The conflict between Russia and Ukraine has been going on for two months and at present there is still no sign of a turnaround or improvement. With the unprecedented economic sanctions and unreasonable suppression of Russia by Western countries led by the United States, in reality, this conflict is no longer a simple battle between two countries—Russia and Ukraine—but is a struggle in the geopolitical relationship between the United States and Russia and over world energy hegemony. In today’s world, geopolitics and energy strategies are intertwined. As long as any country touches the “network” of U.S. global hegemony and refuses to submit to its will, no matter how big or small, how powerful or weak, at some point, it will inevitably experience the sanctions and pressure which Russia is currently suffering.
How, from an energy perspective, to explore the problems and risks brought by the Russia-Ukraine conflict, what “after-effects” it will bring, what insights China needs to derive from it, and what preparations we need to make to take preventive measures, is a set of strategic questions which deserve everyone’s serious consideration.
Specifically, the Russia-Ukraine conflict will bring the following ten revelations for China’s energy security:
Revelation 1: The energy rice bowl must be firmly grasped in our own hands
Energy is both the lifeblood of a modern economy, and the cornerstone of modern society’s survival and development. Every leap in the development of energy leads to the rapid progress of human production technology and promote the rapid development of productivity. Whether it is from the age of charcoal to the age of coal, or from the age of coal to the age of oil, or the subsequent development of atomic energy and the entrance onto the stage of a flurry of new energy sources, these developments have all brought new vitality to civilizations that have been close to a standstill. If you cannot keep a firm hold of your country’s energy lifeline in your own hands, all that’s left is to passively take a beating.
Current European sanctions on Russia’s energy sector are akin to throwing out the baby with the bathwater or, as the saying goes, sacrificing 1,000 to kill 800 enemy troops: Germany suspended the certification of the famous Nord Stream 2 natural gas pipeline project, meaning the completed gas pipeline is not carrying gas. Western energy giants in quick succession each withdrew from the Russian market, collectively restricting Russian coal, oil, and gas imports. Fortunately, Russia is a big energy country, so there is no need to worry about energy being put in a stranglehold by Western countries. For others, such an energy blockade would be the same as a death sentence.
Revelation 2: The establishment of an RMB-denominated energy trading system should be accelerated
Finance is at the heart of the modern economy. Since the start of the conflict, Western countries’ economic sanctions against Russia, especially financial sanctions, have stopped at nothing. Nearly half of Russia’s foreign exchange reserves have been frozen by Western countries, and SWIFT, the common international payment method, has excluded them, causing Russia’s economy to be instantaneously “isolated” by the West. Then there has been a string of different dazzling “list-pulling” methods such as canceling Russia’s trade most-favored-nation treatment and freezing the huge assets of Russian oligarchs.
In this regard, as the world’s largest net energy importer, China must take precautions and participate more actively in the international financial system. We must work faster to drive the internationalization of the RMB, act with initiative to promote the construction of the energy and derivatives market system, and continuously improve the rules and regulations of Shanghai crude oil futures to accelerate the establishment of a “petro-RMB” system denominated in RMB. We must actively build a natural gas trading system for RMB pricing and settlement and strive to explore the establishment of a new energy RMB pricing and settlement system so as to continuously amplify our voice in the international energy field.
Revelation 3: Ensuring diversification of energy supply is imperative
During the present Russia-Ukraine conflict, the reason that Europe has been ridiculed as “being taken advantage of for their generosity” is that the energy shortage which they face and the continuous surge in prices result from their high level of dependence on Russian energy. 40% of their natural gas, 27% of their oil, and 46% of their coal come from Russia. It is not realistic for the continent to detach itself from Russia’s energy supply in the short term, and, ultimately, it must be European companies and ordinary people who foot the bill from sanctions.
Therefore, in a context in which China’s total energy consumption continues to increase and its import dependence grows, we need to make full use of the international market’s energy resources and to strengthen vigorous cooperation with different regional energy agencies to promote the diversification of energy supply sources. We must make a big push to build a three-dimensional onshore pipeline transportation route, continuously strengthen sea transportation capacity, and form a three-dimensional energy import source channel and transportation network. We must change as quickly as possible the energy consumption structure in which coal and other traditional energy form the main body and actively switch to a comprehensive and balanced energy structure which utilizes both fossil fuels (coal, oil, natural gas) and clean energy (hydropower, nuclear power, renewable energy, etc.). We must avoid having all our eggs in one basket.
Revelation 4: It is urgent that strategic energy reserve capacity be improved
Oil and gas are known as the “blood” and “oxygen” which modern economic development cannot do without. Adequate strategic oil and gas reserves are vitally important to ensuring energy supply and price stability. In 2021, China’s crude oil and natural gas imports amounted to 513 million tons and 167.5 billion cubic meters, respectively, with external dependencies of 72% and 44.9%. Compared with developed countries, China’s oil and gas strategic reserves are seriously insufficient and lagging behind. Strategic oil reserves stand at about 70 days of consumption, which is quite a way off from the 90-day reserve safety standard set by the International Energy Agency. The gap is even more obvious compared with developed countries (e.g. the U.S. oil reserves are at about 160 days and Japan’s oil reserves stand at about 144 days).
From this we can see that China’s oil and gas energy strategic reserve demand and growth space are still considerable, and it is urgent that we improve our strategic reserve capacity. This is especially true in the current context of a turbulent and changing international situation and oil and gas prices which remain high. We need to put the construction of oil and gas reserve systems in a position of equal importance to that of our investment in oil and gas exploration and development, and give shape as quickly as possible to a three-in-one reserve model of government reserves, corporate social responsibility reserves, and production and operation inventory.
Revelation 5: Steps toward traditional energy transformation must be more stable
The Russia-Ukraine conflict shows that it is still difficult for the world to be without traditional energy sources, and the road to a clean and low-carbon transformation of energy will not be plain sailing. As we progress along this path, there will be “growing pains,” as it is often the case that expectations fail to align with reality. The basic pattern of China’s current energy is “a lot of coal, not so much oil, and a lack of gas.” The introduction of the “dual carbon” goal has brought unprecedented challenges and pressures for the traditional energy industry. Oil, coal, gas, and electricity, as big reducers, are the key industries and targets of “carbon reduction” and have a long way to go.
Particularly in the second half of last year, the power rationing crisis in many parts of China showed that although the new energy industry has been “infinitely good” in recent years, it still cannot make up for the supply gap in traditional energy. Traditional energy will still, for a long time to come, play the role of “ballast stone.” Although China’s energy transformation is the general trend and is imperative, we must fully consider the objective reality, first establish the new and then break down the old, proceed step by step, and avoid “campaign-style” carbon reduction. A “one-size-fits-all” approach goes against objective laws, and blindly seeking success will lead to nothing but endless misfortune.
Revelation 6: Accelerating the development of new energy has become a top priority
The Russia-Ukraine conflict will lead Europe to add new energy sources in order to completely rid itself of its over-reliance on Russian energy. Germany even plans to achieve 100% renewable energy power generation by 2035. In the new energy field, China has the world’s largest market for production capacity, investment, construction, and operation and maintenance. Our production capacity of solar polysilicon accounts for more than 70% of the world’s production capacity, and our production capacity of wind turbines accounts for nearly half of the world’s total. In 2021, the installed capacity of both wind power and solar power in China will exceed the 300-million-kilowatt mark, ranking first in the world for many consecutive years. Newly installed wind and solar power generation capacity in that year exceeded 100 million kilowatts, which is more than three times that of the second-ranked United States.
However, we must also see clearly that China is a big country in the production and manufacture of new energy, but not a strong country, and our associated technology patent reserves are seriously insufficient. According to relevant information, among the international patent applications for new energy from 2009 to 2019, Europe accounted for 28%, the United States accounted for 20%, and China accounted for only 8%. Therefore, on the road to green development, China must take steady steps forward, and speed up progress towards a low-carbon and clean era, truly transforming production capacity and market advantages into ecological advantages and competitive advantages.
Revelation 7: Energy technology innovation has become more prominent
The energy game brought about by the Russia-Ukraine conflict reflects the new situation in energy power transfer. With the advancement of the energy technology revolution, energy power will also undergo qualitative changes. Although China’s energy sector has formed a complete production chain, supply chain, and value chain which is fairly strong in terms of international competitiveness, compared with the world’s energy S&T powers and the need to lead the energy revolution, China’s energy technology innovation is still some way behind, and there are still many shortcomings. These include: insufficient investment in cutting-edge technologies, hydrogen energy, fuel cells, carbon emissions, and other technical patents, which are mainly in the hands of Europe, the United States, and Japan; some of the key core technologies have long been controlled by others, with large gas turbines, high-temperature materials, and core components monopolized by foreign countries; independent research results are limited, commonly used energy design software, optimization software, simulation software, and control system software are heavily dependent on foreign countries, and the level of modernization of the energy industry chain awaits further improvement.
Only by increasing S&T innovation and striving to seize the commanding heights of the energy revolution can we seize the first opportunities in the new round of energy power transfer and truly become the final winner. This is the trump card for ensuring that China is not put in a stranglehold by other countries.
Revelation 8: Strengthening neighboring energy cooperation has become an important support
The root cause of the Russia-Ukraine conflict lies in the eastward expansion of NATO, and the chief director behind this is the United States. A very sad thing about Russia is that out of nine countries bordering Russia in Europe, eight have turned against it, making it easy for the United States to find “wedges” and breakthroughs to make waves.
The lesson we have learned from this is that we must adhere long-term to good-neighborly and friendly policies, extensively strengthen cooperation in all aspects of the energy field, use transnational oil and gas pipelines to create the main arteries of friendly energy cooperation, use the electric power interconnection between countries as a bridge for friendly cooperation, and use the “Global Energy Internet” to create a platform for mutual cooperation between countries, building a long-term stable, interdependent, mutually beneficial, and closer positive cooperative relationship with neighboring countries and regions in the energy field, and forming a community with a shared future wherein there is a part of us within others and of others within us, leaving no opportunities for U.S.-led Western countries to sow discord, create estrangement, or break into wedges, and thwarting their despicable tricks.
Revelation 9: The energy game with Europe and the United States will continue to intensify
The Russia-Ukraine conflict is extremely likely to lead to the splitting of the global energy system, forming two relatively parallel energy systems based principally on China and India “using Russian energy” and principally on the United States and Europe “moving away from Russia.” In particular, in the current situation wherein the United States is leading a group of “little followers” to do their level best to suppress and crowd out China, the Russia-Ukraine conflict has conveniently allowed them to seize the “good opportunity” to do evil and find a “pretext” to launch their attack. As such, the China-U.S. energy game is very much likely to intensify.
China must weigh up the advantages and disadvantages, excel at using struggle strategies, and never blindly confront challenges. We must make full use of Russia’s eagerness to strengthen cooperation with China to make up for its losses in Europe and stabilize the overall plan and direction of Sino-Russian energy cooperation, ensuring the steady and long-term development of Sino-Russian energy cooperation. At the same time, we must also excel at using the divergent interests and demands of European countries and the United States in the Russia-Ukraine conflict, find common points and joint avenues of cooperation, carry out reasonable and disciplined struggles, and maintain strategic patience and perseverance. We must increase understanding in stalemates, resolve suspicions in cooperation, and ensure that we struggle but don’t break, that we compete and cooperate.
Revelation 10: Building an energy strategic alliance needs to be put on the agenda
From the Russia-Ukraine conflict, it is clear that the United States is handier and more proficient in forming factions and building “small circles” of interests. In the face of the unreasonable suppression by the United States and the increasingly evident “decoupling” between China and the U.S., China cannot always respond passively but needs to make well-timed and proactive strikes, embrace the world with a broader mind, and make full use of China’s position as the world’s largest energy importer and the largest energy consumer. Adhering to the concept of a community with a shared future for humankind, under the premise of the principles of “mutual respect, equality and mutual benefit, win-win cooperation, and honesty,” we should build global energy strategic cooperation alliances at different levels and within different fields. We should deepen cooperation with traditional energy markets in regions such as Central Asia and Russia, Africa, and the Middle East, and actively open up new energy markets such as North America and South America and build broader global energy partnerships. We should actively participate in global energy dialogues and actively advocate new concepts of global energy security. We should replace confrontation with cooperation, replace monopoly with mutual benefit, and continuously expand the “circle of friends” for energy exchanges and cooperation.