How Russia’s War on Ukraine is Impacting Beijing’s Search for Energy Security
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How Russia’s War on Ukraine is Impacting Beijing’s Search for Energy Security

How has Russia’s invasion of Ukraine impacted Beijing’s strategy for achieving energy security? Will China increase its investment in renewables in order to insulate itself from future energy market volatility? Or will the search for short-term growth see Beijing double down on traditional energy sources? Utilizing newly translated documents, three leading exports explore China’s path forward.

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The newly translated documents on China’s energy security discussed below include:

  1. Ten Revelations from the Russia-Ukraine Conflict Concerning China’s Energy Security, by Xu Jin, chief economist of China Energy Construction Group Investment Co., Ltd.
  2. Building a Unified National Energy Market and Resolving the Structural Difficulties of Sufficient Oil and Gas Supply and Cost Control, by Yang Yang, The Paper reporter
  3. Guiding Opinions on Energy Work in 2022, by the National Energy Administration
  4. In an Increasingly Tumultuous World, How Can China’s Energy Achieve Energy Sustainable Security?, by Wang Haibin, senior economist at Sinochem Energy Co.
  5. Strategies for Breaking Through China’s Energy Security Constraints Under the New Pattern, by Fu Wenli, disciplinary expert at the Beijing Work Bureau of Sinopec Disciplinary Inspection and Supervision Group
  6. In an Oil and Gas Fumed Atmosphere ——The Russia-Ukraine Conflict and the Suddenly Magnified Energy Security Perspective [Excerpt], by Gao Fanting, senior reporter at China State-owned Enterprise Management magazine

Jump to commentary from:
Michal Meidan | Anders Hove | Erica Downs

Michal Meidan

Director, China Energy Research Programme & Director, Gas Research Programme, Oxford Institute for Energy Studies

Discussions about energy security date back to the 1990s in China, when the country first became a net importer of oil. Over the years, the energy-security debate revolved extensively around the strategic vulnerabilities associated with oil and, later, with dependence on gas imports. On the supply side, policy solutions included diversifying import sources in order to avoid becoming overly reliant on one region (primarily on the Middle East) for oil—or to not “put all of China’s eggs in one basket,” as Wang Haibin puts it. There was also a view that China should gain access to upstream resources around the world, in the hope that this would provide greater energy security (although the expensive lessons learned from some of these ventures is not discussed in depth in this collection of articles). Similarly, there have been efforts to develop land-based energy-supply routes through Central Asia and Russia, thus limiting the strategic vulnerabilities associated with maritime flows, as well as efforts to promote commodity trading in the Chinese currency, an endeavor that Fu Wenli and Xu Jin also advocate. China has also actively built commodity reserves, mainly for oil, which these authors argue should remain a key priority. On the demand side, the policy response has been to improve energy efficiency and promote the electrification of energy end uses, as power generation can rely on domestically produced coal—and, increasingly, on renewables.

The Russian invasion of Ukraine has not changed the prescribed antidotes to China’s woes, but it has crystallized one very significant source of energy insecurity: the United States and other Western energy importers that are wielding energy as a weapon. As Fu Wenli notes:

“The United States’ “shale oil and gas revolution” has made it the world’s largest oil producer and net exporter. To achieve full energy independence after 2020 and to seek to form a new “energy hegemony” on the global energy map, in recent years, the power to control energy has been frequently played, and it has continued to suppress Iran’s crude oil exports, sanctioned Venezuela to reduce crude oil exports, and has threatened to sanction Russia and Germany’s natural gas pipeline projects, adding variables to the world’s energy trade and international cooperation.”

Wang Haibin echoes these views:

“It is no longer the energy-exporting countries that are wielding energy as a weapon, but the major importing countries in the West. They leverage their advantages and hegemony in global finance, logistics, and other fields, frequently and consciously use energy as a weapon to attack competitors, and block energy exports by competitors.”

China’s policy options have not changed dramatically. The authors still emphasize international cooperation for energy, supply diversification, and storage, alongside demand-side responses. But with the energy transition looming large, Fu Wenlin, for instance, is slightly more sanguine about the longer-term trend for oil and gas, arguing that “China’s oil and gas resource supply risks will . . . become more and more relaxed as the oil peak approaches” toward the late 2020s. Fu also argues that the price premium on geopolitical shocks is set to fade as oil and gas markets become structurally looser. What follows from this is that energy security requires resilience and a system-wide approach to resources. It is, as Yang Yang argues, about building a national energy market and, as the 14th Five Year Plan for building a modern energy system also suggests, about laying the foundations for the energy system of the future. “Energy must be in our own hands,” Sun Minghua et al. state, highlighting that this can be achieved through renewables and coal. Is the energy transition being reframed as an opportunity to enhance China’s energy security

Looking back at the roots of China’s energy insecurity, U.S. sanctions on Iran and Venezuela have complicated flows to China and taken some oil and gas off the market, which have in turn resulted in higher prices, but they have not led to major supply outages in China. Neither, to date, have sanctions on Russia. The power shortages witnessed in 2021—and earlier, in the 2000s and 2010s—were all the result of China’s domestic policies, mainly the tension between international market prices and domestically set prices. Yang Yang also discusses this, although he does not refer to these as sources of energy insecurity per se. The 2022 guidance issued by China’s National Energy Administration also discusses energy governance and the need to enhance its capacity.  

These discussions are not new. But the Russian invasion of Ukraine has highlighted and amplified concerns about the role of U.S. sanctions in China’s energy insecurity. While it has not led to a radical rethinking of Beijing’s energy-policy priorities, it may be reinforcing the search for energy independence, which is made possible by coal and renewables. As a result, questions of governance and market design are also discussed—even if they are not seen as sources of energy insecurity—as China designs its future energy system. China’s energy security (and insecurity) may therefore already be in its own hands.

Anders Hove

Senior Research Fellow, Oxford Institute for Energy Studies

China’s renewed policy focus on energy security traces back to a prominent economic speech by Premier Li Keqiang in late 2019, and the prioritization of energy security has continued to dominate major speeches and policy documents, particularly following power outages in 2020 and 2021. Boosting domestic coal production was at the center of energy-security policies. The Russia-Ukraine conflict and disruption of global energy flows added new vigor—and new arguments—into the Chinese discussion of energy security, as the translated articles show. However, while the energy-security issue is often framed as a tradeoff with policies on clean energy or mitigating climate change, this is not the case in China.

For over a decade, rising dependence on imported oil and gas has troubled government officials, especially after China became the world’s largest oil-importing country. The physical vulnerability of energy flows through strategic straits and Middle Eastern pipelines is a top concern. Oil and gas are also China’s largest category of imports, surpassing electronic goods and equipment several years ago. However, unlike the past experience of the United States, China’s energy import dependence is set against the largest trade surplus the world has ever seen, as well as ample domestic supplies of coal and renewables.

China’s policymakers increasingly recognize that its dominance of clean-energy manufacturing confers long-term strategic benefits for energy security. As Fu Wenli notes, world physical oil supplies are sufficient to meet demand, and China’s electric-vehicle (EV) revolution will reach a point at which the country can reduce oil consumption in the next 10–15 years. “China’s oil and gas resource supply risks will . . . become more and more relaxed as the oil peak approaches.” This year, China has surpassed 10 million electric vehicles in its domestic fleet, and “new-energy vehicles” (mainly EVs plus plug-in hybrids) are on their way to almost 30 percent of passenger-vehicle sales on a monthly basis by the end of this year, far ahead of a 20 percent government target set for 2025. A complete fossil-fuel phaseout is within reach in the world’s largest automobile market. China’s urban residents are far less dependent on driving than those in other countries, and even poorer rural areas are switching to EVs for daily tasks. While China’s oil-import dependence will diminish only gradually, the availability of EVs as a realistic substitute for fossil-fuel vehicles substantially reduces long-term energy-security concerns connected to oil.

Not only is clean energy a substitute on the demand side, but it has the potential to make China a player on the global scene, flipping the script on energy security for the world’s largest energy consumer. Indeed, China’s dominance in some fields even becomes a new form of vulnerability as it figures out how to maintain or even expand its lead and, as Xu Jin writes, “seize the commanding heights . . . in the new round of energy power shifts and truly become the final winner.” While European and American energy experts fret about China’s potential stranglehold on key materials for batteries, Chinese commenters (such as Wang Haibin) want to reinforce this control still further. Sanctions, tariffs, or industrial policies that other countries adopt as a way to shift solar-cell or battery manufacturing outside of China might dent the value of these technologies as high-end, strategic industries that enable China’s economic rise. One major solution framed by several of the commentaries is to foster greater domestic innovation in science and technology, where China still lags.

Energy security remains a major concern, and present geopolitical conflicts have driven China’s leadership to emphasize “taking the energy rice bowl in China’s own hands” or, as Wang Haibin writes, to recognize that “it is neither appropriate nor realistic to outsource our energy security to other countries.” Yet China’s unique and rapidly evolving energy-technology situation enables the country to pursue energy security and climate targets simultaneously. Yes, there remains tension between these goals, and China continues to build new coal-fired capacity even though wind and solar power still only provide 12 percent of national electricity supplies. Chinese experts see clean energy as a long-term aim while focusing on domestic energy production, greater efficiency, market reforms, and innovation as near-term energy-security measures. These actions are in line with strategies underway long before the present global energy-market turmoil. As Fu Wenli writes, “New energy has become the ultimate solution to China’s energy security problems.”

Erica Downs

Senior Research Scholar, Center on Global Energy Policy, Columbia University SIPA

Russia is one of China’s most important energy partners. In 2021, it was China’s second largest supplier of crude oil and coal and third largest supplier of natural gas (pipeline and LNG combined). It has also arguably done the most to enhance China’s energy-supply security by exporting fossil fuels by land and sea. For example, the 1.6 million barrels per day of crude oil that China imported from Russia last year were roughly divided between pipeline and seaborne oil imports, most of which are shipped from Russia’s Pacific ports, avoiding the need for long-distance travel through major chokepoints such as the Strait of Hormuz and Strait of Malacca.

Russia’s invasion of Ukraine offers China an opportunity to deepen the two countries’ energy ties. Chinese firms are purchasing Russian fossil fuels shunned by other buyers at steep discounts. Indeed, China was the largest purchaser of Russian fossil fuels during the first hundred days of the war, according to the Centre for Research on Energy and Clean Air. However, Chinese firms have not yet capitalized on Moscow’s international isolation to secure new long-term energy-supply contracts or to acquire exploration and production assets in Russia, including those left behind by Western oil companies.

Two of the translated articles, written after the start of the war, provide insights into how economists at a couple major state-owned enterprises are thinking about China-Russia energy relations. Xu Jin of Energy China and Wang Haibin of Sinochem offer different takes on the bilateral relationship. Xu’s essay is focused on the implications of the war for China’s energy security, while Wang’s essay addresses how China can achieve energy security amid a world in turmoil.

Xu regards the war in Ukraine as laying the groundwork for a stronger China-Russia energy relationship. He argues that China must take advantage of Russia’s eagerness to strengthen bilateral energy ties to make up for its loss of market share in Europe. He also calls for stabilizing the “overall plan” and direction of bilateral energy cooperation to ensure its steady and long-term development. Xu’s prescription for a tighter China-Russia energy embrace is rooted in his view of how Russia’s invasion of Ukraine is changing the geopolitics of energy. Specifically, he sees the war as splitting the global energy system into two parallel systems, with China and India importing energy from Russia while the United States and Europe reduce these imports. Indeed, the European Union’s announced bans on importing Russian coal and oil and its plans to phase down its imports of Russian natural gas will undoubtedly compel Moscow to sell more fossil fuels to customers in Asia. That said, Xu does not mention that China will almost certainly have a foot in these two energy systems. Its energy trade with the United States is set to increase due to a flurry of (mostly long-term) LNG supply contracts between Chinese and American companies signed since October 2021, including several inked after Russia’s invasion of Ukraine. The total volume of these contracts is as much as 17.9 million tons, about 23 percent of China’s total LNG imports in 2021.

Although Wang does not address the issue of whether China should expand its energy ties to Russia, he does indicate that Russia might not be as secure a source of energy supplies as conventional wisdom holds. He notes that Beijing based its decision to devote considerable human, financial, and material resources on the construction of oil and natural gas pipelines from Russia and Central Asia to China on the assumption that these regions are China’s “unshakable energy rear,” sources of supply safe from disruption from adversaries. Wang then goes on to observe that—in light of recent events in Russia, Kazakhstan, and other countries—this supposition is not necessarily accurate. Wang’s point about China’s “energy rear” is underscored by Russia’s increasing international isolation since the start of the war. The European Union’s ban on the export of LNG equipment and technologies to Russia, for example, is stymieing the development of Russia’s Arctic LNG 2 project, which has Chinese investors, equipment suppliers, and customers.

The essays by Wang and Xu offer a glimpse of how analysts at Chinese energy companies view the China-Russia energy relationship in the wake of the war in Ukraine. The essays point to a question that Beijing, which has long regarded diversification as an important source of energy supply security, faces as sanctions push Russia to reorient its energy exports toward Asia: How dependent on Russian energy does China want to be?

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