5.2. Belt and Road Initiative
5.2.2. Demography of the economy
5.2.3.3 China’s heavy appetite for energy investment
Due to the size of its economic growth and the population, China’s energy production and consumption needs have rapidly increased, placing it as one of the largest producers and consumers of energy. In the year 2014, coal was accounting for 66%
of the total Chinese energy requirements with oil standing at 18% followed by hydroelectric power with 8% and finally, natural gas with 6% (British Petroleum, 2016).
During the early 1990s, China was inextricably a crude oil net exporter. By the year 2014, 53% of the Asian giant’s consumption came initially from imports. “Motorization, in particular, is expected to see imports increase to 8 bbl/day in 2020, 11.4 in 2030 and 14.3 in 2040” (IEA, 2014 as cited by Liu and Dunford 2016: 331), in part to deal with environmental problems and promote the reduction of CO211 emissions/GDP ratio. Paik (2013) noted that:
China’s natural gas consumption is expected to reach 350 million Bcm in 2020 and 550 Bcm in 2030, accounting respectively for 10–12% of China’s primary energy consumption. Domestic production is expected to rise from 28 Bcm in 2000 and 99 Bcm in 2010 to 300 Bcm in 2030.
From being a net exporter previously to now attending to the existing gap between the demand and domestic supply that will surely need a rapid growing net import, China now secures its energy needs and acquisition of the relevant technical expertise through diversifying its supply sources and import routes of national oil and gas. The Asian giant is also establishing prolonged overseas investments and promoting the establishment of strategic partnerships within the upstream gas and oil projects.
Indisputably, the Chinese National Oil and Gas Companies (NOGCs) account for most of the global reserves of gas and oil (Dunford, 2021).
Various global companies can therefore have access to these reserves in executing accords with nation-states that hold them and/or even enter into collaborations with
11 This is Carbon dioxide in acidic colorless gas with a density of about 53% higher than that of the dry air.
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NOGCs. In Eurasia, both natural gas and oil reserves are far from being consumption centres enabling higher costs of transport. For example, in the past two decades, a compressed natural gas (CNG) pipeline was valued at more than US$1 million/km.
Approximately US$ 1000/MMT/year is spent on liquefaction prerequisites such as liquid natural gas (LNG) infrastructure (EIA 2002).
For suppliers, various pipelines can sustain the non-recovery risk of capital outlays because of the deficient demand and income. Therefore, consumers are confronting the lock-in risks to a single supplier and high switching costs. In instances where pipelines intersect through various national territories, transit operators need payment and if the flow transforms, risks arise. These various projects principally have to do with complex risk-split negotiations. The suppliers of gas need prolonged contrasts, take-or-pay clauses and stable prices to ensure revenue streams. Whilst this is so, there are consumers who also require long-term contracts with a pricing formula that allows for equity share and market-driven renegotiation in transport and resource extraction to safeguard access over supply and costs control (Ericson, 2012). China’s BRI was formulated to assist in addressing some of these issues. For example, within the context of the oil sector, assets worth US$73 billion between the years 2011-13 alone have been obtained in North America, the Middle East, Africa, Latin America, Asia and Australia (Dunford, et al., 2016).
Also, Chinese MNCs have consented to various oil-for-loan agreements and formulated pipeline connections with Kazakhstan and Russia. In the year 2011, Russia began to supply China with 300000 bbl/day of oil through the spur from its own East Siberian oil field, particularly from the Eastern Siberia-Pacific Ocean (ESPO) pipeline to Daqing12. The Russians are also exporting oil from their Western Siberian oilfields and the Chinese transnational pipeline of oil from Kazakhstan. The Kazakhstan pipeline was Chinese financed and constructed as a joint business deal between Kazakhastan’s KazMunayGas (KMG) and Chinese National Petroleum Corporation (CNPC). A Chinese strong increase in commitments to this course means a complete diversion of the Russian oil exports as their production of oil is not expected to increase within the current decade. There is an estimated 440 00 bbl/day pipeline which in the
12 Daqing is a prefecture-level city in the west of Heilongjiang province, People's Republic of China.
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year 2015 was transporting oil to China from Myanmar through the alternative transport route for the Middle Eastern oil, which completely avoided the Strait of Malacca (Liu & Dunford, 2016).
Since then, the Asian giant had increased its liquefied natural gas and pipeline gas through brand new and proposed pipelines from Myanmar including neighbouring nation-states such as Russia and those in central Asia which connect them with the expanded domestic pipeline system. It is also important to refer to the Chinese second and third west-east pipelines (WEB II that was finished in 2011 and the WEB III that was finished in 2015) which source gas from Uzbekistan and Kazakhstan and the other one sourcing Caspian gas from Turkmenistan. Acquiring enough gas from WEB III and alternative planned WEB IV and V will need far-reaching pipeline imports from both Western Siberia and Central Asia. This is because the projects in Central Asia stimulate the gas resources exploitation and development of construction industries and local equipment, but also ended the Russian monopolistic stance in the exportation of gas from these former Soviet Republics. In the year 2014, after a decade of negotiations, the Gazprom of Russia authorised a US$400 billion deal with CNPC to acquire 38 Bcm of natural gas yearly for three decades starting in the year 2018 from the East Siberian gas fields (Liu & Dunford, 2016).
The Russian pipeline line is to via through the combined Kovyktin and Chayandin gas fields to the Vladivostok Far East port city; whilst the consolidated China-Russia East Route Natural gas pipeline will go through the North East of China occupied by 100 Million inhabitants and traditional industries. This deal is also alternatively comprehended as the convoluted Chinese investment both in the energy and transport infrastructure of the Russians. The deal also reflects a second “Altai Natural Gas pipeline that should expand the aggregate capacity to an estimated 70 billion M3 annually” with Russia extensively eager to uncover the new buyers along the western routes for the dependence reduction on both Ukraine and European gas markets.
These and other alternative initiatives are a composite of the comprehensive energy collaborations signed by both Presidents Vladimir Putin and Xi Jinping in the year 2014 and the goal of Russia in expanding its efforts in developing its Eastern territories for the integration into the speedily growing Asian economies. Equally, China is also constructing LNG imports from the Middle East, Southeast Asia, North America, East
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Africa, and Australia whilst Russia seeks to avoid various exclusive dependence tactics on the Asian giant by adopting different options for access to gas in Japan and Korea (Liu & Dunford, 2016: 334).