Resetting China’s Energy Security Goals – Analysis
By Observer Research Foundation
By Manish Vaid
According to BP Statistical Review of World Energy 2016 (BP Stats 2016), China, with 23% of global energy consumption, is the largest energy consumer of the world. It also remains the world’s largest net importer of energy, with 16% of its energy needs met from imports, mostly from oil and natural gas, which comprises 61% and 30% respectively.
Further, BP Energy Outlook 2035 (BP Outlook) projects the share of oil and gas imports of China to grow by 79% and 40% respectively in 2035, signifying its unabated ‘going out strategy.’ It is well integrated into China’s energy security. The strategy initiated in 1999 by the Chinese government for promoting its investments abroad continues to help China aggressively seek overseas oil and gas.
However, BP Outlook suggests China’s steady shift towards low carbon fuels by reducing the consumption of dirty fossil fuels such as coal and oil. The share of coal in its energy mix, for instance, will come down from 64% in 2015 to 42% in 2035, while in the case of oil the increase is projected by just 2% to 20% in 2035. Interestingly, it is the enormous increase in the demand of cleaner energy fuels and renewables during the projected period which is set to make a big difference in China’s existing energy strategy and curbing emissions, significantly. The biggest projection in demand is observed in natural gas (186%), renewables in power (695%) and nuclear (644%).
With China still being the largest emitter of carbon dioxide, since it surpassed the US in 2007, its task is to move along a low-carbon path.
The biggest factor behind the recent shift towards low-carbon economy is the Paris Agreement, which is seen as a milestone in climate negotiations. Countries across the globe, including China, adopted international climate agreement at the UN Framework Convention on Climate Change (UNFCCC) Conference of the Parties (COP21) in Paris in December 2015 by submitting their Nationally Determined Contribution (NDC). China’s NDC aimed to achieve peak carbon emissions by around 2030 or sooner; to lower carbon dioxide emissions per unit of GDP by 60% to 65% from 2005 levels and to increase the share of non-fossil fuels in the primary energy mix to approximately 20%.
The effort to control the usage of coal and implement targets to increase the capacity of wind and solar and also to increase the share of natural gas is already evident in BP Stats 2016. There has been a significant increase in the consumption of non-fossil fuels in the primary energy mix with nuclear and renewables increasing by 28.9% and 20.9% respectively in 2015 on a year-on-year basis. The share of natural gas consumption too showed an upward trajectory with over 77% increase since 2010.
Beijing’s old economic model based on investment and manufacturing, enabled it to maintain double digit economic growth over the past three decades. It also resulted in China’s demand for energy to grow at 6% per annum over the past 20 years. But with recent attempts to restructure the old economic model and a policy commitment to move to cleaner, lower carbon fuels, that is less energy and emissions intensive has helped China upgrade its old growth model to a ‘new normal.’
Beijing’s old economic model based on investment and manufacturing, enabled it to maintain double digit economic growth over the past three decades.
Thus, recent attempts to shift towards a newer growth model from the quantity of input to the efficiency of input, through innovative means could help China curb its energy demand to just 2% per annum, from 6% at present, as projected by BP Outlook.
However, China will have to walk a tightrope between its continued oil ambitions and the need to act fast on low-carbon growth. The present low oil prices and the need to accumulate oil for its strategic reserves will challenge its urge to do away with energy and emissions intensive growth.
China continues to play with fire by increasing its dependence on oil imports through its dubious energy plans issued in January 2017 by the National Development and Reform Commission (NDRC) and the National Energy Administration (NEA). Accordingly, China’s oil production targets set for 2020 is four million barrels per day (mbpd), down by 6.8% from 2015, while allowing net oil imports to increase by 17% during this period. In other words, China’s oil consumption over the next five year period would come almost entirely from oil imports. These developments are not only putting at risk China’s energy security goals, given its increasing reliance on politically vulnerable countries in the Middle East and Africa, but also the process of economic transformation through less energy intensive means.
Thus the co-existence of China’s geopolitical approach to energy security and its attempt to increase the share of non-fossil fuels in its primary energy mix will test its intention to decarbonise its economy. The origin of this strategy can be traced to the late 1990s,which was being pursued irrespective of the surge in oil prices. In 2003, Hu Jintao, then President and General Secretary of the ruling Chinese Communist Party (CCP) articulated China’s energy security concerns through the term “Malacca Dilemma.” The fact that 80% of China’s energy moves through the waterway of the Malacca Strait, it poses great risks of being cut off, reflecting China’s energy security challenge.
China’s insecurities about its energy supplies is also reflected in its new One Belt One Road (OBOR) initiative.
However, to allay its fear, China needs to intensify its association with several global energy institutions such as the International Energy Agency and capitalise on its recent engagement with it by integrating with the global energy market. This will not only help China insulate itself from external supply and price shocks but also help Beijing gain greater access to energy producers and buyers. Aligning with energy buyers, for instance, could help bring down the cost of procuring energy, such as liquefied natural gas (LNG), significantly, while keeping intact its clean energy goals with greater usage of natural gas, a cleaner fossil fuel.
Further, China would do well to work on its core strength towards energy technology innovation, which has already placed China as the world’s largest wind power market as well as the largest producer of solar photovoltaic batteries and hydroelectricity. Efforts towards these have helped China in bringing electricity to more people than any other country in a very short period of time and the world stands to benefit from China.
China has taken a step forward in this regard under its new energy vision laid out by former Chinese President Hu Jintao in 2006 at the G8 Summit in St. Petersburg. Jintao called for greater international cooperation on supplies of oil and gas between both energy exporting and energy consuming countries, while ensuring secure energy transport routes with less politicisation of energy security. Besides being associated with the IEA, China can play a significant role in shaping its own sustainable clean energy agenda by using platforms such as the Group of Twenty (G20), the International Energy Forum, the Joint Oil Data Initiative (JODI), Energy Charter Treaty Organisation and Shanghai Cooperation Organisation (SCO), which though is not an energy governance platform per se, holds great promise for energy cooperation in Asia.
This will help China extricate itself from its old geopolitical approach towards energy security while offering greater scope for its integration into the global energy value chain.
