You are on page 1of 48

China’s Energy Diplomacy

China’s Rise


 Third largest economy after US, Japan

 Grew 8.7% in 2009

 Consumes 17% of world’s energy but
owns not enough energy assets &
resources

Decade Wise Transition

 1950-mid 60’s:
 Refined oil imports from Soviet Union;
 Soviet advisors in China oil industry;
 Mid 60’s-1980:
 Daqing reserves found;
 Oil exporters;
 Policy of petroleum-led export growth;
 1980-1990:
 Energy security, a rising concern;
 CNOOC, Sinopec and CNPC established for
investment in overseas oil project;

Decade Wise Transition

 1990-2000:
 Local requirements began to outstrip
production;
 Efforts to diversify its energy resources;
 CNPC, CNOOC began investing abroad;
 China on exploration and reserve buying
spree, undergone major deals with Iraq,
Angola, Kazakhstan, Sudan, Venezuela and
many other countries;
 2000-till date:
 Started providing military and economic
support;
 Effort to secure Energy assets & transit routes
 Planned diplomatic strategies to gain access
to world oil reserves;
 Using its financial muscle, underwent major
Current Status

 Proven Crude Oil reserves (2009) – 16


billion barrels , Saudi Arabia has
266.71

 Proven Natural Gas reserves (2009) –
80 trillion cubic feet, Russia has
1680

 Consumption was 7.8 million barrels a
day, out of which 4.1 were imported
China’s increasing demands
Chinese oil
reserves
China’s Crude Imports:
Energy Diplomacy

 In order to pursue Energy Diplomacy,


China uses tools that are
 Diplomatic
 Diplomatic support (like using the Veto) to
a stranded state, examples are Iran,
Myanmar & Sudan;
 Military
 Export or exchange of military hardware &
training in exchange of rights over
energy assets , examples are Myanmar,
Africa;
 Economic
 Giving massive economic aid & dangling
the carrot of investments.
China’s presence:

 Middle East
 Africa
 America
 Rest of Asia
 Australia
GCC
 GCC has 6 countries: Saudi Arabia,
United Arab Emirate, Kuwait, Oman,
Qatar and Bahrain
 China is trying to sign FTA with GCC
since 2004
 FTA is based on synergizing Chinese
expertise and technology and Gulf
capital to establish major companies
in China
 The companies will then help Gulf
projects involving infrastructure,
power generation, transport, railways
and electricity generation
 In return GCC nations will freely flow
Kuwait

 Post 1991 war Kuwait bought $186


million of 155mm howitzers from
China rather than Britain or the
United States.
 China forced Kuwait to engage in the
$300 million purchase, in return to
its support at the UN for extending
trade sanctions against Iraq.
 It was just a pass to enter another
energy rich nation.

Iraq
 Politically Unstable nation
 Second largest oil-reserves in world
 Anti American View

 Military Support:

 Supplied arms during the first gulf war.


 PRC helped develop Iraq's fibre optic
cables beneficial for modernizing
Iraq's air defence system


Political Support:

 UN post sanctioned on Iraq after the war, which were


relaxed in late 1990’s, on China’s pursuance
 Beijing reopened its embassy in Baghdad on July 9,
2004, that had been closed after the U.S.led attack on
Saddam's regime in March 2003

Economic Support:

 China was first one to enter Iraq via signing a contract


with Iraq to develop the Al-Ahdab oil field and began
negotiating for the Halfayah field in 1998
 China pledged US$25 million of humanitarian assistance
to Iraq in 2003
 Chinese Zhongxing Telecom Company signed a contract
with Iraq’s Interim Ministry of Communication to
supply telecommunications equipment with total
value over US$5 million in 2004
Iran
 Has 136 bb of proven Oil reserves & 991 tcf of
Natural Gas reserves

 Geographically closer to China

 Currently, third largest supplier of Oil to China
& supplies 12% of China’s annual
consumption

 In 2004, China’s CNPC signed a 25 year
contract to supply 110 million metric tons of
Gas

 Sinopec signed another deal worth
$100 billion to supply an extra 250
million tons of LNG to China

 Several deals have been signed since
then which include the rights to
develop the South Pars oil field &
projects to develop oil refineries in
Iran

 Already China is in talks for inclusion
in the IPI pipeline
Energy Diplomacy - Iran

 Diplomatic
 China has vetoed successive attempts at
UNSC to slap sanctions
 Been among the few diplomatic backers of
Iran at a time when its stranded in no
man’s land.

 Military
 China has provided Iran with an array of
military hardware ranging from small
arms, assault rifles to main battle tanks,
frontline fighter aircraft and
sophisticated missile technology
 Provided blueprints of Uranium
enrichment plant & exported Uranium to
 Economic
 China has become Iran’s top trading
partner after an earlier round of
sanctions
 China has invested hugely in Iran,
building refineries & other
infrastructure
IPI- Gas Pipeline
 China, like India, relies on ocean shipments of
Qatar LNG for the bulk of its natural gas
needs for sound economic reasons. 
 China is particularly keen on securing energy
supplies which can be shipped over land
routes, since supplies shipped over water
are much easier for the US to interrupt
 While Western attention was focused on Saudi
Arabia's possible provision of energy
guarantees to China in return for a "yes"
vote on Iran sanctions, Iran was working to
leverage its natural gas reserves into
economic alliances with China, India and
Pakistan. 


 The IPI project was conceived in 1995 and
after almost 13 years India finally decided
to quit the project in 2008.
 India had not proceeded with the 2,775 km
trilateral pipeline on issues pertaining to
security and hefty transit fee asked by
Pakistan.
 Pressure from Washington to suspend ties
with Iran is also cited as a reason
 With the departure of India from the IPI
consortium and the imposition of relentless
US pressure, both Iran and Pakistan are
feeling the lack of a partner with
international financial and diplomatic
muscle. 


 China has reportedly said that it will join
Pakistan and Iran in a proposed natural
gas pipeline project if India bows out

 China has the wherewithal as well as the
political will to “replace” India in the IPI
pipeline.

 Pakistan has presented a proposal to China
asking it to join the $7.5-billion Iran-
Pakistan- India (IPI) gas pipeline project if
New Delhi pulls out of the venture, to
which Iran has no objection
Myanmar

 Myanmar is rich in oil & has SE Asia’s


largest gas reserves (estimated at
around 90 tcf) that are world’s tenth
largest

 Myanmar gives China access to the
Indian Ocean, for imports of oil and
gas and exports from landlocked
South-western Chinese provinces

 Strategically important since it can allow
China to bypass the vulnerable
Malacca Straits
 Efforts are underway to build a 480 mile
oil pipeline & later a gas pipeline
through Myanmar

 There are also plans for a 1,400-mile oil
and gas pipeline that connects China's
landlocked Yunnan Province to
Myanmar's Indian Ocean coast

 China has also taken a keen interest in
the recent Gas discoveries in the Bay
Energy Diplomacy - Myanmar

 Follows the Iran Model


 Diplomatic
 One of Myanmar’s few diplomatic
backers since West imposed
sanctions against the military regime
in 1988 following a crackdown on
pro-democracy demonstrators.
 Provided protection at the UN, vetoed
resolutions backed by the US
Energy Diplomacy - Myanmar

 Military
 China is the most important supplier of
military aid and maintains extensive
strategic and military cooperation
including training

 Has delivered billions of dollars worth
of military equipment to Myanmar
which has facilitated the growth in
the strength of the military regime

Energy Diplomacy - Myanmar

 Economic
 Beijing has invested heavily in
Myanmar, financing roads, railways,
airports and ports
 China is officially Myanmar’s third-
largest trading partner
 Largest foreign investor
 Gives huge economic aid & soft loans
to Myanmar - $180 million in 1998
when Myanmar faced a debt crisis,
$200 million in 2003 & another $200
million in 2006
String of Pearls

 Attempt to have a presence along the


SLOCs that connect it to the Middle
East
 80% of China’s oil passes through the
Malacca Straits
 Aggressively moving to secure its
energy routes
 Building blue water navy
 Financing & building ports in Pakistan,
Myanmar, Bangladesh & Sri Lanka
 Involves deep water ports capable of
hosting nuclear submarines
Shanghai Cooperation Organization

 Founded in 2001 when Uzbekistan joined the


erstwhile ‘Shanghai Five’ consisting of China,
Kazakhstan, Kyrgyzstan, Russia and Tajikistan
 Cooperation over security, economic & energy
matters
 Provides a framework for China to engage these
Central Asian states
 In its 2007 summit, member states agreed to
establish a "unified energy market" for oil and
gas exports, while also promoting regional
development through preferential energy
agreements.
 Although, it has been said that if Iran joins the
SCO, it will essentially be “an OPEC with
bombs”, SCO has failed to live up to such
expectations & China energy diplomacy has
largely followed a bilateral course.
Russia

 Used to import refined oil from Soviet since


1950’s, but later started exporting in mid 60’s
till 1993;
 In 1994,
 Russian oil firms YUKOS, lead by Mikhail
Khodorovsky proposed an oil pipeline from
Siberia to China's northeastern regions;
 At the same time YUKOS also planning a merger
with Sibneft;
 Putin viewed such a big independent company as a
political threat;
 2003,
 Before Khodorkovsky could get his project under
way Putin struck and he was under arrest.
YUKOS was forced to bankruptcy;
 China and Japan took advantage of uncertainty
and started lobbying around for most favored
market status for Siberian oil.
 2004,
 then-prime minister Mikhail Fradkov came
down on the side of Japan and Transneft was
given the go-ahead for construction of the
Taishet-Nakhodka pipeline;
 Beijing did not give up. It invested heavily in
improving relations with Moscow.
 2008
 Oil prices tumbling towards $50 a barrel posed
problem for the massive Siberian infrastructure
project;
 Financial meltdown squeezed Russia's state-owned
energy sector which was facing under-
investment;
 Chinese Economic support:
 Feb 2009, China signed loan-for-oil deal in which
China would offer Russian firms 25 billion U.S.
dollars of long-term loans while Russia would
supply 300 million tonnes of crude to China from
2011 to 2030.
Kazakhstan

 Seventh best explored hydrocarbon reserves;


 Estimated proven and probable oil reserves stood at
approx 29 billion barrels and about 70 trillion cubic
feet of proven gas reserves. 
 In June 2005 PetroKazakhstan announced its a
possible takeover or merger;
 PetroKazakhstan accounted for about 12 percent of
the Kazakhstan's oil production and owned the best
(Shymkent refinery) of only three oil refineries in
Kazakhstan;
 India’s ONGC offered around $3.9 billion against
China National Petroleum Corporation's (CNPC)
$3.6 billion;
 Diplomacy
 Economic: CNPC revised the bid to US $4.18 billion;
 Offered 5 billion-dollar loan to Kazmunai which would
help pay for the MangistauMunaiGas deal and
construction of Kazakh-China gas pipeline;
Venezuela
 Bought 2 marginal fields in 1997;
 Venezuela depends too heavily on its oil industry and
most of its oil exports are to U.S. by late 90’s;
 Apr 2002 failed Venezuelan coup attempt on
president Chavez acidified Venezuelan esp.
Chavez’s relationship with U.S.;
 Chavez wanted to reduce dependence on U.S. and
China wanted oil security;
 Energy Diplomacy tools:
 Diplomatic support: China against US in 2006, supported
Venezuela’s bid for U.N. security council;
 Economic:
 Offered investments in Venezuelan agriculture,
infrastructure, mining, and energy production;
 China also offered support in drilling oil from reserves;
 Increased oil imports from Venezuela from 68,800 bpd
in 2005 to over 300,000 bpd.
 In 2009, China offered 16-billion-dollar loan to drill oil
in the resource-rich Orinoco basin.
CANADIAN OIL SANDS
 Oil sands are gritty deposits of tar-like bitumen, and Canada's
deposits are now recognized as the biggest source of crude oil
outside Saudi Arabia.

 Oil sands may represent as much as two-thirds of the world's total
petroleum resource, with at least 1.7 trillion barrels in the Canadian
Athabasca oil Sands

 Alberta's huge oil sands deposits make up the vast bulk of Canada's
total proven crude reserves. It has established oil sands reserves of
178 billion barrels. However, oil sands production techniques are
expensive for now, and need a high market price environment to
make any investment worthwhile

 Extracting and processing sticky bitumen is much more expensive
than producing and refining conventional crude, but global supply
concerns have pushed western crude benchmarks to about $70 a
barrel and made bitumen projects more economically viable
 World's largest deposits occur in two countries: Canada and Venezuela
each of which has oil sand reserves approximately equal to the
world's total reserves of conventional crude oil

 Production methods include sophisticated mining and extraction
approaches

 Canada has become the largest supplier of oil and refined products to
the United States, ahead of Saudi Arabia and Mexico.

 Canada, faced with growing political pressure over the extraction of oil
from its highly polluting tar sands, has begun courting China and
other Asian countries to exploit the resource.

 With oil prices setting new highs in 2007, tax incentives were no longer
necessary to encourage oil sands projects in Canada. In July of that
year Royal Dutch Shell released its 2006 annual report and
announced that its Canadian oil sands unit made an after tax profit
of $21.75 per barrel, nearly double its worldwide profit of $12.41
Ø The move comes as American firms are turning away from tar sands
because of its heavy carbon footprint and damage to the
landscape. With their expansionist plans continuing to be met with
determined political opposition in the US, Chinese oil companies
have turned their attention towards access to the lucrative
Canadian energy market.
Ø
Ø The combination of the current administration's professed commitment
to open trade and the slump in Canada's inward foreign direct
investment caused by the financial crisis have broken down
Canada's resistance to direct Chinese investment.
Ø
Ø PetroChina officially acquired 60% stake in Canada based Oil Sands
company Athabasca Oil Sands Corp.'s (AOSC) MacKay River and
Dover oil sands projects for $1.8bn , with plans to produce up to
35,000 barrels a day by 2014, and eventually up to 500,000 a day.
Ø
Ø China's other two state-owned oil giants, Sinopec and China National
Petroleum Corp, have also taken interests in oil sands projects in
Canada.
Chinese Approach for African
Oil
 Two-pronged strategy

 First, it has pursued exploration and production
deals in smaller, low-visibility countries such as
Gabon, Equatorial Guinea, and the Republic of
Congo. Chinese oil companies supported by
government citing reason of being late comer in
Oil field.

 Second, it has gone after the largest oil producers
by offering integrated packages of aid.

 Strategy of committing large amounts of


funding and labor for exploration and
development rights in resource-rich countries.
 In 2000, Beijing established the China-Africa
Cooperation Forum (CACF) to promote trade
and investment with 44 African countries.
 Strategy of joint-ventures with national
governments, state-controlled energy
companies or individual enterprises in order
to establish a long-term local presence.
 They always outbid or try different means to
win contracts awarded by African
governments because their concerns are not
in short-term returns but rather in strategic
positioning for the future.
 In Sudan it had an investment of $4 billion.

 The China National Petroleum Corp. (CNPC) has a 40
percent controlling stake in Greater Nile Petroleum that
dominates Sudan's oilfields.

 (CNOOC) bought a 45 percent stake in a Nigerian oil-and-
gas field for $2.27 billion and also purchased 35
percent of an exploration license in the Niger Delta for
$60 million

 Chinese Loans to Angola ( $2 billion with low interest
rates, long maturities and no questions on how the
money is used). no-strings-attached investment and
infrastructure
Energy Diplomacy - Sudan

 Economic support:
 Chinese oil investments in Sudan by turning a blind-eye to the
Darfur crisis.
 China is the biggest investor in Sudan

 Military Support:
 Sold T-59 Main Battle tanks & F-7 fighter aircraft
 China has assisted Sudan in developing factories producing
small arms
 China oil company entered in 1995 exploiting Sudan’s north
south civil war and U.S sanctions

 Political Support:
 Beijing repeatedly vetoed the efforts of UNSC for slapping
economic sanctions over Darfur crisis & prevented the arrest
of President Omar Al-Bashir as proposed in the ICC (Intl.
Criminal Court)

Sino-Australian relations

 China is Australia’s largest trading


partner
 Australia supported US on carbon
credits.
 Ensures China for steady supply of
‘clean fuel’ for 20 years


 On August 19,2009 PetroChina signed a
AU$50 bn deal with ExxonMobil to
purchase LNG from the Gorgon field in
Western Australia
 Biggest single construction project creating
6000 jobs;
 The deal represents a bigger investment in
Australia than the government’s last
economic stimulus package;
 20 year agreement to supply CPI(China
Power International) with 30mn tonnes of
coal a year;
 Australia’s biggest ever export contract
 70% stake in Australia's Uranium Metals
Ltd by  A$83.6 million cash offer from
Conclusion

 China wants to ensure energy


security through:
 Financial muscle;
 Veto power.
 Reducing dependence on Middle-
east;
 Want to spread the dependency for
energy;
 May be China wants to break the US
supremacy as far as energy
Thank You…