector?” Chapter five will see describe the possible challenges to the Chinese energy supply security in Qatar and in the Persian Gulf region; what have been in recent years the risks that Chinese NOCs have undertaken and how they successfully (or not) overcame them. I will answer to the sub-question: “What are the challenges to the Chinese Energy Supply Security in Qatar? And in the region?” Chapter six will draw the final conclusion of my research, outlining the results I made as well as possible limits. I will also answer to this final sub-question: “Have we experienced an increase of interest from China in Qatar? And in the region? What are the possible outcomes of the Chinese increased interest on the geopolitics of the Middle East?”.

28 Chapter II

The People’s Republic of China: energy industry, natural gas sector and NOCs

2.1 Introduction The purpose of this chapter is to serve as a foundational step towards the specific inquiry of this research, by addressing the first sub-question: “How is the political economy of energy in China shaped by the state-market complex and what is the energy supply security situation of China?”

In the next pages I will try to answer this central question, and to do so I will start analyzing the Chinese state-market complex in order to categorize China into a narrowed-down theoretical framework of how the main actors in China (the Government and the economic actors) interact one another. I will then define the concepts of resource scarcity and energy supply security, crucial to understand how and why China operates in the world energy industry; I will describe the current Chinese energy situation and energy mix, as well as the forecasts for the future of the industry. I will narrow down the focus on the gas sector, as the core of this research is the energy supply security strategy of China in Qatar, its third largest natural gas supplier. In the following part I will take into account the institutions overseeing energy matters and some of the most important energy policy efforts to date I will conclude presenting Chinese NOCs and their relations with the CCP, give also an overview on the two NOCs operating in Qatar in relation to natural gas, CNOOC and CNPC subsidiary PetroChina.

2.2 Overview of China To understand China’s energy profile and its energy supply security strategy it is fundamental to contextualize the collected data within the greater historical and economic reality that shaped the rise of China as a global superpower in the last quarter of a century. The Chinese developmental model that successfully asserted the country as the world’s largest manufacturer (The Economist, 2015) has created, as a consequence, an enormous natural resources demand, mainly for oil and coal. In the first years of economic growth China was able to cope with the increasing domestic demand thanks to its oil and coal reserves. Nevertheless, since 1993, when the domestic oil production was around 2.6 mbpd (EIA, 2017), the People’s 29 Republic of China became a net importer of oil as oil demand surged ahead of domestic production (Jiang & Sinton, 2011) (Andrews-Speed, 2014). At the same time, the use of coal increased for both household and factories consumption, accounting for more than 60% of the total energy consumption (EIA, 2017). Natural gas remained extremely low in the same timeframe accounting for an average 14 bcm (EIA, 2017). This very fast economic transition has led to a sharp increase in energy consumption, whether through the established energy intensive industries, or through an increasing per capita income. Along this, has risen drastically over the same years, passing from 17.92% in 1978, to 52.57% in 2015 (Zhao & Wang, 2015), which translates into higher standards of living, inconveniently (mainly for the Chinese government) paralleled with higher consumption of energy. Therefore, since 1993, China faces the challenge of maintaining its energy supply for both the short and long term and tries to diversify its portfolio of energy importers countries to avoid risks of shortages in case of retaliation from other countries, or increased demands for extraordinary situations. In order to maintain the country’s energy supply security China has implemented several new administrative reforms, accompanied with the establishment of new institutions, agencies and companies (Li, Zhang, Tang, 2016). These new policies helped China to pursue its economic growth and its rising importance in the world order securing the country with the energy supplies it needs.

2.3 Chinese state-business relation Following Mao Zedong’s victory in the 1949 , Mao became President of the People’s Republic of China. Thus, the country was governed by the Chinese Communist Party (CCP) of which Mao was the President. The power in China was mostly in the hands of the CCP and all the officials and the whole administration was governed by an élite. Nowadays, with roughly 90 million members (1% of the world population), the power of the Chinese state is still based in the Party (Lawrence & Martin, 2013). In China, firms are embedded in different kinds of social networks (Fligstein & Zhang, 2010). These social networks are pivotal in the development of local economies and the private sector in China. These social networks have their origin in Confucianism and foster inter-personal relations (Fligstein & Zhang, 2010). In these relations, government officials, in coordination with economic actors, try to establish the conditions for economic growth of the companies. Therefore, besides the ties with other companies and costumers, in China especially the relations with the local and national government are crucial.

30 In China, the government officials are important in this network. In line with the constitution, the CCP is represented throughout the entire society. In every major company, one or more party representatives are part of the management. These networks are highly personal and are reinforced by the CCP. The Chinese state-class is central in the network building and coordination in the Chinese Economy. The Chinese state class is estimated to exist out of roughly 41 million members (Goodman, 2014). If only looked at 500,000 of the state class in a leadership position, it becomes clear that the real power in China is really concentrated. Out of these 500,000 members, the key elite is chosen (Amineh & Yang, 2018). Because the key officials of the Chinese government are chosen from the state-class, the state-class has substantial influence over the CCP, the institutions and Chinese policy. The 500,000 state-class élite are spread-out throughout society, with important positions in all major companies and all layers of the government. This makes the state-class hugely powerful in China. Since the key officials of the Chinese government are chosen from the state-class, the state-class has substantial influence over the CCP, the institutions, and Chinese policy. In addition, many of the current top ranked officials in the administration previously worked in the board of directors of SOEs, and vice versa (Chen, 2014). China’s energy élite fully incorporated into the central government. China’s government bodies have full authority over the appointment of CEOs for the three major NOCs1 and the government is the only regulator of the energy sector. President Xi Jinping stands at the top of the hierarchal pyramid. As party secretary and head of both the Central Committee (CC) and the Politburo Standing Committee (PSC), Xi Jinping has a final say in almost all party- related affairs. The fact that in 2018, under his presidency, the Chinese constitution was changed by the National Peoples Congress abolishing the maximum of two 5-year terms, can be seen as another move to further increase the power of the ruling élite allowing him to become, in principle, president for life. China’s current premier Li Keqiang is leader of the SC, the country’s highest organ of the executive state power. The SC works as a cabinet and supervises many agencies and ministries. Among these agencies is the Organization Department (OD). The OD is the central human resources department of the CCP. This body has the power to appoint and dismiss the chairmen and CEOs of the NOCs and functions as a stepping-stone for those chairmen with the ambition to pursue a career in party politics. Current head of the OD is Chen Xi, also one of the 25 members of the Politburo and Secretary of the SC. Things therefore are extremely different from the perspective that Westerners have: in the PRC all policies, all foreign policy decisions, all activities of strategic sectors of the state come from above, from the ruling élite of China, the opposite of what happens in the West where citizens

1 Notably: CNPC, , CNOOC. 31 vote for their representatives to sit in the Parliament and try to pass policies and laws directed to improve the condition of the country. The system in China is radically different.

2.4 Power and energy sector in China Ever since the establishment of the People’s Republic of China in 1949, energy policy has been a priority of the government’s activity to secure the needs of the industrial and economic development. Many historical events posed a threat to the security and stability of the Chinese growth; as a consequence, the government decided to further improve and develop the energy supply strategy and the energy security of the country (Leung, 2011). In the next paragraphs I will describe the energy mix and energy situation of China to understand its energy policy and its efforts to improve the energy supply security of the State, as well as to reduce the levels of greenhouse gasses (GHG) emissions, of which China is the world’s largest producer with more than 27.5% in 2014 (Hu, 2016). Before analyzing the Chinese energy sector, is crucial to describe two aspects of it: the systemic resource scarcity of China, and thereof its energy-importing nature, and the energy supply security strategy that China needs to constantly develop, a consequence of the prominent role of China in the global political and economic scenario. China is the world’s largest energy producer, with 2538 Mtoe, and consumer, accounting for over 3000 Mtoe (EnerData, 2017). Out of the total production 70% is derived from coal/lignite, the most polluting energy sources in the world (Stanford University, 2008). The difference between the energy production and consumption of China perfectly shows that the country faces a resource scarcity, especially if we highlight the coal consumption percentage in the energy mix of the country. China is investing across the globe in order to secure the continuous flow of oil, gas and also coal to the Chinese mainland, and my case study, Qatar, is one of those countries. Given the fact that China is an importer of energy, possible threats to its oil, gas and coal imports are one of the main concerns for Chinese officials. For strategic and war-related reasons China is improving its Strategic Petroleum Reserve (SPR), filling its stocks and building new facilities (Reuters, 2017-2). Chinese SPRs specifics are not disclosed by the government, but it is estimated to be around 400 million barrels, with a capacity of approximately 500 million barrels (Li & al., 2017). Alongside strategic and war-related supplies, China imports oil, gas and coal to secure the continuous economic production (and growth). Nevertheless, new threats come from environmental issues, that China wants to face in the present and in the coming years, with new measures to reduce polluting resources from its energy mix. In the 2015 United Nations Climate

32 Change Conference held in Paris, China agreed to increasingly reduce the use of coal and lower Co2 emissions, while at the same time investing more than $350 billion in renewable energies (Reuters, 2017-1). Therefore, China faces a great challenge: reducing its coal percentage in the energy mix, while granting its population’s increasing energy demand with supplies and assuring the nation’s energy supply security from threats of various nature.

2.4.1 Energy mix The Chinese domestic demand for energy increased sharply in recent years thanks to the rapid economic development, and it is likely to increase in the coming decades (BP, 2017). Since 2010, China is the biggest energy consumer in the world, with almost a quarter of the world’s total, reaching 23% (BP, 2017). In Fig. 2.1 is clear how the Chinese demand grew since the new millennium. In 2010 China surpassed the 2000 million tonnes of oil equivalent (Mtoe) for the first time. The major energy source used in China is coal (of which China is by far the world’s largest producer), whose domestic consumption is met thanks to domestic production, which in 2010 reached 3.2 billion tones (Ma, 2015). In the total energy production output coal accounts for 70% (1000 GW) and with 63% for the total energy consumption output (EnerData, 2017). Nevertheless, China is slowing the pace of coal production in order to meet the goals of the 2015 Paris Agreement (Reuters, 2017-1), but also because at current production levels, China has just 30 years of reserves (BP, 2017-1). Figure 2.1 shows how China is still dependent on coal for its energy mix. The case is different for oil, which despite a slow increase in production from 1.34 to 1.55 billion barrels, fails to meet the country’s needs (Meidan, 2016). China nevertheless, holds 24.6 billion barrels of proved oil reserves, a considerably high amount (EIA, 2017). The share of oil in the energy output is around 18% (EnerData, 2017). Due to the significant difference between the oil consumption and the domestic oil production, China is forced to import a substantial part of its oil. In 2014, China imported 6.2 million bbl every day (EIA, 2015). This makes China the largest importer of oil in the world; it surpassed the US in 2014 (EIA, 2015). China’s import dependency rose from 30% in 2000 to 57% in 2014 and is likely to continue to grow, despite intentions of the government to curb the dependence on oil imports (EIA, 2015) (Meidan, 2016). Oil is the most strategic resource for China, and that is the reason why the greater part of its national energy supply security strategy is linked to the diversification of the oil suppliers’ portfolio and securing of SPRs (Zhou, 2018).

33

Fig. 2.1 – Primary energy demand by resource in China (EIA, 2017)

In order to diversify the total domestic demand of energy, also natural gas is needed. This resource has been less important for China in the past, but in the coming years natural gas will play an increasingly important role in the diversification of the energy mix and the lowering of GHG emissions (EIA, 2015), as seen in the 13th Five-Year Plan of 2016 (Hu, 2016). As of 2016, China’s proved natural gas reserves amounted for 164 trillion cubic feet (Tcf), the largest in the Asia-pacific region (EIA, 2017). Gas accounts for around 6% of the total energy consumption, but by 2020 natural gas is expected to supply more than 10% of the total, thanks to imports and new developments in the shale gas field (Ma, 2015) (Hu, 2016) (EIA, 2017). China’s production of natural gas has risen in the past decade, tripling from 2003 to 2013 reaching 4.1 Tcf, risen to 4.3 Tcf in 2014, as a result of the government’s goal of 6.5 Tcf to be reached by 2020 (EIA, 2017). China has always been able to cover its natural gas needs with domestic production, but in 2007 consumption exceeded production: China became a net importer of natural gas (EIA, 2015). In 2016 China imported a total of 34.3 bcm of natural gas in the form of liquefied natural gas (LNG), mainly from Australia (15.7 bcm), Qatar (6.5 bcm) and Indonesia (3.7 bcm). In addition to the LNG, piped natural gas (PNG) was imported for a total of 38 bcm from neighbours Turkmenistan (29.4 bcm), Uzbekistan (4.2 bcm) and Myanmar (3.9 bcm). The amount of Chinese imported natural gas totaled 72.3 bcm in 2016 (BP, 2017). Much of the imported LNG is used in the major coastal cities in which LNG port terminals receives ships (Wang & al., 2013). There the LNG is regassified, pushed into the domestic gas

34 pipeline infrastructure and transferred to households for energy use in house utilities and heating systems (Wang & al., 2013). China is the world’s largest producer of clean energy from renewable sources, with double the production of the second country, the United States of America (EnerData, 2017). As mentioned previously, China is strongly developing its renewables industry (Reuters, 2017-1) and wants to increase the renewable energies share in its energy mix. China is the world’s leading country in electricity production from hydro, solar and (IEA, 2017), but the percentage of renewable energies in the total energy consumption amasses to just 26% (EnerData, 2017). Hydroelectric power is the biggest in China: the hydroelectric capacity is about 320 GW, the second overall in China as shown in Fig. 2.3, with 17 plants across the country and other 10 plants in construction, in order to reach a capacity of 350 GW (IHA, 2017). Wind energy in China has great development potential, with 75% of its land mass and coastline capable of utilizing this resource and a possible capacity of 2380 GW (Wang, 2010) (Wind Power Monthly, 2011). In the “13th Five Year Plan” drafted by the National Energy Administration (NEA, 2017), the wants to reach a production of 210 GW from wind power, with a current production of 20 GW. Despite being rich in solar energy and having massive production capacity of solar cells, China’s total PV capacity was slightly above 100 GW, putting it ahead of the world in term of total output; however, when considering the share of solar of the per capita energy consumption it is clear that China is lagging behind, with only 21 Watt/capita (Wang, 2010) (Shahan, 2015). The percentage within the total energy output is a 1.07% (BP, 2017-1). China’s share has increased in the total energy mix, going from 1.1% in 2011 to 2.9%, which doubled the decade average of 12.4% in growth, reaching an increase of 28.9% in 2015 (BP, 2017-1). This share is expected to grow with 20 nuclear reactors under construction expected to join the existing 34 nuclear plants (World Nuclear Association, 2016).

2.4.2 Energy situation As previously stated, the People’s Republic of China has a systemic resource scarcity that consequently turned the country into an energy-importing state; the resource scarcity/energy- importing nature is not the only challenge faced by the government of Beijing, as energy supply security is also one of the main points in the agenda of Chinese officials. Alongside these two core issues of the energy policy of China, since the early years of the new millennium scientific studies confirmed the relation between heavy GHG emissions, increasing temperature levels around the globe and rising sea levels (Hu, 2016). This third core issue is at the heart of recently

35 approved 13th FYP (NEA, 2017), in which the Chinese administration defined for the next five years. In parallel to the main Energy FYP, there are 14 additional supporting FYPs, such as the Renewable Energy 13th FYP, Wind FYP, Electricity FYP and others. In the new FYP energy plan, the major change is the contrast between promotion of renewables and the control over coal development. Non-fossil energy sources will account for over 15% of the total energy consumption, while coal consumption will be lowered to below 58% from 64% in 2015. As a solution to the curtailment and to increase system flexibility, natural gas consumption will be boosted to about 10% of total energy consumption, from 5.9% in 2015. This means non-fossil energy sources and natural gas will account for 68% of all new installed capacity in the next five years (NEA, 2017). This 13th FYP is the main policy concerning the energy industry and other policies will certainly be implemented in the coming years to further develop renewable energy use and to enforce incentives for companies and citizens. In order to understand this policy, we have to describe and compare the Chinese domestic demand for fuel and the final consumption with the rest of the world to see what the differences are and how can China catch up. In Figure 2.2. we can see on the left side that China’s coal usage is extremely high, compared to the rest of the world. This is where China wants to take the biggest effort, lowering coal usage; as stated in the 13th FYP the levels of coal will go below 58% at least. Linked to this factor, we can see on the right of Fig. 2.2. that most of the energy goes to industry consumption, that is more than double that of the rest of the world. This data however is unlikely to increase, given the fact that China is the world’s largest manufacturer (McKinsey, 2018). Coal usage will however be diminished with new, more effective regulations of output volumes, of days of production, of pollution output, and of capital investment (McKinsey, 2018). Another clear aspect of the Chinese energy industry that comes out of Fig. 2.2. is how low the transportation usage is when compared to the rest of the world: it is half the amount of the world mean.

36

Fig. 2.2 - Comparison China-RotW primary energy demand by fuel and final consumption by sector (EIA, 2017)

Fig. 2.3 - Energy capacity by technology in China (historical and projections) (World Energy Outlook 2017, IEA)

Nevertheless, future projections present in the World Energy Outlook of 2017 (IEA) shows how coal is going to remain stable in the energy output quantity of GW, even though the overall energy capacity of China will almost double before 2040. Fig. 2.3. shows this, highlighting also how renewable energies will see a boost in development of capacity, with solar, wind and hydro taking the lead with over 60% of the total, combined. Natural gas capacity will improve and by

37 2040 will reach more than 200 GW (IEA, 2017). Regarding national consumption, China will reach by 2040 a total of 4319 Mtoe, a steap increase from 2016 levels of 3053 Mtoe (BP, 2018). Oil will see a small reduction of the share, going from 19% (in 2016) to 17% in 2014. Coal will see a huge cut, passing from 62% to just 36%; nevertheless, it will still be the most used natural resource. Natural gas, nuclear and renewables will all see an increase of their share (BP, 2018). Still, China will be a net importer of energy, considering that the total domestic production will not cover the total domestic consumption.

2.4.3 Natural gas sector focus This research is built around the energy supply security strategy of the People’s Republic of China in the State of Qatar, the second largest importer of liquefied natural gas to China (The Observatory of Economic Complexity, 2018). Therefore, a focus on the natural gas sector of China is essential to understand the reasons behind growing Chinese interests in Qatar (The Diplomat, 2017), as well as to describe an increasingly important sector for the domestic energy mix of China and its energy transition. The Chinese natural gas industry has rapidly developed after the establishment of the People’s Republic in 1949. In that year, the annual production amassed a total of 0.01 bcm, reflecting the underdeveloped state of the economy, worsened by the Chinese Civil War (Lin & Wang, 2012). After more than 60 years the production reached 96.76 bcm in 2010. The turning point moment for the Chinese natural gas production was the completion of the first natural gas pipeline in the Chinese territory, a breakthrough that radically changed the scenario for gas in China, pushing the growth of the sector to new heights. The production in 2004 was around 40 bcm and, in just six years, more than doubled, peaking at slightly under 100 bcm (Lin & Wang, 2012). The growth rate of this timeframe was an annual 15.47%, a number impossible for Western countries to reach (Wang & al., 2013) (Feng, 2015). Alongside the production, the number of geological reserves vigorously increased thanks to new discoveries in the 1990s and 2000s: from 2000 to 2010 the average increase of proved reserves was 543.38 bcm per year (Wang & al., 2013). By the end of 2015, the total proven reserves of reached 164 tcf. These two factors - improved production and new gas reserves discoveries - combined with the energy demand of the enormous economic growth and concerns, pushed China to invest more and more in this natural resource (State Council, 2013). The Chinese government has pledged to reduce greenhouse gas emissions to 60-65% of the total from 2005 by the year 2030 (Cui & al., 2014). Natural gas is low carbon and contributes lower greenhouse gas emissions than its counterpart fossil fuels, such as oil and coal (Shaikh & Ji, 2016). Another reason for this

38 rapid development is that Chinese domestic petroleum exploration has shifted from oil- dominance towards oil-gas equal status (Dai & al., 2008). It is clear that secure and proper management of domestic and foreign natural gas supplies are an essential policy priority for China in order to sustain socioeconomic and low-carbon development in the country (Shaikh & al., 2017). Natural gas consumption was more than 200 bcm in 2016 (EnerData, 2017), more than five times what it was in 2003, 35 bcm, when the domestic production was sufficient to keep pace with the (growing) consumption. It is essential to say that China holds vast reserves of shale natural gas, according the U.S. Energy Information Administration (EIA, 2017). However, much of that gas is considered recoverable only if cost were not a constraint. Unfortunately, China’s three biggest gas basins, the Ordos in northern China, the Tarim in the region in the west, and Sichuan in the southwest, make up 90% of the country’s output (BP, 2017) (Green, 2018). But each of them is beset with geological or technological difficulties. Therefore, their exploitation is happening at a lower pace. Furthermore, the country is among the top ten holders of proven natural gas reserves, gas that could be produced at current prices, at 5.4 trillion cubic meters (BP, 2017). The fact that China hardly succeed at exploiting its own natural gas reserves, both ordinary and shale, force the administration to rely on imports. China, in fact, became a net importer of gas in 2007, year in which the gas import dependency was reported as 5% (Lin & Wang, 2012) (BP, 2014); this number grew very fast reaching 35% in 2016 (BP, 2017-1). This number could increase up to 50-60% by the year 2020, a scary prediction for China, considering that domestic gas production is expected to peak in 2022 at 150 bcm, not even close to the current consumption (Shaikh & al., 2017). Imports of natural gas happen in two forms: LNG and piped natural gas (PNG). LNG, before being shipped by sea, has to go through a liquefaction process to reduce its size and remove carbon dioxide and other hydrates. PNG, on the other hand, has geographical limitations and can be imported mostly overland via collection, compression and transport units (Foss, 2007). The transport of LNG by international waters is regarded as a more flexible but more insecure form of transport than that of PNG. The transport of PNG, though inflexible, is based on a binding agreement among the stakeholders, namely the supplier, transit and importer countries. The country’s growing liquefaction capabilities makes LNG a more attractive and competitive choice for an energy source. China had acquired the technology to liquefy natural gas in the 1960s, but it was not until 1995 that the first industrial LNG liquefaction facility was built in Sichuan province (Qiao & al., 2005). The industry however, remained underdeveloped until 2003 when the first LNG terminal in the country was constructed in Guandong province, the Dapeng. The Dapeng LNG receiving terminal in , after three years of construction,

39 began receiving 3.7 mt/year of LNG each year from Australia (North West Shelf Gas Project) under a 25-year contract signed in June 2006. The success of this project, funded by 11 foreign and domestic shareholders, confirmed the leader position of CNOOC (33% share in the project) in the LNG sector in China (Shi & al., 2010). In the coming years new LNG plants and terminals are going to be built, with 15 new plants and 8 new terminals (Shi & al., 2010). Concerning LNG imports, China’s first supplier, as of 2017, is Australia with 15.7 bcm, followed by Qatar with 6.5 bcm and Indonesia with 3.7 bcm. LNG is becoming more and more important for China, firstly because natural gas is going to replace (to a certain extent) coal for industrial, chemical and commercial use; secondly because it provides China a flexible way to supply various regions when in need, instead of a fixed pipeline that serves only the location through which it passes (Hove & Sandalow, 2017). Qatar is then a strategic partner for China’s natural gas imports and I will discuss in detail the investments made by CNOOC and CNPC in the state’s gas sector in Chapter IV. Nevertheless, all that glitter is not gold. LNG can also be an insecure way of supplying natural gas. In fact, along their routes in the Indian Ocean it is not unlikely to see LNG ships attacked by pirates (LNG World News, 2012). Therefore, the safety of LNG transportation is one of the most important issues faced by Chinese administration with regards to energy supply security for natural gas. The Chinese Belt and Road Initiative (BRI)2 is also working in that direction, securing sea trade routes of LNG ships in the Indian Ocean with Chinese Navy ships, as well as building new LNG terminals along the route in , Sri Lanka and Myanmar, in order to avoid LNG ships going through areas with high presence of pirates, like the Strait of Malacca, the most pirated sea route in the world (McCauley, 2014) (Vox, 2017). This aspect and other crucial issues of the Chinese foreign affairs strategy in the Middle East linked with the energy provision will be discussed in Chapter V. With regards to PNG, as of 2017, Chinese natural gas import countries portfolio sees Turkmenistan as the leading supply country of PNG, with a total of 29.4 bcm, followed by Uzbekistan with 4.3 bcm and Myanmar with 3.9 bcm. Only recently China developed and improved its PNG infrastructures with the abovementioned neighboring countries: CNPC worked with its Turkmen, Uzbek and Kazakh counterparts, namely Türkmengaz, Uzbekneftegas and KazMunayGas (as well as GazProm for the infrastructure building process) to develop a 1833 km long, dual-pipeline from Turkmenistan to West China (Hydrocarbons Technology, 2010). In 2014 it was the turn of Myanmar, with which China built a gas pipeline to supply the Chinese national gas grid (He, 2017).

2 Also known as One Belt One Road (OBOR). 40 The Chinese government is working to expand pipeline imports, with a new 38 bcm per year pipeline from Russia, called , projected to begin operations in 2019 The two countries are in discussions over several potential new pipeline routes as well (Hove & Sandalow, 2017). The whole natural gas market in China, a mix of LNG and PNG imports with domestic production, serves different needs: natural gas is mainly used in the heavy industry and chemical industry, with respectively 24% and 22%. Subsequently residential and power use account for 19% and 17%. These four categories of use are under the spotlight of the Chinese administration for the gradual replacement of coal with natural gas. Also relevant is the natural gas use for transportation reasons, with a piece of the cake of 13%. Almost irrelevant is the commercial use, with only 5% of natural gas usage (CNPC, 2017).

Fig. 2.4 – Domestic natural gas consumption by end-use sector in 2015 (CNPC, 2017)

In paragraph 2.4.1. we saw how natural gas is going to play an increasing role in the coming years. Gas output in China rose to a record 147.4 billion cubic meters (bcm) last year, up 8.5 percent from 2016 (National Bureau of Statistics, 2017). Gas production is forecasted to climb by between 6% and 8% per year through 2020 (CNPC, 2017). China’s 2018 gas output will rise by around 8%, or roughly 12 bcm, at the same time that gas demand will rise by 30 bcm, or 12.5%, to 270 bcm (SIA, 2017). That means that China in 2018 will need to import as much as

41 114 bcm of gas through pipelines and LNG combined. China’s gas imports last year surged by 28%. The trend of rising imports will continue, with SIA (2017) forecasting imports of 132 bcm will be required to meet 317 bcm of demand by 2020.

2.5 Chinese energy policy From 1949, China was based on a “closed economy”-socialist , but transformation started when some major changes in economics and politics shifted the course of the country in the late 70s. Deng Xiaoping reformed China mixing capitalist elements to the socialist system, from the privatization of ownership and means of production, to the marketization and allocation of resources (Li & Clark, 2010). From 1978 to 2008 China “opened up” to the world, with drastic reforming processes that re-shaped the country between 1992 and 2005 (Sullivan, 2012) (Walter & Howie, 2012). The energy market became a major subject of these changes, as the Chinese immense population and its energy consumption prompted new reforms of the sector. Administrative measures, five-year-plans (FYP) and energy policies and reforms helped the country to build a more functional energy sector. In 1984 the Chinese Communist Party approved the “Decision on the Reform of the Economic Structure” that paved the way for new market expansions in the country, the now so-called “socialism with Chinese characteristics” (Peng & Chen, 2010). Two major structural changes transformed the energy . The first one saw premier Zhu Rongji carrying out in 1998 a rationalization of central government agencies that reduced their staff by over 50% and eliminated great industry ministries, such as the Ministry of Metallurgy, the Ministry of Petroleum, and so on (Walter & Howie, 2012). As a consequence, all these ministries were now agencies that needed to regulate the newly created companies that operated in their sectors. The companies were not private, instead they were state-led, the so called “state-led enterprises” (SOEs). In the energy sector they are called national oil companies (NOCs). The 1998 reforms saw the passage of the CEOs of the main oil and gas companies, namely CNPC and Sinopec, to new high roles in the newly created agencies, such as the State Economic Trade Commission and the Ministry of Land and Resources (MLR). This shows how intertwined business and politics were getting. The 1998 reforms created an oligopolistic structure in which CNPC, CNOOC and Sinopec worked in a limited competition in order to improve the NOCs efficiency and profitability to prepare them for abroad activities in international markets (Taylor, 2014). The second radical reforms period started in 2003, when the governments gained back the state’s control over the NOCs. The establishment of the State-owned Assets Supervision and

42 Administration Commission (SASAC), an agency created to bring order to the SOEs and NOCs of the country, and the creation of the National Development and Reform Commission, serve to bring together under state control and overview all the activities of the strategic state-led companies. After the 2003 reforms, in 2008 the National Energy Administration (NEA) was funded; in 2010 it was the turn of the National Energy Commission (NEC). These two agencies serve as high-level discussion and coordination bodies. Zhu (2013) explains that the main duties and responsibilities of this agencies is the development of energy strategies, reform advice, management of the energy sector and putting forward strategies that promote international cooperation. The current scenario of the energy industry is described in Fig. 4.

Fig. 2.5 - Key government bodies overseeing energy issues (IEA, 2016)

We can clearly see from Figure 2.7. the myriad of agencies, ministries and commissions that oversee energy reforms, development and policies. This is due to the highly decentralized administration of the State built by the Chinese Communist Party (CCP) in the past decades (Andrews-Speed, 2010). As a consequence of this fragmented structure, the capacity and effectiveness of the energy institutions has sensibly decreased. Thus, the energy policy making process is shared between all of the agencies and ministries. The National Development and Reform Commission (NDRC), a department of China's State Council, is the primary policymaking, planning, and regulatory authority of the energy sector, while other ministries such as the Ministry of Commerce, the Ministry of Land and Resources, the Ministry of Environmental Protection, and the State Oceanic Administration oversee various components of the country's oil policy. The government launched the NEA to act as the key energy regulator. The NEA, linked with the NDRC, is charged with approving new energy projects in China,

43 setting domestic wholesale energy prices, and implementing the central government's energy policies, among other duties. The NEC, instead, consolidates energy policies among the various agencies under the State Council and assesses major energy issues. Worth a mention is the Ministry of Finance (MOF): the MOF is the majority shareholder and supervisor of all the Chinese state-owned commercial and policy banks, namely the Agricultural Banks of China (ABC), the Bank of China (BC), the China Construction Bank (CCB) and the Industrial and Commercial Bank (ICBC). Alongside the MOF, the newly reformed Chinese Banking Regulatory Commission (CBRC) (Reuters, 2018), supervises the activities of the banks with the NOCs. The MOF also controls the state-owned CITIC Group, the biggest conglomerate in China, investing in strategic sectors for Chinese economic growth. As a result, the Chinese Minister of Finance, currently Liu Kun, is one of the most important actors in financing NOCs and their cross-borders activities. In conclusion, the energy policy making process starts above with the State Council and goes down to all its branches, mainly the NDRC, NEA and NEC. After lower institutions agree on the matters, discussions are “passed” to higher levels where it is filtered and adjourned (Andrews-Speed, 2010). Nevertheless, this process faces many obstacles as consensus between officials of the same agencies, and subsequently between agencies themselves, can be sometimes hard to reach because of the divisions between the leaders of such institutions, and because of the failure in delivering clear and cohesive works throughout the entire procedure (Andrews- Speed, 2010).

2.6 State class and NOCs In the 1980s, China established the three major NOCs, China National Petroleum Corporation (CNPC), Sinopec and China National Offshore Oil Corporation (CNOOC), to serve in various areas of the oil sector. CNPC was put in charge of most of the country's onshore upstream assets, and Sinopec was given responsibility for the downstream activities such as refining, distribution, and . China gave CNOOC responsibility to explore and develop oil and gas assets in the offshore areas of China. In the late 1990s, the Chinese government reorganized most state- owned oil and gas assets and created separate operating companies or publicly listed arms of each of the NOCs. These separate companies are majority-owned by each of the NOC holding companies. Additionally, in 1998, the government restructured CNPC and Sinopec into two vertically integrated firms that own both upstream and downstream assets, with CNPC taking some downstream assets and Sinopec acquiring some fields for exploration and production

44 (E&P). My attention will be mainly focused on CNPC and on CNOOC, the two companies operating in Qatar. CNPC is the leading upstream player in China and, along with its publicly listed arm, PetroChina, accounts for an estimated 54% and 77% of China's crude oil and natural gas output, respectively (EIA, 2017). CNPC is China's largest oil and gas producer and supplier, as well as one of the world's major oilfield service providers and a globally reputed contractor in engineering construction, with businesses covering petroleum exploration and production, natural gas and pipelines, refining and marketing, oilfield services, engineering construction, petroleum equipment manufacturing and new energy development, as well as capital management, finance and insurance services. The businesses of CNPC “include oil and gas operations (both upstream and downstream), oilfield services, engineering and construction, petroleum material and equipment manufacturing and supply, capital management, finance and insurance services as well as new energy operations” (Burke, Jansson & Jiang, 2009). In 2016 the oil production was 105.45 million tons and its gas production totaled 98.1 billion cubic meters (CNPC, 2016). Important for the structure of CNPC is its relationship with PetroChina. The latter company is the holding company of CNPC’s most valuable assets and it is listed on the New York and Kong stock exchanges. Furthermore, CNPC hold 86% of its shares (Jiang, 2012). PetroChina is the main company operating in Qatar (BP, 2017). Like all NOCs, CNPC is often backed by the Chinese state in its cross-border activities, due to the strategic nature of such operations. Currently CNPC is active in over more than 30 countries (CNPC, 2017). Current Chairman of CNPC is Wang Yilin, former chairman of CNOOC and one of the most important advisors of the inner circle of President Xi Jinping (Ng, 2018). CNOOC is the largest offshore oil and gas producer in China and a state-owned company operating directly under the SASAC (CNOOC, 2018). It explores for, develops, produces, and sells crude oil, natural gas, and other petroleum products. CNOOC, which is responsible for offshore oil and gas E&P, has seen its role expand as a result of growing attention to offshore zones and overseas assets. It works through its operating subsidiary CNOOC Limited that produces offshore crude oil and natural gas, primarily in Bohai Bay, CNOOC’s most important and largest oil and gas production base, with proved reserves of 1.044 billion barrels of oil equivalent (BOE), 44% of the company’s total reserves (Shell & DRC, 2017). The fields in Western is the most important gas producing area for CNOOC, with a total of 640 million BOE of net proved reserves. The Eastern South China Sea and Sea in offshore China are also very important for the company. Asia and Africa are the most important areas of operations outside Chinese borders, with the main activities being undertaken in Central

45 Asia and the Middle East. As of December 31, 2017, the company had net proved reserves of approximately 4.84 billion BOE (CNOOC, 2018). Current chairman of CNOOC is previous- CEO Yang Hua. The most important aim of Chinese NOCs is to secure energy supply from energy rich countries. Hence, the rationale behind purchasing oil and gas from the international market is to secure supply while diversifying and diffusing risks (Yi-Chong, 2012). Moreover, there are four policy elements that the Chinese government implements to decide on how to decide what type of overseas investments to make: energy policy, industrial policy, social policy and foreign policy (Xin & Andrews-Speed, 2006). This is sought through investments in oil and gas fields: the main driver is that holding shares in foreign fields and owning proportions of these fields can serve to mitigate the impact of potential supply crisis (Xin & Andrews-Speed, 2006). The choice of the Chinese government to rely on its NOCs to secure its oil and gas supplies is according to some accounts, a non-sustainable strategy, under the assumption that market mechanisms will eventually triumph over direct administrative control (Ma, 2008). Nevertheless, the Chinese government seems to continue to value its energy supply security enough to maintain control over the NOCs, since this issue is tied to regime survival. Moreover, these companies have been successful in both securing supply and bringing high profits (most notably CNOOC), thus, the predictions of the failure of these state-run entities have fell short of their competitive capabilities and growing power in the global energy market. In Chapter IV the activities of CNPC and CNOOC in Qatar will be thoroughly analyzed.

2.7 Conclusion China’s economic growth in the last decades pushed the government of Beijing to invest abroad with its reformed NOCs in order to fulfill the domestic energy demand. The national oil and gas production is insufficient to do so. Alongside the merely economic aspect, the Chinese government needs to improve and strengthen its energy portfolio of import countries to secure its supplies and meet security concerns with efficient and reliable sources. In addition, climate change is threatening the safety and security of the Chinese energy sector, heavily based on coal: the government is implementing new regulations to reduce coal production and consumption, while at the same time investing billions in renewable energies and low greenhouse gasses emitting resources, like natural gas. This demand-induced scarcity and the many geopolitical challenges lay their weight on China’s leadership, which aims to mitigate these impacts by a greater reliance on foreign imports, making energy security a major component in its foreign

46 policy, especially with energy-rich countries. Natural gas will play an increasingly important role for households and factories usage, and will replace, to a certain extent, the use of coal and oil, mainly in big cities. Chinese NOCs are investing abroad in order to make profit and secure important amounts of oil and gas, and reinvesting part of the profit in the domestic energy industry to update it and improve it.

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Chapter III

The State of Qatar: power structure, energy sector and Sino-Qatari relations

3.1. Introduction This chapter will start with an introduction on Qatar, illustrating its power structure, its political outlook and its recent history. I will briefly describe the relations that China has with Qatar in many fields, mainly economy, trade and energy, as well as their diplomatic ties. I will then analyse the energy sector in Qatar, focusing on the energy mix and situation, the Qatari NOCs operating in it, and their relationship with the central government. In this paragraph I will also describe in depth the natural gas sector of the Qatari energy industry, so that the reader has a comprehensive knowledge of the natural gas sector of both China (Chapter II) and Qatar (Chapter III), before the core analysis of the Chinese NOCs deals with their Qatari counterparts of Chapter IV. The chapter will terminate with a conclusion taking into account all the different matters described, while at the same time providing an answer to the question “How is the energy industry structured in Qatar, what is the natural gas market situation, and what are the Chinese interests in the country?”.

3.2 The State of Qatar and its relations with China 3.2.1 Power structure in Qatar Ruled by the Al Thani family since the mid-1800s, the State of Qatar transformed itself from a poor British protectorate into an independent state with significant oil and natural gas revenues. Qatar is a rather small, young state existing between two large, energy-rich and relevant countries, Saudi Arabia and Iran. However, its small size is contrasted by a much bigger political influence in the region, as Qatar has been able to transform from a pearl and fishing country into a global hub and a central pivot to globalization (Kamrava, 2013). The continuous siphoning off of petroleum revenue through the mid-1990s by Qatari emirs permanently residing in Europe had stunted Qatar’s economic growth. Former emir Hamad bin Khalifa Al Thani, who overthrew his father in a bloodless coup in 1995, ushered in wide-sweeping political and media reforms, unprecedented economic investment, and a growing Qatari regional leadership role, in part through the creation of the pan-Arab

49 satellite news network Al-Jazeera and Qatar's mediation of some regional conflicts. In the 2000s, Qatar resolved its longstanding border disputes with both Bahrain and Saudi Arabia and by 2010 had attained the highest per capita GDP in the world, with more than $88.000 (Forbes, 2012). Qatar did not experience domestic unrest or violence like that seen in other Near Eastern and North African countries in 2010-11, due in part to its immense wealth. In June 25th, 2013, Hamad peacefully abdicated, transferring power to his son, the current Emir Tamim bin Hamad (The Economist, 2014). Tamim remains popular with the Qatari public, having prioritized improving the domestic welfare of Qataris, including establishing advanced healthcare and education systems and expanding the country's infrastructure. The Sheikh exercises full executive power and approves or rejects legislation after consultation with the appointed 35-member Advisory Council and cabinet. There are no elections for national leadership, and the law forbids political parties. According to the permanent constitution of 2004, people are deemed to be the source of authority in Qatar, and they can exercise it in accordance to the constitution. The system of the government is based on the separation of power. The legislative power is the prerogative of the Al-Shoura Council. The executive power is enforced by the Emir, who is assisted by the Council of Ministers, or Cabinet, by the Prime minister and six supreme councils. The Emir appoints all these officials and can relieve them from any of their posts. The judicial power is vested in Qatari courts of law. The Emir is also the Head of State and represents the country internally, externally and in all international relations. He is the Commander-in-Chief of all Qatari armed forces, duty in which is assisted by the Defense Council, set under his direct authority (Qatari Government, 2018). Despite its small size, Qatar reached a rather big political influence in the Middle East-North Africa region, as it transformed into a global hub and a central pivot to globalization (Kamrava, 2013). However, Qatar rose to prominence in the last decade for its new foreign policy: during the Arab Spring, Qatar moved away from its traditional foreign policy role as diplomatic mediator to embrace change in the Middle East and North Africa (MENA) and support transitioning states, notably Libya (Coates Ulrichsen, 2014). Regional actors viewed Qatar’s approach as overreaching, and skepticism of Doha’s policy motivations increased (Coates Ulrichsen, 2014). In recent years, increased tensions with regional countries Saudi Arabia, Bahrein, United Arab Emirates and resulted in a diplomatic crisis for Qatar (The Guardian, 2017).

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Fig. 3.1 – Board seats of Qatar Exchange Listed Companies held by family (DSouza, 2017)

In addition to this, Qatar is still a tribal society at its core, at least when all the expats, who represent 88% of the population, are discounted for and the power structure of the country is analyzed. Besides the obvious political power of holding the posts of Emir since the 19th century, Al Thanis have held from 18% to 63% of Ministerial positions throughout the last 45 years (Dsouza, 2017). Some of the individuals from the Al Thani family can be found on many different board of directors of the main Qatari companies: from the Qatar International Islamic Bank (QIIB), to the Qatar Islamic Insurance Company (QIIC), from Ezdan Real Estate Company (the largest real estate company in the Middle East) to Medicare Qatar (DSouza, 2017). In addition to these companies, members of the Al Thani hold major positions in the national strategic companies like the Qatar Investment Authority (QIA), Qatar Petroleum (QP), Qatar Investments & Projects Development Holding Company (QIPCO). In total, the value of board seats of Qatari companies held by the Al Thani families amounts to more than €35 billion,

51 considering only companies listed at the Qatar Exchange; all the other major families in Qatar only reach €20 billion combined (DSouza, 2017). It is then clear that the Al Thani family holds the highest seats in the government and controls Qatari major companies through a network of trust-worthied family members that limits the chances of attacks to undermine the family control and power over the country.

3.2.2 Energy relations between China and Qatar Until 2009, Qatar was not one of China’s traditional energy suppliers. However, after a sales and purchase agreement signed in 2008, China have become Qatar’s fourth consumer of LNG importing in 2016 nearly 34% of its LNG needs from Qatar (Ratner, Nelson & Lawrence, 2016). The first deal between the two countries was signed in 2009, a long-term LNG supply contract between CNOOC and Qatargas, for a procurement of 2.76 bcm until 2034 ( & DRC, 2017). In 2008, CNPC’s PetroChina made a deal with Qatargas for a 25-year-long, 4 bcm LNG supply, starting from 2011. In that same year in which Qatar completed the first LNG terminal in China, located in the eastern coastal province of (Canty, 2011). Still in 2011, Qatari exports began offloading at the Jiangsu CNPC Rudong Terminal, using Qatar’s largest ship for LNG transport with a load capacity of 266,000 cubic meters (Feng, 2015). This also implicated a greater engagement by the NOCs in the upstream sector in Qatar. In May 2010, PetroChina and Shell had signed a three years Production Sharing Agreement (PSA), with Qatar Petroleum, to jointly explore and produce natural gas from an 8100 km2 in Qatar’s Block D, near Ras Laffan (Doha News, 2014). China’s LNG imports from Qatar went through a steady increase, and since 2012 China became Qatar’s fourth LNG consumer after , and (Saidy, 2017). The two countries’ NOCs work together also in projects outside their domestic borders: CNOOC and Qatar Petroleum had partnered with Royal Dutch Shell as the winning bidding consortium for the Alto de Cabo Frio-Oeste block in the prolific Santos hydrocarbon basin offshore Brazil, in late 2017 (World Oil, 2017).

3.2.3 Diplomatic ties An increased dependence on foreign energy brings serious concerns regarding sudden disruptions in supply caused by conflicts, shifting production quotas, or by price wars (Feng, 2015). This high-risk environment led China to reconsider its passive approach in global energy trade, demonstrated by the behavior of its NOCs. One of the tools used by China to actively and aggressively engage in the energy trade, is pursuing mid- and long-term, government-to-

52 government contracts with energy-exporting countries in order to replace short-term supply deals (Feng, 2015) (Royal Dutch Shell & DRC, 2017). Historically China had a disinterested outlook towards conflicts in the MENA region, which it saw as having no impact on its national interest (Feng, 2015). Hence, the CCP did not develop any sophisticated foreign affairs doctrines concerning the MENA region other than their adopted “non-intervention” principle, which is designed to govern their trade and geopolitical interests in the region (Feng, 2015). This gives the Chinese great leverage when negotiating their energy trade deals with Middle East and Gulf countries, being a high paying and consuming energy partner with no political agenda. Moreover, it ensures that China’s energy ties in the region are relatively isolated from the domestic or regional politics of its Middle Eastern suppliers. The diplomatic ties between China and Qatar, were established in 1988, but it was not until after the development of their energy relations, that these diplomatic channels were intensified, reaching the highest level through a State visit by the Sheikh Tamim bin Hamad al Thani to Beijing in 2014, during which he met the Chinese President Xi Jinping. This visit has been heralded by previous visits of various Qatari officials to China, most notably the visit of the Prime Minister Sheikh Hamad Bin Jasim Bin Jabir Al Thani, who met with the Chinese President Hu Jintao and Premier Wen Jiabao (Xinhua, 2011). During the course of the visit, leaders of both countries made a commitment to honor the 20th anniversary of their diplomatic ties by strengthening their strategic friendly relations, increasing political trust, and facilitating beneficial cooperation in the fields of energy, aviation and investment and increase high-level exchange (Xinhua, 2011).

3.2.4 Economic ties The future of China’s political stability and growth, hinges increasingly on a constant economic growth sustained by accessible, and financially efficient energy supplies from outside sources, which has led the country to develop a set of diplomatic and administrative tools to strengthen China’s energy security and entails the deepening of political and commercial relations with the energy producing countries (Zhao, 2008), as well as stimulating investments and financial engagement. The level of interdependence between China and the Middle East, in this case Qatar, went from energy trade, to cover areas such as commodity trade and business development. Moreover, the new economic beltway of the BRI will extend these ties to lucrative sectors such as telecommunications, high-tech goods, logistics and financial services (Feng, 2015).

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Fig. 3.2 Qatar’s import partners (EIA, 2016)

Fig. 3.3 Qatar’s export partners (EIA, 2016)

54 Trade between China and Qatar dates back to the 1950s, however it was not until the early phase of their energy relations that their mutual trade accelerated (Xinhua, 2011). In 2007, Chinese imports reached $590 million and exports $620 million, totaling $1.21 billion in mutual trade, according to the statistics of China's Ministry of Commerce (Xinhua, 2011). Energy relations between China and Qatar had implications on the economic ties between the two countries, which saw the volume of their mutual trade expand by 345% from 2008- 2013, reaching $11.5 billion (Al-Tamimi, 2014). In 2015, China was Qatar’s second import partner, and its fifth export partner. This trade boom was also facilitated by the complementary nature of both Chinese and Qatari markets. For example, the majority of Chinese exports to Qatar included mechanical and electrical products, textiles, and high-tech products, all of which are highly demanded in the Qatari (and Gulf States) market, due to the lack of manufacturing capacity needed to produce these goods (Xinhua, 2011). Chinese imports to Qatar also include articles of iron, steel, aluminum and copper, as well as infrastructure equipment, among other products (China invests Overseas, 2017) (The Observatory for Economic Complexity, 2018). On the Qatari side, exports to China included (other than LNG) minerals, petroleum oil, petroleum products; plastics, and miscellaneous products (China invests Overseas, 2017). As of 2015 China was Qatar’s second trade partner while China is Qatar’s first import partner, and its fifth export partner according to 2017 World Bank statistics. It is worth noting that top imports and exports partners with Qatar, include countries like Japan, South Korea and India, which are major importers of Qatari LNG, which reflects the interconnectedness of energy relations and trade. It also indicates that China’s strategic tools are not unique, as it follows the path of old regional partners like South Korea and Japan. Investments between the two countries have increased since 2007, two years before the conclusion of their LNG trade agreement (Xinhua, 2011). This was also reciprocated by an increased interest by Qatari investors in the Chinese market, especially in the fields of finance, real estate, and petrochemicals (Xinhuanet, 2008). According to the Economic and Commercial Counselor's Office of the Chinese Embassy in Qatar, in 2008, Chinese companies signed contracts worth nearly $2 billion with Qatar, for the execution of engineering projects, and providing labor services (Xinhuanet, 2008). That same year, the Industrial and Commercial Bank of China (ICBC), the largest state-owned bank in China, was approved by the Qatar Financial Center to set up a branch in Doha, the first time a Chinese bank was permitted to operate in the Gulf region (Xinhua, 2008). The relationship of the bank with the Qataris dates back to 2006, when the Qatar Investment Authority bought $206 million worth of ICBC shares

55 in the bank’s initial public offering (IPO) which was the largest in the world at that time (Xinhua, 2008). In 2016, Chinese direct investments to Qatar increased 77.5% while accumulated contracting revenue of China in Qatar remained at $1.12 billion, amid the low oil prices, which led to decreasing trade between the two countries (China invests Overseas, 2017). Qatar is also engaging quite actively in the Chinese economy, as it has pledged through the Qatar Investment Authority (QIA), one of the world’s biggest sovereign funds, the allotment of $10 billion for investment ventures with the Chinese CITIC Group (Bloomberg News, 2014). In 2012, Qatar Holding LLC, the investment arm of Qatar’s sovereign wealth fund, has been given a $1 billion quota to invest in China’s capital markets, which is the highest cap given to foreign investors as set by Chinese regulations (Reuters, 2012). The financial openness was deepened when in April 2015, China launched the first Renminbi Clearing Center (RCC) in the MENA region in Doha (Fintech Finance, 2015). The center offers RMB clearing and settlement and will give access to China’s domestic RMB, in addition to linking foreign exchange markets to local financial institutions (Reuters, 2015). This will increase the financial integration and connectivity between China and the region and will be a further step to expand trade and investment between China, Qatar, and the region. This financial cooperation is an indicator of the trajectory of the Sino- Qatari relations, as it portrays Qatar as one of China’s main economic partners, which is an appropriate reflection of the nature of these growing relations.

3.3 Energy sector in Qatar For a long time, Qatar like other small Gulf States, have long been neglected by scholars, and even today, after the realization of the country’s significance, there are still no more than a handful of published works on the nature and the evolution of the political system and political (Kamrava, 2013). The rentier state model, which is a political economy theory that explains state-society relations in countries where large proportion of the state’s income is generated through rents, can be helpful to describe Qatar and its political economy (Gray, 2011). In an energy rich country like Qatar, rents are mostly payments for oil and natural gas exports. Under such circumstance, the state is able to refrain from making any concessions to society as it provides public services without imposing taxation on its citizens. Qatar however, belongs to the late rentier states, like the UAE, Kuwait and Bahrain, which in contrast to the first rentier-states like Saudi Arabia (1950s-1980s), are characterized by being more responsive. Much like the UAE, Qatar was able to steer its economy away from the absolute reliance on oil and natural gas revenues, towards a more diversified, developmental,

56 and entrepreneurial economy (Gray, 2011). Overwhelmed by the high price of oil during the 1960s-80s, the first rentier-states of the Gulf were completely reliant on the oil revenue, which made almost all of their GDPs. This energy-centric economic approach was a common characteristic of the first rentier states in the Gulf during that period. Late-rentier states like Qatar (1990-present) do not perfectly fit within this economic model as they are better described as following an energy-driven model of economic management, where the revenue of oil and natural gas is invested in diversifying the economy, focusing on sectors relating to the energy industry, and sectors of comparative advantage (Gray, 2011). Achieving an advanced, sustainable, and diversified economy is one of the main goals of Qatar’s National Vision 2030 (QNV 2030), a development project launched in 2008 by the Sheikh Hamad bin Khalifa Al Thani and the General Secretariat for Development Planning to reduce the country’s high dependency on natural gas and oil (51% of Qatar’s GDP, as of 2014) (International Monetary Fund, 2016).

3.3.1 Overview of the energy sector in Qatar The state-owned Qatar Petroleum (QP) controls all aspects of Qatar’s upstream and downstream oil and natural gas sectors, including exploration, production, transport, storage, marketing, and sale of crude oil, natural gas, natural gas liquids, liquefied natural gas, gas-to-liquids (GTL), refined products, petrochemicals and fertilizers (EIA, 2016). Qatar often focuses its natural gas development on integrated, large-scale projects linked to LNG exports or downstream industries that use natural gas as a feedstock. These projects tend to include investment from international oil companies (IOCs) with the technology and expertise in integrated megaprojects, including ExxonMobil (ExxonMobil Corporation, 2018), Shell (The Economist Intelligence Unit, 2017), and Total (Total SA, 2009). The Qatargas Operating Company Limited (Qatargas), which operates four major LNG ventures (Qatargas I-IV), and Ras Laffan Company Limited (RasGas), which operates three major LNG ventures (RasGas I- III), lead Qatar’s LNG sector. Each venture has an individual ownership structure, although QP owns at least 65% of each. On January 1st, 2018 the two companies merged under the name of Qatargas, in order to create a global gas giant and save more than 2 billion of Qatar Rial (Gulf Times, 2018). The Qatargas consortium includes QP, Total, ExxonMobil, Mitsui, Marubeni, ConocoPhillips, and Shell. Qatargas handle all upstream to downstream natural gas transportation themselves, while the Qatar Gas Transport Company, known as Nakilat, is responsible for shipping Qatar’s LNG (Nakilat, 2018).

57 In the oil sector, while QP owns and operates the onshore field and the offshore Maydan Mahzam and Bul Hanine fields, IOCs operate the remaining offshore fields via production sharing agreements (PSAs) (EIA, 2016). To increase production and reserves and to mitigate natural gas related capital expenditures, QP offered more favorable terms for PSAs in recent years (EIA, 2016). Qatar’s electricity sector has several important entities, including the Qatar Electricity & Water Company (QEWC), which owns and manages the country’s electric and desalinization plants. The Qatar General Electricity & Water Corporation owns and operates the country’s electricity and water distribution networks (EIA, 2016).

3.3.2 Energy mix and energy situation Qatar’s crude oil production is the second lowest in the Organization of the Petroleum Exporting Countries (OPEC), but increasing production of non-crude liquids, most of which are a byproduct of natural gas production, is contributing to gradual growth in total liquids production (EIA, 2016). Qatar has been a member of OPEC since 1961. With proved reserves of crude oil estimated at 25.2 billion barrels (IEA, 2018), Qatar holds the 9th largest reserves in OPEC and 13th largest in the world (EIA, 2018). Qatar’s crude oil and lease condensate production ranks 17th in the world, with most of the country’s production sent abroad as exports. In 2012, Qatar’s non-crude liquids production surpassed its crude oil production for the first time in the country’s history (EIA, 2016). Recent growth in non-crude liquids is the result of the country’s robust natural gas production, which produces many heavier hydrocarbons in addition to natural gas. With high levels of natural gas production expected to continue, Qatar’s non-crude liquids supply is also likely to remain high. Meanwhile, production of crude oil has declined in recent years as mature oil fields experienced natural decline. Crude oil represented 35% of petroleum and other liquid production in Qatar in 2014, down from 44% in 2010. Therefore, oil is not a strategic resource for Qatar’s economy, unlike natural gas which is the primary source of wealth for the country (The Observatory of Economic Complexity, 2018). I will take into account the natural gas sector in the upcoming paragraph. Other natural resources playing a relatively important role in the Qatari energy mix are renewable energies, mainly solar. With a percentage of 0.5 in the total production capacity, solar energy in Qatar produces around 380 million kWh, which is incredibly low considering that natural gas and oil combined reach 77.03 billion kWh (World Data, 2018). Nevertheless, the QNV 2030 project seeks to reach a target of producing 20% of its electricity using solar energy by 2030 (Gulf Times, 2016) (Oxford Business Group, 2017). In fact, a joint venture between Qatar Solar (a subsidiary of ), ’s SolarWorld AG and Qatar Development Bank, called Qatar Solar Technologies

58 (QSTec), announced in 2017 the establishment of a new production plant in Ras Laffan Industrial City; the factory will have an annual production capacity of 8000 tonnes and is expected to start exporting in 2018 (Oxford Business Group, 2017).

3.3.3 Qatari gas market and reserves Qatar accounts for about 13.3% of global proven gas reserves, having the world’s third largest gas reserves of 24.7 trillion cubic meters (Al-Tamimi, 2014) (EIA, 2018). In 2013, Qatar came fourth in natural gas production after Russia, the United States and Iran, reaching 158.5 billion cubic meters, which makes 4.7% of the global gas production for that year (Al-Tamimi, 2014) (IEA, 2018). Qatar is also a pioneer of gas liquefaction and transportation technology (Krane & Wright, 2014). Qatar was one of OPEC’s smallest oil producers, accounting for about 350,000 barrels per day in 1992 (Attiyah, 2015). The low prices of oil (around $19.30) and its small share of the market stimulated the Qatari government to focusing on its natural gas production in the North Dome Field, the world’s largest non-associated gas field, which contains almost all of the 24.5 trillion cubic meter Qatari gas reserve (Attiyah, 2015). In the past couple of decades, Qatar was able to become a major energy producer with about 700,000 barrels of oil per day and around 1.3 million barrels o oil equivalent of condensates and natural gas liquids per day (Attiyah, 2015). As a result of the diversification of its hydrocarbons industry, Qatar became the world largest producer of gas-to-liquids (Attiyah, 2015). LNG makes 84% of Qatar’s gas exports, 71.4% of which is consumed in Asia (Al-Tamimi, 2014) (EIA, 2016). Its LNG exports witnessed an increase of more than 18 million per year in 2002, to 77.2 MTPY in 2013, accounting for more than 42% of the world’s LNG trade to Asia (Al-Tamimi, 2014). Qatar declared a moratorium in 2005 on the development of the North Dome Field to give Doha time to study the impact on the reservoir from a rapid rise in output. The moratorium, initially scheduled to end in 2008, ran until 2017 when it was lifted by QP (Reuters, 2017). As a result, natural gas production has plateaued and could begin to decline soon. In the same time the 1.4 billion cubic feet (Bcf) per day Barzan project, which was the last project approved before the North Dome Field moratorium, grew considerably. With its relatively low domestic energy demand, Qatar is able to export nearly all of its natural gas production. As such, Qatar has been the world’s leading exporter of LNG since 2006 and is a member of the Gas Exporting Countries Forum (GECF). Crucial for natural gas price decisions is the strategic position of Qatar, halfway between Europe and Far East Asia (Royal Dutch Shell & DRC, 2017). Qatar’s natural gas production has increased its output of condensates and natural gas plant liquids, which are valuable byproducts of natural gas

59 production. Qatar’s condensate production is approximately 700,000 b/d with exports of about 500,000 b/d, making it the largest condensate exporter in the world (EIA, 2016). Qatar is also at the forefront of gas-to-liquids (GTL) technology, which processes natural gas into heavier hydrocarbons, such as distillates and naphtha (EIA, 2016).

Fig. 3.4 Top 10 importing countries of Qatari LNG (EIA, 2016)

The four main Qatari LNG projects are the Qatargas 1, Qatargas 2, Qatargas 3 and Qatargas 4. Qatargas 1 (QG1), established in 1984, consists of three trains which produce approximately 10 million tonnes per annum (mtpa) of LNG. Twenty production wells have been drilled and completed to supply 1,600 million standard cubic feet (45 million cubic metres) of raw natural gas per day from the North Dome Field, the largest single non-associated gas reservoir in the world (Qatargas, 2018).

60 The Qatargas 2 (QG2) project was the world’s first fully interrated value chain LNG venture. It includes two world class LNG mega trains (Train 4 and Train 5), each with a capacity of 7.8 mtpa of LNG and 0.85 mtpa liquefied petroleum gas (LPG), condensate production of 90.000 bpd, a fleet of 14 Q-Flex and Q-Max ships and Europe’s largest LNG receiving terminal in Wales (Qatargas, 2018). As part of the expansion of Ras Laffan’s capacity, QG2 also led to the construction of facilities for expanded LNG storage and loading, including five 145.000-cubic metre tanks (Qatargas, 2018).

Fig. 3.5 - Top ten gas projects in Qatar in terms of remaining capex/boe ($) (Offshore Technology, 2017)

The Qatargas 3 (QG3) project involved the construction of a new LNG mega-train (Train 6) with a capacity of 7.8 mtpa. Production from Train 6 began in November 2010. The LNG produced by QG3 is transported to market on a fleet of ten ships, each with a capacity of approximately 210,000 to 266,000 cubic metres. The upstream platforms and infrastructure consist of three unmanned platforms, 33 wells, two subsea pipelines, and three onshore injection wells for waste water disposal, all of which are shared with the Qatargas 4 project. QG3 produces 1.4 billion standard cubic feet of gas per day, delivering LNG and substantial volumes of condensate and LPG (Qatargas, 2018).

61 Qatargas 4 (QG4), which began producing LNG in January 2011, completed Qatargas' planned LNG expansion projects. The project QG4 involved the construction of a new LNG mega-train (Train 7), similar to QG2 and QG3 with a production capacity of 7.8 mtpa. The upstream platforms and infrastructure consist of three unmanned platforms (each containing 11 wells) and two subsea pipelines, which are shared with QG3. QG4 produces 1.4 billion standard cubic feet of gas per day, delivering LNG and substantial volumes of condensate and LPG, as well as high purity grade sulphur. The QG3 and QG4 projects were developed and executed by a joint asset development team to capture synergies between the two projects.

Fig. 3.6 – Qatari gas/oil fields and pipelines system map (Al-Jazeera, 2017-2)

The LNG from QG4 is transported to global markets via a fleet of eight Q-Flex or Q-Max ships (each with approximately a 210,000 to 266,000-cubic metres capacity) (Qatargas, 2018). New natural gas projects in Qatar will expand the role of the State as the leading LNG producer and exporter. Over $9.9 billion in capital expenditure (capex) will be spent by Qatar-focused operators on gas projects over the next four years to ensure that country’s production will remain around 18.1 billion cubic feet per day (bcfd) in 2021, according to GlobalData (GlobalData,

62 2018). Conventional gas projects will be the only source of gas production in Qatar between 2018 and 2021 (Offshore Technology, 2018). Qatar Petroleum will drive Qatar’s gas production with 62.1% share of all the production in 2021. ExxonMobil Corporation and Total SA follow with 23.8% and 3.5% respectively. Qatar has two key upcoming gas projects, Barzan and North Field Expansion: Barzan field will play an immense role in these projects with expected peak production at 5,580 mmcfd in 2030 at an estimated cost of $17 billion (Offshore Technology, 2018). Qatar Petroleum will lead in greenfield gas projects, with participation in both the projects. Qatar is expected to spend $9.9 billion on conventional gas projects during 2018 to 2021, with spending topping in 2021 at $3 billion.

3.4.4 NOCs and their relationship with the state As previously stated, the country’s energy sector is controlled by Qatar Petroleum, the third largest company in the world by oil and gas reserves with around 190 bboe (Data 360, 2017). The chairman and CEO of QP come from two families close to the Al Thanis, the Al Sadas and the Al Kaabis (Qatar Petroleum, 2018). The board of directors of the company comprises 7 people, of which the Vice Chairman is the Minister of Economy and Commerce of Qatar, Ahmed Bin Jassim Al Thani, member of the royal family. Since the nationalization of the oil and gas sector in 1977, the owner of the company is the government of Qatar, which qualifies the company as a NOC. The fact the other largest company, Qatargas, is 65% owned by QP makes the whole industry controlled by the Al Thani family and the government. The whole energy industry is intertwined with the royal family because of the strategic role the oil and gas sectors play in the Qatari economy, and, subsequently, in the social scene, given the fact that thanks to oil and gas revenues the State of Qatar does not tax its citizens, but grants them all kinds of services.

3.4 Conclusion This chapter described Qatar, its political system and the energy industry, in order to give the reader a comprehensive understanding of these matters before analyzing the operations of Chinese NOCs in Qatar in following Chapter IV. I explained how the Qatari royal family of the Al Thanis controls the whole administration of the country thanks to family members and other close families’ exponents holding relevant posts in the government. The state is also extremely intertwined with the whole energy sector and its NOCs, strategic for the survival of both the State and the Al Thani royal family.

63 I continued describing diplomatic relations that China has with Qatar, while also briefly describing the economic relationship between the two countries before going more in depth in the next chapter. Mainly the Chinese interest in the country, energy-wise, is related to LNG supplies from Qatargas fields in the North Dome Field gas reserve. I then analysed the energy sector in Qatar, focusing on the lack of diversification between different natural resources: 99.5% of Qatar’s energy production comes from fossil fuels and only 0.5% comes from renewables, of which only has relevance. I then thoroughly investigated the natural gas sector of Qatar, its performances and its fields, its forecasts and investors. I concluded with a brief remark on how the whole industry is state-owned and how Qatar Petroleum, the main NOC of Qatar, is one of the world’s largest oil and gas companies for reserves, meaning that QP virtually has a monopoly in the country.

64 Chapter IV

Chinese presence in the Qatari economy

4.1. Introduction In this chapter I will describe in depth the relationship between China and Qatar in the LNG field, as well as in general economics aspects, such as trade, investment and finance. Paragraphs 4.3. will discuss the activities undertaken by CNOOC and CNPC (under its subsidiary PetroChina) in Qatar and the long-term LNG deals between the two countries. The main deals were so-called “spot trade deals” signed in 2009 by PetroChina (starting from 2011) and in 2009 by CNOOC, for a total of around 10 bcm, combined. The former provides LNG to China from the Qatargas-4 project in Qatar, which then is shipped to PetroChina's LNG receiving terminals; the operations started in 2011. The first agreement is for 3 million tonnes per annum supply of LNG for 25 years. The latter provides LNG to China for a total of 2 million tonnes per year until 2034. Both agreements are linked to the North Field gas field, one of the largest natural gas reserves in the world; shared with Iran, the Qatari portion holds up to 900 trillion standard cubic feet of recoverable gas. In paragraph 4.4. I will take into account FDI of Chinese companies (not from the energy sector) to understand how and why Qatar is a strong partner for Qatar in the Middle East. To do so I will take into account the Sino-Qatari bilateral relations in the fields of trade, investment and finance, highlighting patterns and indicators to prove the increased amount of exchange between the two countries. I will then conclude with some remarks on the cooperation in the energy, business, infrastructure, finance and commercial sectors between Qatar and China.

4.2 Chinese economic activities in Qatar 4.2.1 Trade In relation to trade, China refers to its economic ties with Qatar as complementary (Oimat, 2016). China needs Qatar’s gas (and, to a certain extent, oil), while Qatar needs manufactured goods, machinery, IT products, consumer goods and services, textiles, furniture, construction materials, medical care and aviation goods (The Observatory of Economic Complexity, 2018). Prior to 1996, trade relations between China and Qatar were modest (Olimat, 2016). However, since 1996, bilateral trade between the two sides grew steadily and the two countries reached a

65 strategic partnership after more than two decades (Olimat, 2016). The volume of trade between Qatar and China was estimated at $91.12 million in 1991 and increased to more than $1 billion in 2007. This volume of trade had increased to $5.9 billion in 2011 and jumped to $6.8 billion in 2012 (National Bureau of Statistic of China, 2013).

Fig. 4.1 – China-Qatar bilateral trade (in billion US$) (GlobalEdge, 2017)

As shown in Fig. 4.1, in 2016, the bilateral trade volume jumped to around $8.5 billion, with exports from Qatar to China of around $5 billions (excluding LNG exports), and exports from China to Qatar totaling $3.5 billion, while the total commercial exchange reached $20 billion (Olimat, 2016) (GlobalEdge, 2018) (The Observatory of Economic Complexity, 2018). Qatar’s main export products to China are natural gas, refined petroleum, ethylene polymers and other petrochemical goods; Chinese leading export goods to Qatar are IT components, industrial machineries, furniture, textiles, minerals and stones, and wood products (GlobalEdge, 2018) (The Observatory of Economic Complexity, 2018). To further promote the Sino-Qatari economic and trade cooperation, the chairman of the China Council for the Promotion of International Trade (CCPIT) visited Qatar in April 2018, vowing with the Qatari Minister of

66 Economy and Commerce to enhance the trade between the two countries, especially in the infrastructure field (CCPIT, 2018). Moreover, China needs the assistance of Qatar to speed up the conclusion of the Sino-GCC Free Trade Agreement (FTA). Both sides have conducted six rounds of talks since 2004, though the process is relatively slow, both sides realize the scope of the agreement and its far-reaching impacts on both sides (Olimat, 2016). In addition, the six Arab Gulf GCC states, namely Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates and Oman, will be China’s top trading partners by 2020, so it is in the interest of all parties to finally reach an agreement (The Economist Intelligence Unit, 2009) (Hong’e, 2012). The FTA provides long-term concessions in the oil and gas sector, and also provides preferential treatment in other sectors, such as the infrastructure and construction sector, in which Chinese companies have near dominance. Currently, the GCC account for 23% of China’s annual imports, while the Middle East as a whole exceeds 54% of China’s overall oil and gas imports (Olimat, 2016). China and Qatar are actively present in several bilateral and multilateral institutions, organizations, entities and private associations that promote Sino-Qatari relations. They include the Ministry of Economy and Commerce of Qatar, the PRC Ministry of Commerce, the China- Qatar Business Council, the Asia Cooperation Dialogue, Qatari Business Association, Qatar Financial Center, the China-Arab States Cooperation Forum (CASCF), the China-GCC Countries Forum on Economic and Trade Cooperation, the China Council for the Promotion of International Trade (CCPIT), the China Chamber of International Commerce (CCOIC), China-Arab States Expo., QIA, QF, the China-Arab States Cooperation Forum, , the Qatar Chamber of Commerce and Industry (QCCI), the Federation of the GCC Chambers of Commerce and Industry, and many other institutions. Central in the development of trade between the two countries are the two initiatives started by each country: China’s BRI and Qatar’s Vision 2030 Development Strategy. Qatar plays a strategic role in the BRI given its position in the middle of the Persian Gulf region (Xinhuanet, 2016); furthermore, China has all the interest in further promoting the bilateral cooperation with Qatar in many fields, such as infrastructure building, energy, productivity and finance, in order to enhance the presence of Chinese companies in the country, and in the ME region in general. Qatar could benefit from such cooperation to improve its independent development capacity and diversification of the economy, the main objective of the Vision 2030 Development Strategy. In fact, with the help of Chinese expertise in infrastructure building and renewable energies (in this case solar energy), Qatar has the chance to create a multi-faceted economy not only reliant on gas exports.

67 We can conclude saying that the volume of the bilateral trade between Qatar and China has constantly grown in time, especially after the 2007-2009 period, which saw an increment in the traded goods, as well as the start of the two spot trade deals of LNG from Qatar to China. However, Saudi Arabia and the UAE are bigger and more important for China: Saudi Arabia is one of the most prominent trade partners of China in the world, with over $70 billion of trade between the two countries (The Diplomat, 2017); the UAE is the largest Middle East market for Chinese goods, with a total trade relationship of over $50 billion in 2015 (Emirates 24/7, 2015). Nevertheless, Qatar is the third partner of China in the region, and the largest exporter of LNG from the MENA to China.

4.2.2 Chinese involvement in non-energy sectors Investments between the two countries have increased since 2007, two years before the conclusion of their LNG trade agreement (Xinhua, 2011). There are 179 Chinese companies registered and operating at the Qatari market, 10 of such companies are fully operated by Chinese capitals, with a total capital of around $500 million; in addition, there are 83 mutual Qatari-Chinese companies, with a total capital of around $450 million (Qatari Consulate General in Guangzhou, 2018). The booming construction sector in Qatar, which is going to host the 2022 FIFA World Cup, witnessed an increase in the Chinese construction corporations’ presence. China’s two biggest construction corporations, China State Construction Engineering Corp. (CSCEC) and China Harbor Engineering Corp. (CHEC), carried out major projects such as the Doha Tower and the New Doha Port, respectively (Olimat, 2016). Additionally, Chinese-funded enterprises played a key role in building Doha Lusail City and the West Bay Area Ferris real estate (Aguilar, 2013). China Railway Construction Corp. (CRCP) is one of the companies working on the development of Qatar’s new railway infrastructure system (Qatar Rail, 2015), and was also selected in 2016 as the contractor to build the Lusail Iconic Stadium in Lusail, the venue for the 2022 FIFA World Cup opening and closing ceremonies, as well as for the final of the tournament (Reuters, 2016). Sinohydro signed an agreement with Mazaya Qatar for Property Development on January 2010 to construct the residential project “Sidra Village” in Doha with a value of $130 million (Qatari Consulate General in Guangzhou, 2018). Moreover, the two countries have held in Doha three “ Exhibition” since 2015, with more than 100 Chinese companies attending, displaying products attracting investors from Qatar (Xinhuanet, 2017). In the technology sector, Chinese giant Huawei has established and helped grow Informatica Qatar (IQ), a technology solutions provider and IT consulting firm (Huawei, 2018). In addition

68 to the company, Huawei provided Doha’s Hamad International Airport with a new high- capacity CCTV storage, the most advanced surveillance system in any airport in the world (Huawei, 2018). In addition to Chinese interests and investments in Qatar, also Qatari companies are big investors in China (Olimat, 2016). This is reflected in the increased interest of Qatari investors in the Chinese market, especially in the fields of finance, real estate, and petrochemicals (Xinhuanet, 2008). According to the Economic and Commercial Counselor's Office of the Chinese Embassy in Qatar, in 2008, Chinese companies signed contracts worth nearly $2 billion with Qatar, for the execution of engineering projects, and providing labor services (Xinhuanet, 2008). In October 2012, China’s Securities Commission and State Administration of Foreign Exchange approved Qatar’s application to gain the Qualified Foreign Institutional Investor (QFII) status, which enabled them to operate in China, among 188 other countries and entities. Subsequently, under the auspices of Qatar Holding (QH), the overseas investment arm of its sovereign wealth fund, the Qatar Investment Authority (QIA) submitted a request to Beijing to invest up to $5 billion in Chinese stocks, bonds, and other securities (Zambelis, 2012-1). With regard to other investments, Qatar also pursues banks, real estate, water treatment, infrastructure, chemical, etc. Additionally, QIA manages more than $100 billion in assets, including interests in China. The QIA owns $2.7 billion in shares of the Agricultural Bank of China (ABC), the third-largest Chinese bank (Zambelis, 2012-1).

4.2.3 Chinese NOCs in Qatar 4.2.3.1 CNOOC’s 2009-2034 LNG spot trade deal and other activities CNOOC is the largest offshore oil and gas producer in China and a state-owned company operating directly under the SASAC (CNOOC, 2018). CNOOC, which is responsible for offshore oil and gas E&P, has seen its role expand as a result of growing attention to offshore zones and overseas assets. It works through its operating subsidiary CNOOC Limited that produces offshore crude oil and natural gas: Asia and Africa are the most important areas of operations outside Chinese borders, with the main activities being undertaken in Central Asia and the Middle East. As of December 31, 2017, the company had net proved reserves of approximately 4.84 billion BOE (CNOOC, 2018). As shown in Fig. 4.2, CNOOC is China’s leader in LNG: the company owns a total of 7 LNG terminals in Fujian, Dapeng, Hainan, Shanghai, Zhuhai, , and the recently-opened Yuedong (World Maritime News, 2017). Moreover, as of 2017, 8 long-term LNG supply deals with various countries were

69 accounted to CNOOC, which signed contracts for approximately 30 bcm (Royal Dutch Shell & DRC, 2017). One of these contracts was signed in April 2008, when CNOOC and Qatargas met in Beijing and signed a Heads of Agreement for a long-term supply of LNG from Qatar to China (Reuters, 2008). From 2009, Qatargas started shipping 2 million tonnes per annum (mtpa) to CNOOC’s terminal in East China, delivered ex ship, for a period of 25 years until 2034 (Royal Dutch Shell & DRC, 2017) (GIIGNL, 2018). The spot trade deal between the two companies was the first LNG supply contract that China signed with Qatar and marked the improved relationship between the two countries. The Qatargas-CNOOC deal is supplied by the Qatargas 3 project in the North Field offshore field, then transferred to the Ras Laffan Industrial City, where cargos are shipped by Qatar Gas Transport Company Nakilat to the Zhejiang Ningbo LNG Terminal where LNG is re-gassified and transferred in the gas grid of the Zhejiang region, a 56-million people province in East China (Ravishankar, 2012) (GIIGNL, 2018). In 2012, the Q-Max LNG vessel ZARGA arrived in the Zhejiang Ningbo LNG Terminal: this type of vessel is the largest class of LNG carriers in the world, with a capacity of over 250.000 cubic meters (cm), and it was the first time that China received such shipment of LNG (Ravishankar, 2012).

Fig. 4.2 -Map of China’s natural gas and LNG receiving terminals (ReliefWeb, 2013)

70 Year 2013 marked another important step for CNOOC-Qatargas cooperation, as an additional long-term supply of 3 mtpa of LNG were added to the previous contract, as stated in the Memorandum of Understanding (MoU) signed in late 2009 by the two companies (Cockerill, 2009). The additional volume combined with the previous long-term supply commitment of 2 mtpa, take the total volume of Qatari LNG supplied to CNOOC to 5 mtpa. The deal was signed after the establishment of a representative office of Qatargas in Beijing, further strengthening the relation between the two major energy corporations (Cockerill, 2009). This additional supply was delivered to the 2013 newly built Zhuhai LNG terminal in the Guangdong province, the most populous province of China (The Maritime Executive, 2013). In 2017 CNOOC completed the construction of a new LNG terminal in Yuedong and inaugurated it with the arrival of Q- Flex vessel Al Kharaitiyat from Qatar Gas Transport Company Nakilat carrying more than 210.000 m3 of LNG (World Maritime News, 2017). In addition to LNG-related deals, CNOOC and QP have worked together to create a consortium with Royal Dutch Shell to bid for the exploration of a field in Brazil. The consortium was selected as the winning bidder for the offshore Alto de Cabo Frio-Oeste block in the prolific Santos hydrocarbon basin (World Oil, 2017). Shell will be the main operator with 55%, while QP and CNOOC will control respectively 25% and 20% of the hydrocarbons reserves (Royal Dutch Shell, 2017). President and CEO of QP, Mr. Saad Sherida Al-Kaabi, and Chairman of CNOOC, Mr. Yang Hua, shared their enthusiasm for this operation in Brazil, a deal that can improve CNOOC’s know-how in all phases of the gas and oil production, from the basin analysis to the extraction to the transport and refinement processes, as well as consolidating the leadership position of QP as the world’s largest producer of LNG, through its subsidiary Qatargas Mr. Al-Kaabi visited China in January 2018 and led a high-level delegation involved in talks with NDRC vice-chairman and NEA director, Mr. Nur Bekri, focusing on reinforcing relation between Qatari and Chinese companies in the field of energy. During the visit, Al-Kaabi held talks with Mr. Yang Hua focusing on the enhancement of LNG trade, oil and gas exploration, and further development cooperation, as well as with Wang Yilin, chairman of CNPC. In addition to the two chairmen, the delegation held talks with other influential Chinese officials and CEOs of other prominent Chinese energy companies (Gulf Times, 2018). This visit marks the evolution of the Sino-Qatari energy relation towards ever-improving levels of cooperation, especially in the energy field, and confirms that both countries highly value the respective counterpart.

71 4.2.3.2 CNPC’s 2011-2036 LNG spot trade deal and other activities CNPC is the leading upstream player in China and, along with its publicly listed arm, PetroChina, accounts for an estimated 77% of China's natural gas output (EIA, 2017). CNPC is China's largest oil and gas producer and supplier, as well as one of the world's major oilfield service providers and a globally reputed contractor in engineering construction, with businesses covering petroleum exploration and production, natural gas and pipelines, refining and marketing, oilfield services, engineering construction, petroleum equipment manufacturing and new energy development, as well as capital management, finance and insurance services. In 2016 the gas production of CNPC totaled 98.1 billion cubic meters (CNPC, 2016). Important for the structure of CNPC is its relationship with PetroChina: CNPC hold 86% of its shares, while at the same time PetroChina holds CNPC’s most valuable assets (Jiang, 2012). PetroChina Limited signed binding sales and purchase agreements with Qatargas and Royal Dutch Shell for the long-term supply of Qatari LNG towards its regasification terminals in Northern China (ICIS, 2008) (Royal Dutch Shell & DRC, 2017) (GIIGNL, 2018). The 25-year deal will supply the northern regions of China with 3 mtpa of LNG to heat some of the coldest and most populous cities in China (ICIS, 2008) (Royal Dutch Shell & DRC, 2017) (GIIGNL, 2018). The LNG will be provided from the Qatargas 4 project in Qatar and shipped to PetroChina's LNG receiving terminals in Dalian, Rudong-Jiangsu and Tangshan-Caofeidian (Royal Dutch Shell & DRC, 2017) (GIIGNL, 2018). Royal Dutch Shell holds am important role in this deal as it owns 30% of the Qatargas 4 project and is the most present IOC in Qatar (Wang, 2017). In August 2015, PetroChina renegotiated with Qatargas to skew its 3 mtpa LNG deliveries under the contract towards the winter peak demand period, instead of keeping them spread across the year. Qatargas moved part of the 3 mtpa of LNG contracted to PetroChina at the end of 2015 in order to grant Northern China regions the needed supply for the winter (Reuters, 2015). This is largely driven by the growing gas oversupplies in China and globally. These are also likely to put more pressure on global LNG supply prices. Qatargas’ concession to PetroChina is in line with its recent new strategy of being more flexible to adapt to long-term major LNG buyers’ needs and is further evidence that Qatargas is prioritizing market share over price as competition in Asian markets intensifies. Qatar is becoming more commercially savvy and aware of the serious LNG oversupply pressures globally, as well as becoming more active on the international spot LNG markets. Qatargas knows that the increased buyer power, in this case of PetroChina, is mainly a byproduct of the advent of competing supply sources, primarily from Australia and

72 the US, and is only limited to long-term buyers (Reuters, 2015) (The Economist Intelligence Unit, 2015). Aside the 2011-2036 LNG deal, CNPC cherished good relations with QP and Qatargas, finding common ground in relevant joint ventures. In 2008, PetroChina Limited, Qatar Petroleum and Royal Dutch Shell signed a letter of intent in Doha, at the presence of Sheikh Al Thani and at-the-time Vice President of China, Mr. Xi Jinping, the future President (Forbes, 2008). The three companies discussed the possibility of building a new refinery and petrochemical facility in China. PetroChina was planned to take the majority stake of the joint venture with 51%, while Qatar Petroleum and Royal Dutch Shell would have owned 24.5% each (Forbes, 2008). Finally, after more than two years of negotiations, in 2011 the companies reached an agreement based on the 2008 letter of intent and commenced the procedures for the establishment of the refinery port in the selected Zhejiang province (Reuters, 2011). The Taizhou refining and petrochemicals project was planned to use imported condensate and other raw materials to produce ethylene and other petrochemicals (Arab News, 2011). The joint venture partners launched a feasibility study in 2011 for a 20 million mtpa (401,600 bpd) refinery and a petrochemicals complex revolving around a 1.2 million mtpa steam cracker, for a total investment that had been pegged at around $10 billion (Platts, 2013). China and Qatar wanted to strengthen the cooperation on the energy and refinery sectors with this joint venture, and this is shown by the personalities present when all parts signed the letter of intent in 2008 (Arab News, 2011). Nevertheless, Shell pulled out of the planned joint venture because of the little progress made in the two years passed from the final agreement was reached in 2011 (Platts, 2013). The project has so far stalled because of corruption investigations on members of the local government as well as senior officials from CNPC and PetroChina; in addition, technical difficulties were identified during the first feasibility studies (Platts, 2013). Another remarkable project was signed in 2010 by the same companies, PetroChina Limited, Qatar Petroleum and Royal Dutch Shell: an Exploration and Production Sharing Agreement (EPSA) was inked for the exploration of gas fields in Qatar Block D, an area of 8.089 square km onshore and offshore located close to Ras Laffan (PetroChina, 2010) (Wang, 2014). The total term of this agreement is 30 years and starts with a five-year First Exploration Period (FEP). During the exploration period, Shell and PetroChina will implement a work programme including exploration technical studies, 2D and 3D seismic acquisitions, processing, re- processing and interpretation, and drilling a number of exploration wells. Shell, as operator, will hold a 75% equity share with PetroChina holding a 25% share. In a success case, Shell and

73 PetroChina will produce the natural gas under Qatar Petroleum’s supervision. Under the agreement QP will be the off-taker of any potential gas produced (PetroChina, 2010). In the end, the bilateral energy relations between the two countries are extremely relevant for both parties, and the two huge spot deal contracts go in that direction: China is a precious buyer for Qatari LNG, and vice versa Qatar is a great supplier of LNG for China. Other joint ventures were established in the last ten years between CNOOC, CNPC and other Chinese NOCs and QP and Qatargas not only in the two countries, but also outside national borders. However, the cooperation in the energy sector between the two countries has yet to be developed at a satisfying level: Chinese NOCs do not have the rights to extract or conduct researches in the Qatari gas fields, whereas other IOCs, such as Shell, Total and Exxon, are doing exactly so. Qatar can be a great opportunity for China and its NOCs to develop and improve their skills and expertise in many of the areas of LNG extraction, transport, production and storage, especially for future projects in other countries, without requiring the aid of other companies. The NOCs in China are probably more interested in finding the natural gas supplies and secure them with huge contracts and mutually beneficial relations in other sectors.

4.2.4 Sino-Qatari financial affairs Financial affairs are a major aspect of Sino-Qatari relations. China needs to improve its status and role in the world financial market, and the government has developed and pushed Shanghai to become a major financial hub in the world. In order to improve and boost the role of the domestic currency, the Renminbi (RMB), China has undertaken a process to internationalize the RMB. China wants to make the RMB an international currency, and to do so it started an operation to liberalize and internationalize its domestic currency in order to promote trade and investments, while also boosting the nation’s soft power. In addition, by internationalizing the domestic currency, China increases the stability and security of the country to both financial risks, mainly , and geopolitical threats (Park, 2016) Starting from 2008, China relaxed its domestic financial policies regarding the RMB and urged the IMF to expand the use of the Special Drawing Rights (SDR), mainly proposing a stronger international role for the RMB (Huang & Lynch, 2013). Among the measures used by China are the use of the RMB for global trade settlement, encouraging a robust offshore Renminbi environment and, more recently, liberalizing access to onshore RMB accounts (Frankel, 2013) (Huang & Lynch, 2013). The People’s Bank of China (PBoC) is laying the groundwork to have the RMB become a fully convertible currency in a three-step process: first, the RMB needs to become a global trade

74 currency, so that businesses outside China can become accustomed to using it for payments and receipts for goods and services; second, the RMB needs to become a global investments currency, meaning that the RMB can be invested more freely between borders and converted easily; third, the RMB needs to get to a global reserve currency status, in order to match the position of economic leader that China currently holds, while also challenging the US Dollar (USD) as a reserve currency (Love & Chen, 2017). To facilitate this process, companies domiciled outside China can now open RMB accounts both in mainland China and offshore, primarily in , but also in other jurisdictions, including Qatar. Since 2003, when China opened its first Clearing Center in Hong Kong, 23 new Renminbi Clearing Centers (RCC) were opened in the world, including the United States, Germany, the United Kingdom, South Korea, and Qatar (Global Capital, 2018). It was in 2014 that the financial openness and relations between China and Qatar were deepened, when China launched the first RCC in the MENA region in Doha (Fintech Finance, 2015). The center offers RMB clearing and settlement, and gives access to China’s domestic RMB, in addition to linking foreign exchange markets to local financial institutions (Reuters, 2015). This will increase the financial integration and connectivity between China and the region and will be a further step to expand trade and investment between China, Qatar, and the region. Qatar and China developed their financial relations well before 2014. In 2006, the QIA bought $206 million worth of the Industrial and Commercial Bank of China (ICBC) shares in the bank’s initial public offering (IPO) which was the largest in the world at that time (Xinhua, 2008). In 2008, ICBC opened a branch in Doha in 2008 (ICBC, 2008), and was granted the highest licensing attainable, which allows them to conduct full financial services in Qatar (Olimat, 2016). Since 2010, Qatar has devoted $140 billion to its infrastructure project, which makes it attractive to financial institutions interested in branching into Qatar, to meet the need of Chinese corporations involved in the Qatari economy, especially the construction sector. Also, in 2010, the QIA invested $2.8 billion in the initial public offering (IPO) of ABC in China (Xiang, 2010). Furthermore, in 2012 the China Securities Regulatory Commission (CSRC) and State Administration of Foreign Exchanges (SAFE) announced they had approved Qatar’s request to attain Qualified Foreign Institutional Investor (QFII) status to operate in China. Under the auspices of Qatar Holding (QH), the overseas investment arm of its sovereign wealth fund (SWF) the QIA, Qatar invested up to $5 billion in Chinese stocks, bonds and other securities (Zambelis, 2012-2).

75 China chose Qatar for its clearing hub for a precise reason: the Qatari financial sector is undoubtedly the most advanced in the Middle East alongside Dubai and Abu Dhabi, reaching 651 in the Global Financial Centres Index score, with Dubai and Abu Dhabi slightly above with respectively 691 and 682 (Statista, 2015). The financial relations between the two countries are strong China’s high consideration of Qatar is motivated by Qatar’s huge forex reserves, that reach $43 billion, and the incredible amount of foreign assets owned by QIA and QH, around $200 billion (Rakhmat, 2015). More broadly, the ME is an important target for Chinese foreign policy. China is the largest exporter to the region, accounting for more than 15% of all goods exported to the ME (Rakhmat, 2015). Chinese companies and investors are increasingly active in the region. As China’s economy grows, its economic foothold in the Middle East is only going to increase. Fundamental for the trade, investments and finance relations between the two countries is the BRI initiative, which will bring exponential growth to the volume of commerce, the dimension of investments and will certainly boost the internationalization process of the RMB. Doha plays a key role for these three aspects in the strategy of Beijing in the ME, that’s why the relations between China and Qatar are likely to improve in all fields in the coming years.

4.3 Security and military cooperation between China and Qatar Qatar and China started cooperating on security matters only in recent years and peaked in 2017 when the two countries signed an agreement to enhance security cooperation and to fight terrorism and its financing (Gulf Times, 2017). China has many interests in improving its security and military relations with Qatar. First, China views Qatar as a possible destination for military technology exports. During the 2014 Doha International Maritime Defense Exhibition, Chinese ambassador to Qatar Mr. Gao Youzhen openly called for an expansion of trade links between Beijing and Doha after the exhibition. Qatar could purchase stealth weaponry from China to neutralize the impact of Beijing’s establishment in 2017 of a drone manufacturing company in Saudi Arabia (Ramani, 2017). In late 2017, the Qatari Army purchased two SY-400 short-range ballistic missile (SRBM) systems from Chinese Sichuan Aerospace Industry Corp. (SCAIC), a system that would allow Qatar to strike ground-based targets in both Saudi Arabia and United Arab Emirates while based on Qatari territory (Panda, 2017). Beijing is keen to improve its balance of trade with Doha through military technology sakes, and the fact that the US are challenging Qatar’s position as world leader in LNG exports might convince Doha to acquiesce to Beijing’s pressure and deepen

76 the military links. Nevertheless, the US are firmly present in Qatar with the Al-Saliyah, Al-Udeid and Umm Said Air Bases, counting more than 10.000 US soldiers, the second largest base in the Middle East after Kuwait (Reardon-Anderson, 2018). Therefore, China’s strategy for military sales has to be extremely careful. The United States didn’t respond to the acquisition of Chinese missiles from Qatar in late 2017, but China needs to be vigilant and not irritate the US in order to avoid a possible retaliation. Second, China possesses normative solidarity with Qatar in the security sphere, as Qatar is the Arab country that is most willing to negotiate with Islamist non-state actors without preconditions. As China believes that promoting all-inclusive diplomatic dialogue helps resolve international security crises, Beijing views Doha as a highly useful partner in the Arab world (Ramani, 2017). Third, the Chinese government believes that enhancing counterterrorism cooperation with Qatar will cause Doha to prevent its Islamist allies from threatening the security of China’s Muslim majority Xinjiang province. Beijing is unsure about Doha’s relations with Sunni Islamist movements in Syria and Iraq, as Uyghur forces have fought alongside Qatar-aligned factions in such conflicts (Ramani, 2017) Fourth, China’s strengthened security partnership with Qatar bolsters its case to act as a mediator in the GCC security crisis, a central tenet of Beijing’s ME strategy (al Tamimi, 2017) (Hollingsworth, 2017).

4.4 Conclusions This chapter revolved around the activities undertaken by China and its companies, both NOCs and private, in the Qatari economy. I explained what type of companies work with Qatar, the types of goods imported by Qatar from China, and how these commercial relations evolved during time. Moreover, I discussed the foreign investments Chinese companies made in Qatar, especially in the infrastructure construction sector, with some of the largest Chinese construction companies like the China State Construction Engineering Corp. (CSCEC), the China Harbor Engineering Corp. (CHEC) and the China Railway Construction Corp. (CRCP) that are building skyscrapers, ports and railways in the Qatar peninsula. In addition, Chinese tech company Huawei is also investing in Qatar, building the new security cameras system of Doha’s Hamad International Airport, one of the most important aviation hubs in the world. I then moved to analyse in details the LNG supply contracts signed by CNOOC and CNPC’s PetroChina with Qatar Petroleum and Qatargas, all four NOCs of respectively China and Qatar.

77 I also delved into the activities and joint ventures that these companies have made in recent years and that will make in the coming future, such as the operation that CNOOC and QP will make in Brazil. I then moved to the financial links between Beijing and Doha, a fundamental aspect of the Sino-Qatari relations for the past, the present and the future: the presence of a Clearing Hub for the Chinese Renminbi in Doha is a highlight of the ever-improving relations between the two countries, started with the 2006 QIA acquisition of more than $200 milion in shares of ICBC, one of China’s most important financial institutions. I concluded with the newest sector of cooperation between the two countries, security, a sector that has seen a recent increase commerce- and diplomacy-wise. In the next chapter I will take into account the risks and challenges that China faces in Qatar and in the ME region, and how this might affect the internationalization process of its NOCs.

78 Chapter V

Qatari domestic challenges and regional geopolitical risks to Chinese energy supply security in the Peninsula

5.1 Introduction The aim of this chapter is to research the domestic and international geopolitical and geo- economic challenges for the Chinese energy supply security from Qatar. The analysis will be divided into domestic and international challenges in order to have a clear understanding of the current situation of the host country, Qatar, within national borders, within the bigger context of the MENA/Persian Gulf region, and also in the global scenario. The first paragraph of this chapter seeks to analyze the domestic challenges for the Chinese energy supply security and for energy investments in general. This paragraph is divided into three sections based on the type of challenges: section 5.2.1 tackles the challenges coming from Qatar’s government and its politics; section 5.2.2 take into account financial and economic threats that Chinese NOCs might encounter in Qatar; section 5.3.3 researches the societal risk present in the country, such as its population composition. Following from this, paragraph 5.3 tackles the MENA/Persian Gulf geopolitical threats to Chinese energy investments and supply security coming from Qatar. In section 5.3.1 I will take into account the 2017 GCC countries diplomatic crisis; in section 5.3.2 the Saudi-Iranian conflict will be briefly discussed in order to understand the possible threats for the energy supply security of China in Qatar; the lack of geopolitical order is extremely high, given the fact that the Middle East can be easily referred to as the most unstable region in the world. In section 5.3.3 the dangers for LNG vessels going from Qatar to China in the sea routes that goes from the Qatari Peninsula to Chinese receiving terminals will be determined.

5.2 Qatari domestic challenges 5.2.1 Political challenges As discussed in Chapter III, Qatar can be described as a neo-patrimonial absolute monarchy in which the state is not immune from private interests, and where the ruling family, the al Thanis, can bypass the rule of law and hold all the major positions both in the government and the strategic companies. The Democracy Index compiled by the Economist Intelligence Unit, based

79 on more than 60 indicators grouped in five different categories measuring electoral process and pluralism, civil liberties, functioning of government, political culture and political participation, classified the State of Qatar 133th out of 167 countries with a result of 3.19/10, obviously labelling it as “authoritarian” (The Economist Intelligence Unit, 2017). This lack of democracy, combined with the patrimonial condition of the country, can be seen as a threat to investments, given the fact that almost all other MENA countries (except few exceptions like Morocco or Saudi Arabia) experienced in the last ten years the so-called Arab Springs, social revolutions that led to the removal of long-time rulers such as Mubarak in Egypt or Gaddafi in Libya, countries that were authoritarian as Qatar; the lack of democracy can lead to possible uprisings and insurrections also in Qatar, a country in which the Qataris are a minority comprising of just above 12% of the whole population, and where low-skilled workers from India, Nepal and Bangladesh represent more than 50% of Qatar’s population (DSouza, 2017). In addition, the foreign policy of Qatar has created many troubles for the economy of the country especially with its neighbors, as I will explain later in this Chapter. One of the main reasons of this clash with the other GCC countries (and Egypt) is the accusations made by these countries to Qatar of sponsoring terrorism and financing rebel groups in Syria, and previously, during the Arab Springs, the Muslim Brotherhood in Egypt. These decisions might also lead to opposing terrorist groups of making attacks to strategic assets of the Qatari economy (Euler Hermes, 2017). However, the main political challenge for Chinese investments in Qatar is the so-called “resource-curse” condition described in Chapter I with the Rentier State Theory definition: to be classified as “rentier” a state has to present three conditions: first, oil revenues are paid to governments in the form of rent; this means that the relationship between production price and market price is very weak due to the fact that oil is a “strategic commodity”; second, oil revenues are externally generated through marketing in the global economy; third, oil revenues are directly accrued by the state (Benli Altunisik, 2014). In this context, Michael Herb classified Qatar as a rentier state, with 87%, based on the definition above (Herb, 2005). The government of Qatar realized that this “curse” might affect not only the future development of the country, but also its survival, and decided to divert some of the revenues from the oil and gas industry to improve and diversify the domestic economy.

80 5.2.2 Financial/Economic challenges Despite the active policy of economic diversification, the Qatar National Vision 2030, the economy relies heavily on hydrocarbons and this leaves it vulnerable to changes in levels of global activity and in international prices of, mainly, natural gas (Euler Hermes, 2017). Qatar’s energy dependency is around 82%, based on data from the World Bank (2018). Therefore, the Qatari government has still a lot of work to do in order to decrease this percentage to an acceptable level, for example the one of UAE, 20.2% (World Bank, 2018), and needs to boost the investments on the Qatar National Vision 2030. The Qatari economy faces the problem of relying and basing its major incomes on the oil and gas sector. Possible drops in natural gas prices are likely in the future as new discoveries of shale gas in the United States and Australia could lead to bigger reserves and quantities, thus lower prices. In the event of drastically lower prices for natural gas Qatar might decide to renegotiate the prices of LNG supplies to China, given the fact that Qatargas gave discounts to the Chinese counterparts that were in need of higher supplies, as previously discussed in the thesis. Another weak spot of the Qatari economy is the lack of data transparency for an economy this big and relevant, especially for the oil and gas sector (Euler Hermes, 2017). Qatar is very likely not to address this concern, given that it relies heavily on secrecy and discretion on energy- related matters. In addition, the high presence of IOCs working in major extraction projects in Qatar builds up an almost undefeatable competition for the (yet) underdeveloped Chinese NOCs, that cannot keep up with the technical expertise of companies like Royal Dutch Shell, Total, Chevron or BP. Therefore, Chinese NOCs need to improve their prowess, and develop better tools in order to compete with their “West” counterparts in the natural gas extraction business in Qatar.

5.2.3 Societal challenges Qatar is a small country that hosts 2.7 million people in an area of 11.500 km2 (UN Data, 2018). Its economy is able to produce a GDP of $358 billion, with a per capita GDP of $130.000, the highest in the world (UN Data, 2018). Nevertheless, this wealth is not very well distributed in the population; a population that is for more than 50% comprised of low-skilled workers from India, Nepal or Bangladesh, with low income and low workers’ rights recognized. This huge workforce is “imported” in order to grant Qataris higher positions in the domestic economy, as well as to fill the void of their unwanted jobs. The fact, though, that more than half of the population has low income and that their working condition are close to slavery (Fottrell, 2015), can lead to threatening uprisings creating domestic instability. The next generation of migrant

81 workers living in Qatar will be likely more prone to uprising than the current one, as many of them will demand more rights and better salaries after decades of exploitation. However, risks for the Chinese energy supply security from Qatar in the society and economy of Qatar are extremely low.

5.3 MENA/Persian Gulf geopolitical risks 5.3.1 The 2017 GCC countries diplomatic crisis In June 2017, Saudi Arabia, Egypt, Bahrain, the United Arab Emirates and Yemen severed diplomatic relations with Qatar and imposed a land, sea and air embargo. The currently ongoing conflict was triggered by Qatar’s powerful and independent foreign policy (compared to the other GCC countries) and its support for the Muslim Brotherhood in Egypt, Hamas in Palestine, closer ties to Iran than its neighbors, and also by Al-Jazeera’s (the national TV broadcaster of Qatar) willingness to interview critics of Gulf regimes. The opposition countries demanded that Qatar would close Al-Jazeera, close ’s military base in Qatar, reduce its ties to Iran, cut the ties with the Muslim Brotherhood, ISIS and al-Qaeda; Qatar, refused to do so. Consequently, the Saudi position has been not to negotiate over the list of demands presented to Qatar, which would subsequently lift the air, sea and land blockade (BBC News, 2017). Qatar and the GCC have a long history of conflict, today’s crisis is another chapter in a long- standing feud between Qatar and its GCC neighbors. In 1991 Qatar and Bahrain almost went to war over control of the Hawar Islands and were prevented from going to war with Saudi intervention. In 1994, Saudi Arabia and Qatar supported different sides in Yemen’s Civil War. In 1996, Qatar and Saudi Arabia finally settled a border dispute with a formal agreement after years of tension over the border separating the two countries that had lasted a decade and even led to border clashes killing three in 1992. In 2002, after negative statements against the Saudi government were aired on Al-Jazeera, Saudi Arabia’s ambassador was recalled from Qatar. In 2006, Saudi Arabia refused to allow Qatar to build a gas pipeline through Saudi territory to Kuwait, and Saudi Arabia raised objections over the building of a gas pipeline from Qatar to the UAE and Oman. Saudi Arabia also worked against construction of a bridge between Qatar and Bahrain (Weinberg, 2014). Today’s conflict can clearly be traced back to the recent historical tensions over the vying for influence of Qatar and Saudi Arabia during the period of the Arab Revolutions. Qatar and Saudi Arabia supported different sides in the revolutions in their competition for influence in the Arab world. Saudi Arabia saw the Arab Revolutions as a possible direct challenge to the rule of the

82 Saudi Royal family, and Qatar saw an opening to use its financial resources to increase its influence in the region. In fact, Al-Jazeera covered the Arab Spring by giving coverage and allowing a platform for the people from the streets to discuss their feelings. Qatar supported the Muslim Brotherhood in Egypt and financially aided President Morsi, while Saudi Arabia supported the Egyptian military and the future President al-Sisi in the military’s takeover of power. Qatar and Saudi Arabia also supported different factions in Libya’s civil war following the fall of Gaddafi. In Tunisia’s post-Ali period, Qatar and Saudi Arabia supported different political parties. In Syria, both countries competed to fund rebel groups of different factions (Al- Jazeera, 2017-1). In 2014, the GCC’s Saudi Arabia, Bahrain and the UAE severed diplomatic ties with Qatar because of Qatar’s support for Egypt’s Muslim Brotherhood, which Saudi Arabia and the UAE labeled as a terrorist organization. The GCC countries claimed that Qatar had not lived up to the 2013 GCC Security Agreement to not become involved in the domestic politics of GCC states and undermine their rulers. Tensions also arose over , the major news organization based in Qatar and one of the biggest media networks in the Arab world, for allowing dissidents airtime to air their grievances against Gulf regimes. Relations were restored a few months later but the same issues were raised in June 2017. Some analysts note that after President Trump’s visit to Saudi Arabia in May 2017, the Saudis saw an opening, with the president’s support fully behind the Kingdom, to take the strongest action against its rival Qatar in decades (Landler, 2017). This strongly instable situation in the Persian Gulf risks to escalate into a regional war between countries that are at the same time strategic energy suppliers of China and strategic military allies of the United States in the Middle East. Qatar (with Turkey and Iran) on one side, Saudi Arabia, Egypt and the UAE (mainly) on the other, have the potential to violently disrupt a very relevant part of Chinese energy supplies, thus its energy security would be compromised. That’s why among other countries China urged all countries involved to reach stability in the region in order to secure energy supplies to mainland China (Reuters, 2017).

5.3.2 Iran-Saudi Arabia conflict Crucial to understand possible risks for Chinese energy supply security in the MENA is the relationship between two of its major suppliers of oil and gas: Saudi Arabia and Iran. The two countries have one of the most tenacious rivalries in the world, and it is based on both religious and economic aspects: Saudi Arabia is the Sunni leader of the ME, while Iran is notoriously a Shia country; in addition, both states are playing a balance of power game for regional dominance.

83 The relation between the two countries can be described as a “Cold War” of the Middle East (Gause, 2014). Iran wants to spread its revolutionary model over the Middle East, while Saudi Arabia wants to keep moderate Sunni Islamism authoritarian regimes. In addition, the al-Saud family has fears that the Ayatollah Khomeini before, and Ali Khamenei later, could bring an uprising in the Arabian Peninsula and overthrown them. During the Arab Springs Iran increased its influence across the Arab world in the MENA region, forcing Saudi Arabia to take a new and refurbished role to counter Iran. That’s when the revolts against Bashar al-Assad in Syria became a pivotal moment for the Saudis to restore the balance in the region. Proxy wars in Syria, Iraq and Yemen during the last decades helped worsening the feud between the two regional superpowers. Things escalated again during the Qatar diplomatic crisis, as stated before, when the blockade put up by Saudi Arabia against Qatar was met by an improved alliance of the state with the Saudis enemy, Iran. Every time a new crisis or civil war is started in the region, the two super powers feel that their safety and interest are in jeopardy, therefore they clash against each other to secure their dominance over the enemy. This constant instability actually puts China in jeopardy, as a war between the two nations would cut 20% of combined crude oil imports, more than 40% if we count Iraq, Oman, UAE and Kuwait in the possible countries affected by a war between Iran and Saudi Arabia. This shows how important the stability of the Middle East is to China.

5.3.3 The commercial sea route from Qatar to China In addition to the Middle East risks, Chinese energy supply security from Qatar is threatened by the increasing numbers of pirate attacks off the coast of Oman and in the Strait of Malacca, where usually at least 6/7 incidents are registered every month (The Maritime Executive, 2017). That is one of the reasons why China built, under the scope of BRI, the new Gwadar Port in Pakistan and connected it to China through a new highway and railway infrastructure, for a total investment of $62 billion (Vox, 2018). This project helped China cut the whole naval trip to the Far East and helped avoid the risky passing off the coast of Oman and through the Strait of Malacca. China made two other similar projects to help LNG and goods vessels to avoid passing through the Strait, building a deep-sea port in Sri Lanka and in Myanmar. The problems with the financing of these new infrastructures in developing and/or instable countries like Pakistan, Sri Lanka and Myanmar is that they are not able to pay back the loans that China gave them to build such works. Therefore, these countries lend the port to China for a 40-to-90 years lease in

84 order to repay them the debt. China uses them not only to cut short the sea routes of goods, but also to build navy bases to defend its trade routes from the MENA to homeland China. All of these activities are signs of the so-called “String of Pearls” theory, which predicts that China is trying to establish a string of naval bases in the Indian Ocean that will allow it to station ships and guard shipping routes through the region (Vox, 2018). In Fig. 5.1 the whole system of strategic ports and terminals is shown. China knows that the protection of its shipping sea routes is crucial for continuing its staggering economic growth, and that is why securing the Strait of Malacca and gaining control over the Indian Ocean routes is top priority of Beijing’s officials for the energy supply security of China.

Fig. 5.1 – The “String of Pearls” route and the oil and gas shipping lanes to China (Mishra, 2015)

5.4 Geopolitical economic actors in the Middle East China is the latest, and most important, contender state of the USA in the MENA region (Amineh & Crijns-Graus, 2018). In order to counterbalance the American hegemony in the Middle East, China in the last decade focused on establishing economic and diplomatic cooperation across the whole region. Instead of menacing states with the use of power, the foreign policy of Xi Jinping aims at creating a strong and wealthy China at peace with outside powers (Royal Dutch Shell & DRC, 2017). To achieve such goal, China created international

85 economic and financial institutions like the Asian Infrastructure Investment Bank (AIIB), the New Development Bank (NDB) and the Silk Road Fund. These institutions help China spread its economic and financial capacities across Asia, gaining more and more influence and power with countries that need investments and infrastructures. As a result of China’s geopolitical economic activities, diplomatic and trade relations have grown in the past decades also with Middle Eastern countries. Due to the “peaceful behavior” decided by Xi Jinping, China sits in an uncomfortable position, in the middle of two warmongering countries, Saudi Arabia and Iran. In addition, the United States backs Saudi Arabia, while Russia mediate with both states. China faces a great amount of risks from the possible escalation between the US and Iran, especially after the withdrawal of the US from the Joint Comprehensive Plan of Action in late April 2018 (Holpuch, 2018). Nevertheless, China is trying to use the BRI and the Shanghai Cooperation Organisation (SCO) to increase its soft power in the MENA region, forcing countries to abide by commerce and trade, not fighting (Lin, 2017). Analyzing the main external actors in the MENA region, the United States of America are still ruling the Middle East with their post-Cold War world hegemony. The interests of the US in the Middle East started after the end of World War II (Bilgin, 2004). A key part of the security interests of the US regards the Israeli-Arab conflict. However, the unhindered flow of oil and gas from the Middle East at a reasonable price, is top-priority of the US policy in the region. Creating stable relations with resource-rich countries is, therefore, key in the US’ energy supply security (Bilgin, 2004). Over the years, the US established cooperation with, mainly, Saudi Arabia and Kuwait. The relation with Iran, however, is more problematic. As the main opposing regime to the Saudi Arabian geopolitical power projection and with a strong Anti-Western regime, the US-Iran relation is incredibly unstable, especially since the election of President Donal Trump. The other main external actor in the MENA is the European Union. Many European countries fought wars and established flourishing relationships with local countries during the last centuries. In the last two decades, the EU’s domestic production of energy has decreased, while the import dependency rose strongly, and is expected to increase even further (Amineh & Crijns- Graus, 2018). Because the Middle East accounts for a significant part of the energy imports, the region is of great importance from a geopolitical economic point of view. According to Amineh and Crijns-Graus (2018), the EU faces a couple of challenges in this regard. These tensions, for example, focus on the nature of the economies of Middle Eastern countries, the anti-Western sentiments, and the complex geopolitical dynamics in the region.

86 The two outer circle actors in this region are Russia and China, and both are the two challengers of the US hegemony in the MENA. Under the rule of Yeltsin, the Russian role in the Middle East was relatively small (Sladden & al., 2017). Putin, however, has shown more interest in the region, and between 2005 and 2007 he visited Egypt, Israel, Saudi Arabia, Jordan, Qatar, Turkey, Iran and the UAE. The 2011 Arab Spring disrupted all existing regimes in the MENA, and affected Russian interests in the region, especially in Libya, Egypt and Syria, where Russia has multiple military bases, including the important Mediterranean Navy base in Tartus; therefore, keeping the regime in power is a top priority for Moscow. The main economic interests in the region regard energy: Rosatom has interests in building nuclear power plants in Iran, Jordan, Egypt and Turkey; instead, in the oil and gas sector Russia has interests in raising oil prices, because both Russia and regional energy-rich countries heavily rely on oil and gas revenues.

5.5 Conclusions Analysis in this chapter has sought to analyze the possible threats and challenges to the Chinese energy supply security of China from Qatar. The main domestic challenges coming from Qatar are its lack of democracy that can pose threats to the stability of the country and the region as a whole. Moreover, the extremely high reliance of the Qatari economy on the oil and gas reserves makes it vulnerable to many threats, from terrorist groups to powerful neighbors like Saudi Arabia. Qatar needs to improve and accelerate its Qatar National Vision 2030 project in order to diversify its economy efficiently and quickly. In addition to the political and economic threats, Qatar faces a high number of low-income migrant workers living in bad conditions from India, Nepal and Bangladesh that together form more than 50% of its total population. Challenges and risks in the MENA region are obviously higher and more dangerous than the ones in the domestic borders: the still ongoing diplomatic and economic crisis ignited in June 2017 by Saudi Arabia, Egypt, Bahrein and the United Arab Emirates almost “embargoed” Qatar and forced it to reinforce its alliances or refurbish its old ones: Turkey and Iran stepped in to help Qatar in this difficult time by sending and arms to the Peninsula. However, the feud between the neighbor Saudi Arabia and Qatar’s ally Iran has proven to be extremely destabilizing for the whole Persian Gulf region; any escalation between the two regional superpowers would cut the supply of oil and gas to China to a worst-case-scenario 40% of the total current Chinese imports. Lastly, the new increasingly dangerous sea routes from the Persian Gulf to mainland China has forced Beijing top officials to find new solutions to secure

87 and guard shipping routes that carries the energy resources vital for the safety and economic growth of the People’s Republic of China.

88 Chapter VI

Conclusions

The final chapter is the culmination of my research. This thesis has provided a comprehensive study of the energy relations between China and Qatar and has aimed to provide an insight into the construction of the energy relations between the two states, as well as outline how economic growth in China resulted in mechanisms to secure energy resources abroad, in this case Qatar. Although this thesis focused on the activities of CNOOC and CNPC-owned PetroChina in Qatar, the analysis I made allows for some generalization of the activities of NOCs in the Middle East. Therefore, this research should be relevant not only in the energy field, but also for international relations, Middle Easter studies and risk analysis. Energy supply security is at the heart of Chinese foreign policy because of the systemic resource scarcity of China and the increasing energy needs that its economy has: these increasing needs have eventually resulted in the current multilateral approach of Beijing to go outside the domestic borders. It is the so-called going-out strategy. This strategy has empowered Chinese NOCs to expand into large conglomerates and engage in activities with energy-rich countries, thanks to the close ties that these companies have with the central government. The control of Beijing on the NOCs shows how important and strategic the energy sector is for the safety of the economy and of the country. Taking Qatar as a case study has given me the possibility to enlarge the spectrum of the research not only to the Qatari Peninsula, but all the geopolitics of the Middle East/Persian Gulf region, an area that supplies China with more than 40% of its oil and gas needs. Furthermore, the region is of crucial importance not only to China, but also to other powers such as the United States, the Russian Federation and the European Union. Qatar was not a simple country to research, given the particular power structure it has, many data and information on the contract between Qatargas, CNOOC and CNPC were not available. However, I integrated an analysis of other economic activities of Chinese companies in Qatar to create a more comprehensive and rich work. In this research I studied the state-business systems of both countries in order to understand possible similarities and opportunities of cooperation in the energy sector, and to explain the already existing energy relations and economic ties. Moreover, I delved into the geopolitical risks and threats that China might face in Qatar and in the whole MENA/Persian Gulf region 89 for its extremely important energy supply security strategy. The main question that this thesis has tried to answer was: “What is the energy supply security strategy of the People’s Republic of China in the State of Qatar and what are the risks and challenges to this energy cooperation?” In order to provide an answer to this question, the following sub-questions were formulated: - How is the political economy of energy in China shaped by the state-market complex and what is the energy supply security situation of China? - How is the energy industry structured in Qatar, what is the natural gas market situation, and what are the Chinese interests in the country? - How the energy relations between China and Qatar developed? What bilateral activities and projects have been started by Chinese and Qatari NOCs in the natural gas sector? - What are the challenges to the Chinese Energy Supply Security in Qatar? And in the region? To what extent the 2017 GCC-Qatar crisis affected the Sino-Qatari energy relations?

To answer these questions the thesis has relied on concepts taken from critical theories, mainly from the works of an expert in the study of China, my professor Dr. Mehdi Parvizi Amineh. The theoretical framework that was used for the analysis, centered around the core concepts of the critical geopolitical economic perspective. In addition, I found very helpful the resource scarcity model to explain how and why China has to seek outside its national border to secure its energy supplies, crucial to sustain the enormous growth of its economy. Also, the concept of lateral pressure helped me analyze China, its society and its political structure. As a result, of such concepts I was able to study how and why the Chinese leadership is induced to look abroad for those resources that are scarce in mainland China. The going-out strategy, the BRI and the internationalization of the NOCs can be conceptualized by means of this theory as power projection by the Chinese state. Since 1993, the Chinese state-led impressive industrialization process, accompanied by a gargantuan economic growth, forced the country to import energy sources from abroad, given that domestic energy resources are scarce. Demand induced resource scarcity and depleting domestic reserves created lateral pressure for the state class, that decided to implement a new foreign policy in order to reduce such pressure. For the state class, the NOCs play an important role in securing the long-term economic growth. The state-market relations in China can be described as authoritarian or centralized. The Chinese state élite exercises great influence over key economic sectors and society, where it is able to overrule societal demands. The CCP is interwoven throughout the Chinese government, companies and society. Through the party, this state class is able the control large state-owned enterprises, including the NOCs. In the NOCs, a

90 substantial part of the board of directors has ties with the party, and the CCP greatly influences the appointments in the top-level management of these companies. Even though the two political systems are different, Qatar has some traits in common with China. The fact that in both countries the power is employed top-down helps the reader to understand the behavior of both governments, and how they shape the energy policy alongside the foreign policy. In Qatar, the ruling family of the Al Thanis distribute posts in the state agencies, state owned companies and much more, to members of the royal family and to other families that are close to the Emir Tamim bin Hamad Al Thani. By doing so, the Qatari ruling family operates in a way similar to the one of the CCP in China: both entities share the power with a close entourage of trustworthy people that could carry their will in all aspects of the state’s life. However, Qatar and China differ on their approach to energy because of the opposite situation the two countries are in: as already stated, China needs to go abroad to find energy supplies for its industries, whereas Qatar holds the third largest gas reserves in the world and wants to take advantage of such position. As a result, Qatar through its NOC Qatar Petroleum decides all energy policies in concert with the Ministry of Energy and Industry. The fact that the two areas are united under one single Ministry gives the idea of the relevance of natural gas revenues for the sustenance of the country. The relations between China and Qatar date back to 1988 but were limited to diplomatic affairs. In the mid-2000s the Sino-Qatari cooperation started flourishing, and in the 2007-2009 period two fundamental LNG spot trade deals were made, both involving Qatargas and the North Dome Field reserve: the first with CNOOC, the second with PetroChina. From the signings of the two deals on, the cooperation between China and Qatar thrived, and touched sectors such as finance, military, culture and trade. The two nations went from recognizing each other in 1988, to establish a $20 billion commercial trade volume and a thirty-year strategic friendship in the Middle East in 2018. This economic partnership revolves around natural gas for the Chinese side, whereas Qatar needs manufactured goods, machinery, IT products, consumer goods and services, textiles, furniture, construction materials, medical care and aviation goods from the largest manufacturer of the world, China. With reference to the challenges and risks that China might face for its energy supply security strategy in Qatar, the greatest threats come from its neighbors in the Middle East/Persian Gulf region. In mid-2017, Saudi Arabia and other GCC countries severed diplomatic relations with Qatar and imposed a land, sea and air embargo. The still ongoing conflict was triggered by Qatar’s powerful and independent foreign policy and its support of rebel groups, terrorists and the Saudis regional enemy, Iran. Qatar refused to meet the requests of the Saudi-backed group

91 of countries and tensions are rising, given the fact that Iran and Turkey, adversaries of Saudi Arabia, are backing for Qatar and helping the government of Doha. In addition to this crisis, the so-called “Middle Eastern Cold War” between Iran and Saudi Arabia is a huge threat to Chinese investments and oil/gas supplies from the whole region, ignited by the fact that the two countries fight proxy wars in many countries across the Middle East. The whole region has become, since the end of World War II, the battleground for world superpowers and their energy-backed economic interests. The United States of America still retain the hegemon role in the Middle East and top-priority of the US foreign policy in the region is to keep safe and intact the flow of oil and gas from the Middle East at a reasonable price. Over the years, the US established cooperation with all the enemies of Qatar in the region, and in addition, the relation with Iran, one of the only regional ally for the government of Doha, is extremely problematic and tend towards clashes and disputes. Also, the EU and Russia are interested, for different reasons, on the natural resources in the Middle East and certainly China needs to be vigilant for the risks that might come from them too. Based on the findings of my research, the hypothesis I made in Chapter I can now be tested.

H1: China’s efforts in diplomacy and FDI with Qatar ensured a considerable supply of gas to diversify the domestic energy portfolio and secure the energy supply strategy of Beijing. China boosted its economic and trade cooperation with Qatar two years before the signing of the two 25-year LNG supply deals in 2008 and 2009. The Chinese government was interested in obtaining such energy supplies to diversify the domestic energy portfolio and that was the first “entry move” to the Qatari LNG market. In exchange for the gas supplies, China increased its economic presence in the country by investing in many sectors, mainly the construction and IT sectors. Still, the balance trade between the two countries is in favor of Qatar. In addition to trade, China wanted to ensure its presence in the country by opening a Renminbi clearing center in Doha, recognizing Qatar as one of the leading financial hubs in Asia. The constant diplomatic visit that Chinese and Qatari officials make year by year are consolidating the relations between the two countries and are the mean that China uses to constantly secure and verify its energy supply security strategy in Qatar. Therefore, we can say that the Chinese diplomacy and FDI in Qatar ensured a vast amount of LNG to diversify the energy suppliers’ portfolio of China and reducing the risks of supply interruptions. Hypothesis 1 is accepted.

92 H2: The similarities in the nature of the political systems in both countries uphold the cooperation between China and Qatar. The two countries have different forms of political systems: Qatar is a constitutional monarchy with one ruling family; China is a socialist republic with one political party. Normally, the two countries would be at the antipodes, but the facts that only few people manage the power and that only one individual is the source of the ruling power show a different perception. Both countries in fact are ruled by two differently composed élites, that however acts in similar ways. The ways in which China controls the activities of its agencies, institutions and, mainly, NOCs is extremely similar to the means in which the Al Thani family manages Qatar Petroleum and all the bureaucracy of the country. Energy is strategic for both nations, even if for different reasons. This has facilitated the cooperation between the two delegations, as the relations now are long-standing and very friendly, and have improved in the last decade. As a result, Hypothesis 2 is accepted.

H3: Sino-Qatari relations were affected by the 2017 Qatar-GCC Crisis, especially in relations to the natural gas supplies to China. The 2017 Qatar-GCC Crisis saw an escalation from its beginning in June throughout the summer of the same year, and then stalled during the fall. During this period Chinese officials and diplomats tried to stem the tide and invited all parties to reach a friendly agreement to end the embargo and promote economic cooperation between all parties. However, the Chinese goal of succeeding in creating a free trade GCC area failed miserably, as the crisis is still ongoing, just quieter and unnoticed. China wanted to bring peace in the area to defend its huge energy interests in all the countries involved in this feud, as Beijing officials were scared to jeopardize the energy security of the country. Nevertheless, during fall and winter of 2017/2018 the Qatari LNG supply toward China rose and higher requests were made by Beijing to extend the momentum until the end of 2018. In the same timeframe Chinese companies successfully invested in Qatar, and vice versa exactly because of the crisis Qatar Airways bought a stake in Cathay Pacific, the Hong Kong based company. In conclusion, Hypothesis 3 is rejected.

Recommendations and future research This thesis aimed at providing a comprehensive analysis of the energy relations between China and Qatar and tried to capture all the aspects and factors of such cooperation.

93 However, the chosen approach has some potential drawbacks. First of all, for obvious time reasons I focused only on the activities of two Chinese NOC’s, neglecting the role of the other oil companies, both national and international. The would have made the research more comprehensive and probably adaptable to other case studies. Moreover, the conclusions I reached on the Chinese energy supply security strategy in Qatar are, to some extent, based on correlation rather than full causality. Finally, due to possible developments of the crisis between Qatar and its neighbors, there is need for continual updates and research on this topic.

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