'China’s Resource Drive into the South China Sea' - By CWP Alumni Andrew Erickson
CHAPTER SUMMARY- China’s consistently high economic growth in the postreform era has been accompanied by burgeoning energy demands that make Beijing increasingly dependent on external energy sources. As a result, Beijing increasingly looks beyond its (land) borders for energy resources and must balance energy-related economic interests with geopolitical factors to an unprecedented degree. Oil and gas account for less than half of China’s aggregate energy consumption, and sovereignty and energy transit issues in the South China Sea (SCS) far outweigh the significance of potential oil and natural gas resources there. Nonetheless, China’s approach to and development of the latter offers an instructive lens for observing the interplay of economic and geostrategic forces. It is precisely the considerable uncertainty as to the nature and scope of energy resources in this area that make it a compelling geostrategic case: the SCS offers an opportunity for analyzing how China’s pursuit of new energy sources fits within its larger energy security equation and how Beijing balances economic and geostrategic concerns in the twenty-first century. Like many states in regions such as the SCS, China’s quest for energy security is part of a larger calculus that involves other dimensions of Chinese national interests. While China and other nation-states would benefit from pragmatic, mutually beneficial solutions to energy needs amid a backdrop of complicated, persistent geopolitical security challenges, Beijing’s recent actions suggest that it is increasingly taking a more unilateral, coercive approach.
Introduction: Beijing’s Energy Security Backdrop
China’s consistently high economic growth in the postreform era has been accompanied by growing energy resource demands. As the largest natural resource–consuming- and greenhouse gas–emitting nation on Earth, China faces mounting energy needs and must address increasingly complicated energy security challenges. Such challenges include managing environmental concerns while remaining the world’s largest energy consumer, securing new sources of domestic and overseas oil and gas supplies to meet national supply and demand imbalances, and securing new sources of energy outside of China without tarnishing Beijing’s image abroad. China’s economic, political, and military ascendance in recent years has resulted in greater scrutiny vis-à-vis its internal and external policy behavior; Beijing’s energy security policies are thus unfolding in front of highly interested domestic and international audiences. The ramifications of energy policies on Chinese diplomatic and geostrategic interests are relevant from a general foreign policy standpoint.
From the perspective of Chinese leaders, China’s twenty-first-century energy security policies are occurring under formidable domestic growing pains, including growing economic and social inequality, waning (though still high) economic growth, and a range of internal political challenges such as restive border regions. Decisionmakers also face a complex international environment in which perceptions of China remain mixed, particularly among its neighbors. From a broad energy perspective, China’s consumption and sourcing trends are moving in an unfavorable direction. While various resource discovery and extraction technology breakthroughs are steering developed countries such as the United States, Australia, Japan, and EU members toward higher levels of energy self-sufficiency—and thereby greater energy security—China is becoming more reliant on stable overseas energy supplies.
No state looks favorably on increased dependency on foreign states and companies for its national energy supply. Here, the United States has recently encountered more positive conditions, whereas China is on course to experience challenges similar to those the United States faced in the mid- to late twentieth century. China is particularly wary of volatility in international oil markets and their frequent inability to provide stable supplies at relatively predictable rates. Moreover, reliance on other states for critical energy supplies creates negative diplomatic leverage. After relying on crude oil imports from Middle Eastern and African states—including so-called rogue states—for decades, many Western states, the United States among them, are well versed in energy politics. By contrast, China previously enjoyed relatively low oil import dependency before becoming a net importer in 1993 and is just beginning to experience the challenges of sharper reliance on external oil supply during the twenty-first century.
Another element of this development is greater Chinese dependence on sea lines of communication (SLOCs) security through rising oil and gas import dependency. Like other major energy consumers, China already depends increasingly on importing energy supplies by tanker from sometimes-unstable overseas regions, including Southeast Asia, Central Asia, the Middle East, Africa, and South America. Incidents in which Chinese workers are endangered or harmed abroad continue to challenge Beijing as Chinese state-owned enterprises, especially national oil companies (NOCs), develop outward to exploit such supplies. Other factors, such as the challenge for China’s enormous NOCs in securing resources for national energy security while trying to make prudent investments, further complicate energy security policies.
Accelerating energy demand has long concerned Chinese and international observers. Coal has been the linchpin of modern Chinese energy consumption for decades, and continues to serve as the backbone for electricity generation. Oil, on the other hand, is indispensable for China’s transportation sector, which has burgeoned as a result of major structural transformations over the previous two decades including feverish private car purchases. Since 2009, China has been the world’s largest automobile market.
More broadly, even as overall consumption habits remain relatively conservative on a per capita basis, Chinese consumers are driving demand for conventional fuels such as coal and oil. Although there is a growing consensus that Chinese economic growth is slowing, China’s average annual gross domestic product (GDP) growth has been higher than 7.5 percent for twenty-two consecutive years beginning in 1991 and averaged 10.3 percent during the same period (World Bank 2013). In other words, potential declines in future economic growth notwithstanding, much of the growth needed to drive game-changing increases in energy demand have already occurred.
Sobering consequences accompany these macro-level trends. Aggressive burning of fossil fuels has severely damaged China’s natural environment and economy, perhaps represented most succinctly by reports in 2013 that the rapidly deteriorating air quality could cause respiratory diseases and other consequences detrimental to the workforce (Chen et al. 2013). Besides the environment, there are striking regional imbalances within China in terms of energy supply and demand. Despite long-standing and intensive efforts to develop oil and gas reserves in northwest China’s Tarim basin and Shandong and Heilongjiang Provinces to the east, the domestic oil reserve base appears insufficient to meet more than a minority share of the country’s energy needs (Collins 2015).
While the state continues to promote the development of new, cleaner energy sources such as solar, wind, and hydropower, these channels are likely too expensive or otherwise limited to make a revolutionary impact on the midterm structure of Chinese energy consumption. In recent years, shale gas has also received great attention as a partial solution for burgeoning energy demand in China. According to a report published in June 2013 by the US Energy Information Administration (EIA), China has the world’s most abundant technically recoverable onshore shale gas resources at over 1,115 trillion cubic feet. Chinese shale gas deposits are primarily spread over seven basins in the southeast and northwest regions (EIA 2013e). China is aiming to boost shale gas production by approximately 60 percent to 9.7 billion cubic feet per day (bcfd) by 2020; however, rapid commercialization might be challenging for many reasons: China’s typically complex geologic structure (faulting, high tectonic stress), location of deposits in often hilly, less-developed terrain with severe water limitations, restricted access to geologic data, and the high costs and rudimentary state of in-country horizontal drilling and fracturing services that characterize China’s shale gas industry. Because China’s oil demand and extraction has already been documented and analyzed more extensively, and its gas demand and extraction represents a limited but growing area, this chapter focuses disproportionately on the latter.
Collectively these trends represent a decisive test for Chinese energy planners: China must find ways to use energy that supports sustained economic growth while managing the negative by-products of heavy reliance on traditional fuels. Passing this test requires a multipronged approach. For instance, no less-intensive energy sources—including renewables such as hydro, solar, or wind as well as natural and unconventional gases—can be developed on a scale (or cost efficiency) sufficient to shift the balance in China’s overall energy portfolio. Growing reliance on external energy supply for economic growth has made Beijing’s energy security strategy particularly complex since its economic interests overlap with overseas Chinese human, political, and security interests to an unprecedented degree. Given its economic and geopolitical significance, the SCS offers one possible case for assessing the overlap of these issues.
Following this introduction, the chapter begins by briefly surveying political, economic, and technological trends in Chinese energy security and related fields that are driving an increased demand for offshore oil and particularly natural gas. The prospects for offshore development of these resources in East Asia are then briefly explored. Natural gas development in the SCS provides a case study through which we analyze the broader impact of Chinese energy security on strategic regional energy competition and cooperation. As its role in Asian energy security gradually expands, natural gas and the way neighboring states work with or against each other to obtain it from disputed areas such as the SCS could potentially serve as barometers for larger global themes of strategic cooperation and competition for scarce resources that cross economic, political, and technological dimensions.
That said, we cannot emphasize enough that the most strategically important issues in the SCS are the overlapping sovereignty claims of China and various other states and the maintenance of secure, stable maritime transport. Despite their economic and strategic differences, oil and liquefied natural gas (LNG) are the two energy sources with inherent naval significance: to the extent that domestic supplies or overland pipelines are insufficient, they must be transported by sea. Actual energy reserves in the region are relatively limited and remain poorly understood. This case study is provided to explore how larger geopolitical concerns interact with economic issues such as domestic energy needs. …
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In the all-encompassing energy realm, powerful state and private actors determine which of the world’s many energy resources are developed … and how societies are molded to accommodate those decisions. The authors of The Geopolitics of Global Energy Resources delve into the energy realm, identifying the infrastructure investments of today that are shaping the use patterns and political dependencies of tomorrow. They explore as well, the prospects for change to more sustainable and democratically accountable forms of energy.
Andrew S. Erickson and Austin M. Strange, “China’s Resource Drive into the South China Sea,” in Timothy C. Lehmann, ed., The Geopolitics of Global Energy: The New Cost of Plenty (New York: Lynne Rienner, 2017), 131-52.