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In an Increasingly Tumultuous World, How Can China’s Energy Achieve Energy Sustainable Security?


A senior economist from the state-owned Sinochem conglomerate argues that in face of what he sees as an increasingly unstable geopolitical situation, China should increase its investments in renewable energy.

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The Yom Kippur War broke out in October 1973. Oil-exporting Arab nations imposed an oil embargo on Western countries which supported Israel, triggering the first global oil crisis. Oil prices skyrocketed, dealing a major blow to Western economies and causing society to fall into chaos. That oil embargo is the most well-known example of exporting countries using energy as a weapon.


In recent years, more and more “energy wars” have broken out around the world. However, it is no longer the energy-exporting countries that are wielding energy as a weapon, but the major importing countries of the West. They leverage their advantages and hegemony in global finance, logistics, and other fields to frequently and consciously use energy as a weapon to attack competitors, blocking energy exports by competitors. Obviously, these actions are nothing like the 1973 oil embargo. Nonetheless, such use of energy as a weapon similarly causes turmoil in the international energy market.


China is already the world’s largest importer of oil, natural gas, and coal. The outbreak and continuation of energy wars have seriously harmed China’s energy economic interests and formed a challenge to China’s sustainable energy security. How should the Chinese government, enterprises, and society respond?


Rough Seas of Global Energy


In an ideal world, the rise and fall of energy prices and market ups and downs would be entirely determined by the “invisible hand” of the market. However, energy is an important material basis for the normal operation of human society, and energy commodities often have a political aspect. In recent years, some major powers have become increasingly enamored with using oil and gas as a weapon to achieve their strategic goals, making the strategic nature of oil and gas more pronounced. The international oil and gas market is in the grip of political forces, with heightened volatility and overall tension.


In response to climate change, the international community has become determined to reduce fossil fuel consumption. However, due to complex economic and technical reasons and the influence of path dependence, for a long time to come, global oil and gas consumption will not decline. On the contrary, it will increase significantly.


On the other hand, the maneuvering of great powers and the intensification of geopolitical tensions are causing increasing damage to the world’s oil and gas supply.


For example, major oil and gas countries such as Russia, Iran, and Venezuela are currently subject to Western sanctions, which has a significant impact on the global oil and gas market.


Iran and Venezuela would be the world’s largest oil producers and exporters. But due to reasons such as long-standing energy sanctions from the United States and other countries, their oil production and export volumes have been greatly reduced. After the Islamic Revolution broke out in Iran in 1978, Iran was hit with sanctions from Western countries led by the United States. On July 14, 2015, after years of negotiations, Iran and the United States, Russia, China, the United Kingdom, France, and Germany finally signed the Iran nuclear agreement. Iran promised to abandon its nuclear weapons program in exchange for the lifting of oil, financial, and other sanctions imposed on it by the United States and other Western countries. However, in May 2018, Trump announced the withdrawal of the United States from the nuclear agreement, and Iran’s oil exports were again subject to sanctions, which continue to the present day. Iranian oil exports are estimated to have dropped by about 2 million barrels a day due to the sanctions.


Venezuela can “feel the pain” of Iran. Though Venezuela has the largest oil reserves in the world, since 1999, due to reasons such as sanctions from Western countries led by the United States, Venezuela’s oil output and export volume have contracted sharply. According to OPEC data, in January 2001, Venezuela’s daily crude oil output was 3.02 million barrels, while in January 2022 it was only 670,000 barrels, a decrease of 2.35 million barrels.


It can be conservatively estimated that, due to the sanctions imposed by the United States and other Western countries, the crude oil exports of Iran and Venezuela have dropped by more than 4 million barrels per day, which is equivalent to about 1/10 of the global crude oil trade volume.


Russia has a vast territory and abundant resources. Its importance in the global supply of energy, industrial metals, agricultural products, and other commodities far exceeds that of Iran and Venezuela. When it comes to fossil fuel, Russia is the world champion in all areas. The possibility of sanctions on Russian energy exports has created a hurricane in the global energy industry.


Looking at individual items, Russia’s energy data ranks among the best in the world in many respects. According to data from BP, as of the end of 2020, Russia’s oil, gas and coal reserves ranked among the top in the world: Russian proven natural gas reserves are 37.4 trillion cubic meters, accounting for 20% of global reserves, ranking first in the world; Russian proven coal reserves are 162.2 billion tons, accounting for about 15% of global reserves, ranking second after the United States; and Russian proven oil reserves are 107.8 billion tons, accounting for 6.2% of the world’s total, ranking sixth in the world.


In terms of production, Russia is the world’s second-largest oil and gas producer and sixth-largest coal producer. In 2020, Russia’s oil, gas, and coal production were 524 million tons, 638.5 billion cubic meters, and 400 million tons, respectively, accounting for 12.6%, 16.6%, and 5.2% of the global total.


In terms of exports, Russia is the world’s largest exporter of natural gas, the second-largest exporter of oil, and the third-largest exporter of coal. In 2020, the export volume was 238.1 billion cubic meters of natural gas, 7.43 million barrels per day of oil, and 5.66 exajoules of coal, accounting for 25.3%, 11.4%, and 17.8% of the global total.


The Importance of Russia in the Global Fossil Fuel Field


On February 27, 2022, the European Union, the United Kingdom, the United States, and Canada issued a joint statement announcing the prohibition of the use of the Society for Worldwide Interbank Financial Telecommunication (SWIFT) system by some Russian banks. This will deal a major blow to Russia’s exports of various commodities. The Russian economy is heavily reliant on oil and gas exports. In 2021, the proportion of fuel and energy products in Russia’s export structure reached 54.3%. Oil and gas export revenue as a share of the Russian government’s budget revenue has declined in recent years, but it still remains as high as about 30%. Given their importance to the national economy, it will be difficult for Russia’s oil and gas exports to avoid altogether the impact of Western sanctions.


New Challenges Facing China’s Energy Security


In 1993 and 1996, China became a net importer of petroleum and then of crude oil. Since then, the Chinese government and society have generally paid increasing attention to energy security. In order to ensure energy security, the Chinese government has done a lot of work and adopted a variety of safeguard measures. Among these, its internal measures have mainly included establishing and strengthening energy reserves, improving energy efficiency, and continuing to reform energy systems and mechanisms. Its external measures mainly include laying cross-border oil and gas pipelines, protecting domestic maritime energy transportation lines, investing in foreign oil and gas fields to fight for a share of oil and gas, and expanding the scale of energy trade with energy-exporting countries.


In securing its external energy security, China has always emphasized not putting all its eggs in one basket and avoided excessive dependence on the Middle East. China believes that access to Middle Eastern oil and gas is subject to great uncertainty and that there are also uncontrollable military and security risks involved in transporting Middle Eastern oil and gas back to China.


For these reasons, China emphasizes the simultaneous pursuit of land and sea [transportation lines]. Since the construction of the China-Kazakhstan oil pipeline in 2004, China has cooperated with neighboring countries, building multiple land-based oil and gas pipelines including the China-Central Asia oil and gas pipeline, the China-Russia oil pipeline, the “Power of Siberia” gas pipeline, and the China-Myanmar oil and gas pipeline. China has already formed four main strategic energy channels: the maritime, northeast (referring to the Sino-Russian oil and gas pipeline), northwest (referring to the China-Central Asia oil and gas pipeline), and southwest (referring to the China-Myanmar oil and gas pipeline) channels.


The Chinese government has expended a great deal of human, financial, and material resources to build strategic land-based energy channels with Russia and Central Asia. This was based on an important assumption: Russia and Central Asia are an unshakable energy rear area [translator’s note: as in the territory to the rear of a defending army, protected from the enemy]. However, judging from the recent events in Russia, Kazakhstan, and other countries, regarding these regions as our energy rear area is not always going to be completely safe.


China is the world’s largest energy consumer, accounting for more than 26% of global consumption. It is neither appropriate nor realistic to outsource our energy security to other countries. The fundamental path by which China can achieve energy security is necessarily self-centered. We must increase the domestic energy supply and continue to reduce energy dependence on external sources.


Looking back, China’s overall external energy dependence has risen rapidly from 5.71% in 2000 to 18.07% in 2020. Specifically, our dependence on external sources of oil and natural gas is over 70% and 40% respectively.


Although China has relatively abundant coal resources, with proven reserves ranking third in the world, since 2017 China has been the world’s largest coal importer. Under normal circumstances, a high degree of dependence on external sources for energy consumption is not a terrible situation to be in. But following a global energy crisis, countries whose energy consumption is highly dependent on imports may be faced with greater price risks or even supply disruption risks.


The situation in Chinese food security can provide us with a positive source of reflection. Recently, the international grain market, like other commodity markets, has seen surging prices. For example, in the second week of March 2022, the price of wheat futures on the Chicago Board of Trade (CBOT) rose by 41%, setting a record for the highest weekly increase in history. The prices of corn, soybean, and other futures also rose sharply during the same period. In such a global context, domestic food prices will inevitably be affected. However, the Chinese government and people do not need to worry about food supply security, the reason being that China has a high rate of self-sufficiency in food, especially grains. The average domestic self-sufficiency rate across China’s three major grains, rice, wheat, and corn, is above 97%. In terms of food, the rice bowl is firmly in our own hands.


In October 2021, while inspecting Shengli Oilfield, General Secretary Xi Jinping pointed out that China, as a major manufacturing country, must hold the energy rice bowl in its own hands in order to develop the real economy. How can China’s energy sector successfully accomplish the tasks assigned by the General Secretary? The key is to reach deep to carry out a revolution in energy thinking, change track, and more vigorously develop domestic renewable energy.


Change Track and Strive to Achieve Sustainable Energy Security in China


Going forward, the basic idea for improving the level of assurance for China’s energy security should be to strengthen the development of domestic energy, especially renewable energy, and unswervingly promote sustainable energy security in China.


To achieve sustainable energy security in China, we need to do a great deal of in-depth and meticulous work. First, we need to speed up re-electrification, or in other words, carry out the large-scale replacement of coal power with renewable power, such as wind and solar power, and with nuclear power. Second, given that oil security is the soft underbelly of China’s energy security, the government, enterprises, and society need to work together to accelerate the replacement of oil in the fields of road transportation, aviation, and maritime navigation through the in-depth promotion of electrification and other measures. Moreover, to further develop the electrification of transportation, there’s a lot of work that must be done, including tackling the toughest problems of advanced battery technology, effectively controlling price and supply risks of energy metals such as nickel, aluminum, cobalt, manganese, and lithium, and having all local areas carry out in-depth economic and social institutional reforms.


To develop energy alternatives, we must also fully respect the economic reality. On the one hand, we need to enhance the attractiveness of new energy and continue to provide necessary subsidies for new energy consumption. On the other hand, we need to systematically sort out the direct and indirect subsidies provided by local governments for fossil fuel consumption and eliminate them in stages, gradually subject the negative externalities of fossil fuel consumption to taxes, and so on.


To date, the development of energy alternatives and the promotion of clean and low-carbon energy transformation have been seen as a politico-ethical issue of intergenerational fairness. However, the recent turbulence in the globalized fossil fuel field illustrates that energy transformation is no longer primarily a politico-ethical issue. It is also a major practical issue closely related to the survival, lives, and development of people right now. Moreover, the depth, breadth, and speed of China’s coming energy transformation will have a profound impact on the country’s economic, political, and military security.


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Cite This Page

王海滨 (Wang Haibin). "In an Increasingly Tumultuous World, How Can China’s Energy Achieve Energy Sustainable Security? [世界动荡加剧,中国能源如何实现可持续安全?]". CSIS Interpret: China, original work published in Energy [能源杂志], March 16, 2022

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