China's Energy Diplomacy and Its Impications for Global Energy Security

Regional Governance Architecture FES Briefing Paper February 2006 Page 1

GLOBAL ENERGY SECURITY

China’s Energy Diplomacy and its Implications for Global Energy Security

XU QINHUA

China’s Energy Diplomacy FES Briefing Paper 13 | August 2007 Page 2

1 Introduction areas of potential conflict. By comparing the framework for a global, cooperative energy poli- One of the five essential elements for the surviv- cy outlined in the “Petersburg Declaration” with al of people, energy functions as a core strategic China’s energy diplomacy, we can explore the material for national economies and social de- kinds of circumstances and conditions under velopment. The security of energy supply is not which China would be willing to contribute to only associated with the rapid growth of the solving global energy problems. economy in China but also with the overall security and strategic development of the nation. The 2 Overview of the Development of sustainable development of the Chinese econo- China’s Energy Industry: my is closely related to the sustainable develop- Achievements and Problems ment of the world economy. Thus China’s energy security is a very important part of global Based on its development over the past fifty plus energy security; China’s energy diplomacy there- years, China’s energy industry has achieved an fore has great implications for global energy se- outcome that catches the attention of the entire curity. world. The capacity of energy supply has been strengthened step by step. In 2005, the total Owing to China’s rapid economic growth, along output of primary energy in China reached 2.06 with its increasing need for energy optimization, billion tons of standard coal, which was 87 times China’s crude oil consumption has multiplied. In that achieved in the period shortly after the 2010, China’s oil consumption will reach 350- founding of the new China as well as 3.29 times 380 million tons; consumption of natural gas will of that posted during the early period of the po- increase from 24.5 billion cubic meters to 100- licy of reform and opening. The output of coal 120 billion cubic meters. However, in 2010 do- amounted to 2.19 billion tons, ranking first in mestic supply will have increased only moderate- the world for years. The country’s output of cru- ly, reaching an amount of 170 to 190 million de oil reached 181 million tons, ranking sixth in tons. Thus increasing demand for oil will have to the world. Its output of natural gas amounted to be met mainly through imports. Domestic pro- 50 billion cubic meters. Its power generation and duction of natural gas will increase drastically, installed capacity exceeded 500 million KW. Its reaching 80 to 100 billion cubic meters in 2010, annual power generation reached 2474.7 billion while additional imports will still be needed to 1 KWh, ranking on average second in the world. meet demand. Thus energy diplomacy has be- Renewable energies have been developing come more and more important for China’ s quickly over the past few years. The installed ca- energy security. pacity for SHP stations has reached 38 million The “Petersburg Declaration” of the G8 Summit KW. The total solar collector area of solar water in 2006 laid out the principles, aims and propo- heaters was equivalent to 80 million square me- sals for action, and it constitutes a very meaning- ters, which accounted for over half of the ful framework for a global, cooperative energy amount installed in the world. The installed ca- policy, stressing open, transparent, efficient and pacity for nuclear power plants reached almost 7 competitive markets, transparent, equitable, million KW. The country’s annual output of me- stable and effective legal and regulatory frame- thane amounted to around 8 billion cubic me- works, enhanced dialogue on relevant stakehol- ters. The amount of methane-generating pits for der perspectives, environmentally sound deve- family use reached more than 17 million.2 lopment and use of energy, etc. In addition, the structure of China’s energy con- The present article seeks to illustrate the current sumption was optimized. In 2005, consuming situation of China’s energy development, to energy totaling 2.225 billion tons of standard identify the problems the Chinese government coal, China became the second largest energy- has been facing, and to work out the key ele- consuming country in the world. Over recent ments of China’s energy diplomacy. The objecti- years, based on efforts to actively modify the ve is to fathom the commonalities between Chi- energy consumption structure, the general trend na’s energy diplomacy and global energy policy, has been characterized by a relative decrease of to identify compatible interests, and to point out coal consumption and a gradual relative increase in the consumption of high-quality clean energy.

1 From 1990 to 2005, the ratio of coal consump- The data comes from: “China Industry Annual Re- tion dropped from 76.2% to 68.7%, that of port,” China Economic Information net, www.ceiceo.cn/Exweb/2005Report/www/AdInfo.as oil/gas consumption increased from 18.7% to p?Id=6#石油, cited in Xu Qinhua, New Geopolitics: Central Asian Energy and China, Beijing 1997: The 2 The data comes from The Ministry of Land and Re- World Contemporary World Publishing House. sources P.R.C. China’s Energy Diplomacy FES Briefing Paper 13 | August 2007 Page 3

24%, and that of consumption of hydroelectric and to control and lower the increase of de- and nuclear power jumped from 5.1% to mand. Second, to make use of the vast potential 7.3%.3 offered by domestic resources, to increase pros- pecting and development efforts, and to explore Since the 1990s, consumption of oil/gas has energy potentials. Third, to use policy to boost been increasing in step with the increase of the energy development in a variety of aspects, by level of industrialization, urbanization and mar- engaging actively in technology development, ket orientation in China. In 1993, China turned and taking major steps to develop and use new from an exporter of crude oil into a pure impor- energies and renewable energy. Fourth, to make ter. Since then the annual volume of imports efficient use of international oil/gas resources. has been increasing considerably. In 2005, net imports reached 136 million tons. China’s de- In order to make efficient use of international pendence on imported crude oil was up to 44%. energy resources, China must further enhance It is anticipated that demand for oil/gas in the its understanding of the importance, necessity Chinese market will continue to increase for a and urgency of international energy cooperation; long time. Generally speaking, the increase of accurately grasp the possibility of embarking on China’s demand for oil and natural gas is gro- international energy cooperation; manage the wing much faster than that of domestic supply, important opportunity for strategic development and the gap between supply and demand is wi- given in the coming fifteen years (to 2020). Chi- dening year for year. na needs to firmly establish and adopt the new concept of energy security, which is characteri- China’s Oil Demand, Net Imports and 4 zed by mutually beneficial cooperation, diverse Degree of Dependence on Imports development and coordinated guaran- tees. The country needs to improve its Year 2000 2010 2020 ability to seize opportunities in the Demand volume（M t ） 224 international energy market and avoid risks in the market; set up multiple, Energy Research Institute of 335~357 430~475 stable and reliable systems designed to NDRC ensure China’s energy supply; and maintain the security of international IEA 377 552 energy with an open-markets approach. EIA 340 525 This is the key strategic choice for Chi- na at present, and it will continue to be Import volume（Mt） 69.6 for a long time in the future. Energy Research Institute 155~187 240~295 The will and practice of joining in bila- NDRC teral and multilateral energy cooperation has induced the Chinese govern- IEA 230 425 ment to set up its own strategy of EIA 185 380 energy diplomacy. Degree of dependence on 31.0 3 Analysis of China’s Energy imports（%） Diplomacy: Policy and Practice Energy Research Institute 46~52 59~62 NDRC Policy IEA 61 77 In earlier years, energy diplomacy was not given much emphasis in the coun- EIA 54 72 try’s overall diplomacy. With the Chine- se economy booming and demand for There are mainly four approaches that could be imported energy rising rapidly, the objective of applied to tackle these problems: First, to keep greatly expanding the channels for supply of im- making efficiency of oil/gas use the top priority ported energy has become an important task for China’s energy strategy. According to the latest

3 statistics of international energy organizations, in Ibid. 4 The data comes from IEA, China Energy Outlook 2003 China’s consumption of oil exceeded that 2002, and DOE/EIA, International Energy Outlook of Japan for the first time, ranking just below 2002. that of the United States as second in the world. China’s Energy Diplomacy FES Briefing Paper 13 | August 2007 Page 4

Chinese oil consumption on a daily basis has suming countries under the principle of equality, reached 5.46 million barrels (the figure for Japan mutual benefit and win-win to jointly maintain is 5.43 million barrels), accounting for 6.5% of global energy security.”7 The above documents global consumption, just below that of the Uni- and speeches all embody the requirements for a ted States (25.5%). And China’s ratio of depen- diplomatic energy strategy in relation to the dence on imported oil is close to 1/3.5 Chinese national energy strategy. Due to the special strategic value of oil, the cen- The “11 th Five-Year Plan” sets out detailed plan- ter of world oil production has become the focus ning for China’s economic and social develop- of competition by different kinds of political for- ment at present and for a period in the future. ces. Impelled by the need of every country in the According to the planning, China’s national de- world to survive and to develop, competition for velopment strategy can generally be summarized oil will be very intense and harsh. China will face as: to properly handle different problems arising substantially increased pressure from competiti- during development; to promote the strategic on for oil resources. And safeguarding oil securi- adjustment of the country’s economic structure; ty will be more difficult in the future. In a regime to guarantee the fast, stable and sustainable de- designed to meet the rapidly developing econo- velopment of the economy; to ensure a several- my’s demand for energy, the Chinese govern- fold increase of GDP by 2020; to meet the de- ment is starting to step up the construction of a mands of the people for increasing improve- national oil security supply system centering on ments of their living standards; to guarantee the national oil reserves and diverse sources of im- stability and harmony of society; to decrease the ported oil. That has meant lowering China’s de- environmental pollution caused by economic dependence on a single oil producing region and a velopment; and to ensure improvement of the single oil transport route. Energy diplomacy has environment. In December 2006, the central thus become an important part of the country’s economy work conference proposed a new general diplomacy. Over the past few years, it standard of “good and fast” economic deve- has even become an important part of summit lopment. It emphasized that only the realization diplomacy. Meanwhile, the diplomatic characte- of “three coordinations”, i.e. coordination of ristics of the international activities of key Chine- speed, quality and return; coordination of con- se energy enterprises is becoming increasingly sumption, investment and export; and coordina- obvious. tion of population, resources and the environ-

th ment can guarantee good and rapid develop- In March 2006, the 11 Five-Years Plan for Na- ment. The strategic task of laying the ground- tional Economic and Social Development of the work for a “good and fast” development of the People’s Republic of China clearly stated: Expand national economy implies a greater need for sus- cooperation in international oil/gas development tainable development of energy and the envi- on the basis of equality and mutual benefit, acti- 8 ronment. For this reason, the Chinese national vely engage with the international energy system, development strategy is the basis on which Chi- make full use of the international market, and 6 na’s energy diplomacy is formulated. ensure the security of China’s energy supply. In July 2006, Chinese president Hu Jintao emphasi- Energy diplomacy also functions as an important zed at the G8 Summit in St. Petersburg: “The boost for adopting the “going-out” strategy, an fundamental content of China’s energy strategy important part of the national development stra- is to keep making energy use efficiency the top tegy. The development of international energy priority, to center on domestic conditions, to en- relationships can be promoted through energy gage in diverse development, to protect the en- diplomacy in such a way as to create a favorable vironment, to strengthen international, mutually international operating environment for energy beneficial cooperation, and to undertake efforts enterprises and to strongly encourage other en- toward building up a stable, economic and clean terprises to develop international markets, in- energy supply system. We shall strengthen our crease sales of commodities, undertake enginee- cooperation with all energy producing and con- ring projects, and promote the advancement of the technology of the Chinese enterprises by 5 Ren Haiping, Yang Qinglong, ‘New Change in World Energy Geopolitical Structure’, China Mili- tary (Use) to Civilian (Use), April, 2004; Ni Jianmin ed., National Energy Security Report, Beijing: 7 http://news.xinhuanet.com/newscenter/2006-07/ People’s Publishing House, pp.153-156. 18/ content_4846539.htm. 6 http://politics.people.com.cn/GB/1026/ 8 http://finance.people.com.cn/GB/71364/5141487. 4208451.html. html. China’s Energy Diplomacy FES Briefing Paper 13 | August 2007 Page 5 adopting new technologies and engaging in consumer. Though both are energy competitors, joint research and development. China and India have started to cooperate in ex- ploiting oil in Kazakhstan, jointly entering into China’s energy diplomacy is therefore faced with the Sudan oil exploitation project, thus beco- difficult tasks, including the need to maintain ming business partners. They have also begun to the adequacy and stability of energy supply from work together in Iran. In future, China and India abroad, to guarantee transportation security, should work hand in hand, taking part in inter- and also to accelerate the improvement of ener- national energy exploitation and distribution, di- gy technology and boost energy efficiency and versifying risks, so as to gain access to a supply environmental protection. of energy larger than that currently available. In June 2005, the ministers of foreign affairs from Practice China, Russia and India held an informal mee- “Diverse development” refers to developing ting in Vladivostok, Russia. They released a Joint energy relationships in diverse directions, forms Communiqué stressing that the three countries and fields. International energy relationships will develop cooperation in the fields of agricul- function as the foundation and carrier for every ture, energy and high technology, and will take international actor engaged in energy activities this as an opportunity to build a strategic energy to realize its energy interests. As a large energy triangle. One of the most important motives be- importer, China must undertake steps to resolu- hind India's application for membership to the tely develop energy relationships with different Shanghai Cooperation Organisation is its desire actors to ensure that its international energy to seek opportunities in cooperation on oil and interests are realized. gas exploitation in Central Asia. Until now, a clear and complete Chinese interna- In order to understand China’s energy diplomacy, tional energy policy was still lacking, but this we must place it in the wider context of the does not mean that the Chinese government has international energy regime. no energy diplomacy. With the objective of developing diversified energy relations, the Chinese 4 The International Energy Regime: have accomplished a lot in the practice of energy Opportunities and Challenges diplomacy. The followings two examples can gi- The international energy regime is the institu- ve a general picture. tional arrangement governing the relationship One example is China’s energy cooperation with among the international energy powers, includ- Central Asian energy suppliers. Central Asia is ing a set of rules and mechanisms of several in- one of China's core areas of international energy ternational organs for energy activities. The cur- cooperation. Over the course of more than ten rent international energy regime displays a ba- years of exploration, experimentation and prac- lance between the forces and interests of key ac- tice, a pattern has emerged in the gas and oil tors of international energy activities, and this is cooperation between China and Central Asian the outcome of the long-term competition bet- countries. This pattern is characterized by in- ween energy exporters and importers and diffe- vestment primarily in Kazakhstan, devotion of rent kinds of international energy organizations. great efforts to building gas and oil pipelines 9 The current international energy regime is for between China and Kazakhstan, and active par- the most part made and led by developed count- ticipation in the gas and oil exploitation of other ries, with the United States as its leader. countries, such as Turkmenistan and Uzbekistan, Meanwhile, with the growing shortage of oil/gas etc. With China’s increasing dependence on im- resources, the increasing rise in status of oil/gas ported energy, it has become imperative for exporters, increased competition and the forging China to "pluralize" gas and oil sources and in- of strategic alliances between different actors, it crease the "security " of energy transportation requires more and more effort to safeguard the with a view to ensuring state energy security. rights and interests of energy importers. Efforts Under such circumstances, Central Asia’s status to use dialogue and compromise to seek com- in the deployment of China’s energy strategy mon ground with different forces with different has been heightened even further. interests are at the same time being stepped up Another example is China’s energy cooperation with a view to striking a favorable balance with India, which, like China, is a large energy among the different parties involved.10

9 The CCPC Oil Pipeline from Kazakhstan to China 10 The Petersburg Declaration reflected a trend of Xinjiang began to transport oil at the end of 2006. this kind in the present international energy regime, China’s Energy Diplomacy FES Briefing Paper 13 | August 2007 Page 6

The current international energy regime is chan- to create a stable political environment for glo- geable. It is influenced not only by economic, bal energy security, to resolve disputes and conf- political, and social factors of resource-rich licts via dialogue and consultation according to countries but also by international political fac- the U.N. Charter and the rules of international tors, particularly change in the international ba- law, and to develop a mutually beneficial and lance of power, adjustment of relationships win-win international energy cooperation, which among countries and changes to international is the foundation and goal of Chinese foreign rules. Meanwhile, it is also influenced by unex- energy policy . ” pected events like armed conflicts and natural The new concept of energy security is in con- disasters and international financial activities. formity with the needs of the era and is popular Due to the constant change of the aforesaid fac- with more and more countries in the world, and tors, the international energy regime is also it will surely serve as an enormous boost to the changeable. formation of a new international energy regime. The unreasonable and unfair aspects of the In promoting the new Chinese concept of ener- international economic regime are very obvious gy security, and by deepening the development in the international energy regime. The develo- of the globalized economy, more and more ped countries and the international energy or- countries are coming to realize the inseparability ganizations led by them for the most part cont- of international energy markets. This will serve rol the making of rules for different international to generally increases the awareness of the need energy activities. And most of the developing to strengthen cooperation and jointly maintain countries, and particularly the newly emerging global energy security. countries, mostly have no choice but to accept the rules. The rights and interests of these 5 Ensuring Sustainable Development countries are not appropriately reflected here. For ensuring sustainable development, China’s The developed countries have important political, energy diplomacy will undoubtedly carry out the economic and military impacts on key oil/gas guidelines of “coexistence between energy de- producing regions, controlling the main oil velopment and eco-safety; coexistence between transport corridors and strategic points in the energy supply and technology progress”. Thus, world. That means, some countries control the to secure access to advanced and affordable energy security of other countries. The multina- energy technologies and to promote cleaner and tional companies, monitored by the developed renewable energy sources will be focal points of countries, control most of the oil/gas resources China’s energy diplomacy. across the world. Thus emerging countries have only the option of purchasing “second-hand” Energy supply and technical progress have direct resources at a high price or engaging in energy connections with the sustainable development development in politically unstable regions. In of economy and society. The realization of long- fact, there is inequality in the use of global ener- term stability of the energy supply is the central gy resources. goal of sustainable development of energy. The improvement of technology is a major channel China’s new energy security concept is winning to enhance energy efficiency and to make up for recognition from more and more countries. As the shortage of energy resources. Energy diplo- President Hu Jintao stated at the G8 Summit in macy can not only ensure a stable energy supply¸ St. Petersburg, Russia, on July 17, 2006: “Most but can also play a major role in accelerating countries cannot safeguard their energy security technical progress. without international cooperation. In regimes designed to safeguard global energy security, we Energy diplomacy can ensure technological should establish and adopt the new notion of progress in various aspects: by assuring access to energy security based on mutually beneficial energy-saving technologies as well as renewable cooperation, diverse development and coordina- energy technologies; by contributing to the di- ted assurance.”11 As Chinese officials from the versification of energy utilization, to the optimi- Ministry of Foreign Affairs stated in a foreign zation of industrial and consumption structure, energy policy statement: “China supports efforts and to the reduction of energy consumption and pollution. Forging ahead in development tech- exemplified the spirit of energy cooperation and nology and gaining authority to formulate tech- expressed a strong will for a better international nical standards for new energy resources will be energy environment. 11 the focus of international competition in the http://news.xinhuanet.com/newscenter/2006-07/18/ field of energy technology. Especially the tech- content_4846539.htm China’s Energy Diplomacy FES Briefing Paper 13 | August 2007 Page 7 nical development of new energy sources will technologies for energy-saving and pollution have a significant influence in sustainable energy control. Requirements of environmental protec- development. Energy diplomacy must play a tion will be enforced as the standard for the en- prominent role in this field through effective in- trance of foreign investment, gradually changing ternational energy technology cooperation. By the industrial structure from high-energy- now, e.g. China and EU countries have made consumption and high-polluting enterprises. In- great progress in energy technology cooperation. ternational cooperation can obtain financial and technical assistance for environment protection There is an inherent contradiction between through “clean development mechanisms”. The energy development and eco-safety. Under no establishment and refinement of laws, rules, condition should we seek energy development and systems of sanctions supervising that energy at the expense of the eco-safety or delay the enterprises should strictly meet the requirements former for the sake of the latter. We must find a of eco-safety in their business activities both well-balanced way for them to coexist harmo- abroad and at home. China should enhance the niously. Considering the progressing deteriora- international consensus and cooperation with tion of the environment, it is necessary to inte- developed countries in dealing with climate grate eco-safety appropriately. change, and practically carry out regulations China is confronted with tremendous ecological such as the “National Program of Dealing With distress at home. China’s large population con- Climate Change” as well as “Energy-Saving and centrates mainly in the eastern areas, where the Discharge-Reducing Comprehensive Program”. great increase in energy consumption causes se- In a word, we should do our part in the global rious environmental pollution. The country has management of the environment. an unreasonable structure of energy consumption: a higher proportion of energy sources with 6 Conclusion a high degree of environmental pollution such as As one of the five “Outreach States,” one with petroleum and coal, and a lower proportion of the largest population in the world, China faces clean energy such as natural gas and nuclear much more fierce challenges. So the seven core energy. China’s energy is used at relatively low aims of the “St. Petersburg Action Plan” - viz. efficiency, with the energy-saving technique lag- increasing the transparency, predictability and ging far behind the international advanced level. stability of global energy markets; improving the The index of energy consumption by far exceeds investment climate in the energy rector; enhan- that of developed countries and is higher than cing energy efficiency and energy saving; diversi- the world average level. fying the energy mix; securing critical energy in- The best way to realize the coexistence between frastructure; reducing energy poverty; and add- energy development and eco-safety is to carry ressing climate change and sustainable deve- out the Energy-Saving Law, the Renewable lopment - are extremely important for China. Energy Law, the currently pending Energy Law We can note that the new energy security con- and other administrative statutes as supplements; cept proposed by Chinese President Hu is the to adhere to the principles of “ecology accep- theoretical principle guiding the formulation of tance” and “ecology priority ” in fields such as China’s energy diplomacy policy, which is almost energy exploitation, transportation and completely compatible with the spirit of the Ac- processing; to implement the “Green GDP Strat- tion Plan. As long as all countries, no matter egy”, to promote international technical cooper- what kind of countries they are - e.g. developing ation among enterprises in the fields of dis- or developed, energy-affluent or not - are able charge-reducing, energy-efficiency, as well as to strengthen energy dialogue, seeking common the development and utilization of renewable ground while accepting existing differences, the energy; to effectively maintain the eco- aims of the Action Plan will be achieved. environment safety, to gradually reduce the dependence on import petroleum; to establish a clean, secure, economical and reliable energy supply system worldwide in the future; to fully utilize the international discharge-reducing and trade mechanism. About the author: Dr. Xu Qinhua is a research fellow of the Center for International Energy Se- In terms of eco-safety, China’s energy diplomacy curity, Renmin University of China. will pay close attention to the acquisition of clean energy, and the introduction of advanced China’s Energy Diplomacy FES Briefing Paper 13 | August 2007 Page 8

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