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 secu- rity 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 ener- gy 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 cooperati- on 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%).