Securing and Fuelling China's Ascent to Power The Geopolitics of the Chinese-Kazakh Oil Pipeline Susann Handke August 2006 Clingendael International Energy Programme CIEP is affiliated to the Netherlands Institute of International Relations ‘Clingendael’. CIEP acts as an independent forum for governments, non-governmental organisations, the private sector, media, politicians and all others interested in the changes and developments within the energy sector. CIEP organises lectures, seminars, conferences and roundtable discussions. In addition, CIEP members of staff lecture in a variety of courses and training programmes. CIEP’s research, training and activities focus on three themes: • regulation of energy markets (oil, gas, electricity) in the European Union; • the international economic and geopolitical aspects of oil and gas markets, particularly with respect to the European Union’s security of supply; • energy and sustainable development. 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Translation of most important information: Chinese-Kazakh oil pipeline is operational as of 25 May Length: 962.2 km Start construction: September 2004 Completion: November 2005 Costs of the project: US$ 700 million Annual amount of oil: 20 million tonnes Title : Securing and Fuelling China’s Ascent to Power Subtitle : The Geopolitics of the Chinese-Kazakh Oil Pipeline Author : Susann Handke Copyright : 2006 Susann Handke, publication right this version CIEP Number : CIEP 04/2006 English editing : Deborah Sherwood Photo front page : Renmin Wang (People’s daily online), 1 June 2006 Printed by : Jurriaans Lindenbaum Grafimedia, b.v. Published by : Clingendael International Energy Programme DTP : Wilbur Perlot, Femke Hoogeveen Address: : Clingendael 7a, 2597 VH The Hague, The Netherlands P.O. Box 93080, 2509 AB The Hague, The Netherlands Telephone: +31 70 374 66 16 Telefax: +31 70 374 66 88 E-mail: [email protected] Table of Contents, List of Figures, Tables and Maps, Abbreviations 1 Table of Contents 1. Introduction .................................................................................................................................. 5 2. The Rise of China and Its Security Environment...................................................................... 9 2.1. China’s Grand Strategy...................................................................................................... 9 2.2. Strategic Choices after the End of the Cold War ............................................................. 12 2.3. Engaging with the Periphery............................................................................................ 14 3. China’s Oil Security ................................................................................................................... 19 3.1. The Development of China’s Oil Demand....................................................................... 19 3.2. China’s Strategy and Means for Ensuring Its Oil Supply ................................................ 23 3.3. Threats to China’s Oil Supply.......................................................................................... 31 4. The Chinese-Kazakh Oil Pipeline ............................................................................................. 35 4.1. China’s Reaction to the Changing Oil Market................................................................. 35 4.2. The Focus of Interest − Caspian Energy Riches .............................................................. 38 4.3. China’s Involvement in Kazakhstan’s Oil Industry ......................................................... 42 5. The Regional Importance of the Pipeline................................................................................. 49 5.1. The Western Development Programme........................................................................... 49 5.2. Xinjiang − A Strategically Important Region .................................................................. 52 5.3. The Sino-Kazakh Strategic Partnership ........................................................................... 57 6. China’s Instruments for Fostering Its Interests in Central Asia ........................................... 61 6.1. The Strategic Partnership with Russia ............................................................................. 61 6.2. The Shanghai Cooperation Organisation ......................................................................... 64 6.3. Military Engagement........................................................................................................ 67 7. Evaluation and Perspective ....................................................................................................... 73 7.1. China’s Role in Central Asia ........................................................................................... 73 7.2. Towards Inter-Regional Economic Integration................................................................ 77 7.3. The Geopolitical Outlook................................................................................................. 80 8. Conclusion................................................................................................................................... 85 Bibliography ................................................................................................................................... 87 2 Table of Contents, List of Figures, Tables and Maps, Abbreviations List of Figures, Tables and Maps Figures Figure 3.1: China’s oil production and consumption, 1980-2005......................................................... 20 Figure 3.2: Oil consumption per unit of GDP, 2002 ............................................................................. 21 Figure 3.3: Oil consumption per person................................................................................................ 21 Figure 4.1: Proven oil reserves of the Caspian Basin............................................................................ 40 Figure 4.2: Oil output, 2003 (Caspian numbers are estimates for 2010)............................................... 40 Figure 4.3: Caspian oil output, 1992 and 2001; forecasts for 2010....................................................... 41 Figure 4.4: Proven gas reserves............................................................................................................. 41 Tables Table 3.1: Comparative economic indicators, 2002.............................................................................. 21 Table 3.2: China − Economic indicators, 2004 ..................................................................................... 22 Table 3.3: China − Structure of the Economy....................................................................................... 22 Table 3.4: China − Economic indicators, 2000-4.................................................................................. 23 Table 3.5: China’s state-owned energy companies ............................................................................... 26 Table 3.6: China’s crude oil suppliers by region as percentage of total supply, 2003-4....................... 31 Table 5.1: Xinjiang’s energy production, 2004..................................................................................... 53 Table 5.2: Xinjiang’s exports and imports, 1998-2004......................................................................... 54 Table 5.3: Values and destinations/origins of Xinjiang’s exports and imports, 2002........................... 54 Maps Map 3.1: Proposed pipelines from Siberia to Northeast China and the Pacific .................................... 33 Map 4.1: Existing and planned pipelines for transporting Caspian oil to the markets.......................... 39 Map 4.2: The main oil fields in western Kazakhstan ............................................................................ 43 Map 4.3: The Chinese-Kazakh pipeline from western Kazakhstan to Alashankou, Xinjiang .............. 45 Map 5.1: China − GDP per capita by province, 2005, US$.................................................................... 50 Map 5.2: China − Xinjiang Uygur Autonomous Region ...................................................................... 52 Map 5.3: Xinjiang Uygur Autonomous Region − Major cities............................................................. 55 Map 6.1: Ferghana Valley..................................................................................................................... 70 Map 7.1: Gwadar deep-sea port ............................................................................................................ 78 Table of Contents, List of Figures, Tables and Maps, Abbreviations 3 Abbreviations ASEAN – Association of South East Asian Nations b/d – barrels per day BP – British Petroleum BTC pipeline – Baku-Tbilisi-Çeyhan pipeline CCP – Chinese Communist Party