Chinese Oil and Gas Pipelines and Sea Routes

Col P. K. Gautam (Retd) Research Fellow presented his paper, Chinese Oil and Gas Pipelines and Sea Routes, on 29th October 2010. Dr. Arvind Gupta Chaired the session. Mr. V. Raghuraman and Cdr Agnihotri, IN were external discussants and Miss. Shebonti Ray Dadwal and Cdr. Sarabjeet Parmar, IN were the internal discussants.

Highlights from the paper

Due to its rising economy, China’s imports of hydrocarbons are growing rapidly. Therefore, worried with growing dependence on imports, with a consequence on domestic policies and strategic stability, China is pursuing policies to alleviate the increase in import dependence by diversifying the sources and routes of its overall energy imports. China’s quest for energy routes security has led to its policies on oil and gas routes and pipelines as a reflection of geopolitics and foreign policy of the country. Therefore the core focus of the paper is on the current and future developments in Chinese hydrocarbon pipelines and sea routes strategy.

The paper is based on two assumptions; a) oil and gas will continue to be the affordable fuels of choice b) as oil is import sensitive, the main policy focus in China will be on oil. Col Gautam argued that oil and gas pipelines and routes define geo-economic relationship between countries and regions. The paper attempts to discern the security and strategic discourse in the unfolding of land and sea routes of oil and gas.

With overall increase in energy consumption, share of imports is going to rise from 50percent to 80percent as far as China’s national oil requirement is concerned. China also plans to double the usage of gas as a source of energy by 2015 from the 2008 levels. At present 80 percent of Chinese oil is imported via sea and about 40 percent through Malacca straits. Saudi Arabia (20 percent), Angola (17 percent), Iran (12 percent), Oman (8 percent), Russia (7 percent), Sudan (6 percent), Venezuela (4 percent), Kuwait (3 percent), Kazakhstan (3percent), UAE (3 percent) and others (17 percent) are China’s top crude suppliers. Russia, Australia, Iran and Qatar are the principle suppliers of LNG.

At present, in Myanmar dual pipelines for oil and gas transfers is under construction. Gwadar might become the destination for refining imports from Iran to be sent via pipeline to China but it looks like this only remains an idea and not feasible as such due to terrain and costs. There are various other issues involved. Building the Strategic Oil Reserves capacity of 90 days imports by 2015 is a Chinese aim as it prepares for resource wars scenarios. In addition The Chinese Navy – will become a blue water navy in the next 2 decades and also it will have national tanker fleet- over 50 percent soon due to its good shipbuilding industry. The scenario of arctic meltdown, by which hydrocarbon energy could be sent using new routes has important implications for the future of china’s energy strategy.

Learning from the Chinese strategy, several policy suggestions can be made;
1. Energy diplomacy for diversification of sources,
2. National Carrier Fleet- profit in peacetime,
3. Nodal Ministry for energy security,
4. Clear policy on strategic oil reserves,
5. Development of Arctic capable fleet,
6. Using the maritime advantage for energy trade,
7. Development of efficient technologies to reduce import strain.

Discussion points

• Coal would remain one of the most important energy resources for India; therefore, along with China and United States, India would continue to scramble for coal resource. However, China with its present governance structure with no political checks and balances has an upper hand in exploiting coal reserves worldwide. Africa is now under the Chinese exploitation umbrella and over 97 percent of rare earth is being made in China only to control the metallurgy industry of the world.
• China is looking at Caspian reserves this shows not only market economics but also a strategic vision. India must strengthen is capacity not only for ensuring continuous supply of oil during peak oil requirements but also engage in oil diplomacy with a long term vision of future requirements.
• The potential for conflict exists if sufficient and affordable alternatives to hydrocarbons are not found. In such a situation, the lines of supply will get taut, supply shrink and tensions will rise. Purely from conflict prevention point of view, carbon free energy technologies need to be given a renewed priority, not only to mitigate climate change but violent conflicts.
• India must also diversify its sources of oil supply and must move from the Straits of Hormuz and build stronger relations with Africa. A strong public-private partnership in India is required to enable efficacious transnational pipeline.
• Renewable energy sources like ethanol and bio diesel, wind and solar are high on the India’s national agenda. In India, shale deposits are found across the Gangetic plain, Assam, Rajasthan and many coastal areas therefore India must capitalize on this important resource.
• There wee different viewpoints on role of surface and submarines in interdicting or securing SLOC and an Arctic capability for Indian maritime interests in the long run
• Cooperation is the key in transboundary energy pipelines and the most workable and practical option.
• Arctic route for oil supply is not feasible for India because it does not have any commercial or security links in the region.

(Report prepared by Avinash Godbole and S. Sasikumar, Research Assistant, IDSA)