Transcript Slide 1

Clingendael: LIPO/LTD
15 February 2007
The Stampede of the Elephant
Economies China and India on
the Global Energy Market
7/18/2015
Willem van Kemenade
E-mail: [email protected]
Website: www.willemvk.org
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In 1900, Europe accounted for 20
percent of the world's population.
Today, this figure is down to 12
percent. By 2050 it will drop to 7, by
the end of the 21st century to 4 percent.
Today, India and China together
account for 37 % of the world’s
population.
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China: Energy Basics
• World’s second largest consumer and third largest
producer of primary energy.
• Meets 90% of needs with domestic supplies, mostly coal.
• Imports more than half its oil.
• Deficient energy policy making apparatus: ineffective
institutions and strong vested interests.
• 2005 “Energy Leading Group” a 16 member supraministerial coordinating body, headed by PM Wen Jiabao
• Oil needs are major determinant of China’s international
behavior.
• China’s oil firms have signed contracts for equity
participation in 31 countries, including Canada
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China: Oil Imports
• 2000-2005: 8 % of Global oil consumption but 27 % of
growth in global consumption.
• Most of China’s own oil-fields have reached production
plateaus or are in decline.
• Oil imports are expected to increase from 3 m. bpd in
2005 to between 6 and 11 m. bpd. In 2020, some 80 %
of total consumption.
• Gas is going to be increasing share of energy mix, but
uncertainty over the pace of development of the gas
market, due to lack of infrastructure.
• Only one terminal now in Guangdong and two more
operational in 2010: Fujian and Shanghai.
• Pricing gas competitively against coal etc. is other
obstacle.
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China Crude Imports by Country 2005
Saudi Arabia
18
Other 16
Eq. Guinea 3
Indonesia 3
Congo 4
Angola 14
Sudan 5
Yemen 5
Iran 13
Oman 9
Russia 10
Source:
7/18/2015 Reuters
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China Crude Imports by Region 2005
Americas 3
FSU &
Europe 12
Asia Pacific 8
Persian Gulf
46
Africa 31
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Total = 2,5 million barrels per day
Source Reuters
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China Primary Energy Demand 2002
Hydro 2
Nuclear 1
Gas 4
Oil 24
Coal 69
Total: 1028 tons of oil equivalent
Source: Reuters
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China: Coal will continue to Dominate
• The IEA projects that coal will continue to
dominate China’s energy mix through 2020, but
its share will decrease slightly from 69 % now to
61 % in 2020.
• Share of natural gas will grow from 4 to 6 %
• Share of oil will increase from 24 tot 27 %
• Nuclear and hydro-power and other renewables
will remain small fraction, because of financial,
technological and ecological constraints.
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China Prim ary Energy Dem and 2020
Hydro 3
Nuclear 3
Gas 6
Oil 27
Coal 61
Total: 1836 tons of oil equivalent
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Source: Reuters10
India: Energy Basics
• World’s 5th largest consumer. By 2030 expected to
become 3rd largest, overtaking Japan and Russia.
• India has only 0.4 % of the world’s proven oil reserves.
Anticipating new discoveries is considered unrealistic.
• India is also expected to run out of coal. Natural gas
reserves are limited as well.
• Civilian nuclear program has fallen behind schedule.
• Cluster of energy policies but no comprehensive strategy
in place yet.
• Like China, India does not rely completely on global
markets. It pursues a country-by-country energy
diplomacy and purchase of assets.
• Energy interests are likely to factor into military strategy.
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Indian Imports
• India imports 70 % of its oil consumption and
this will increase to 85 % in 15 years.
• In 2005-06, it spent $ 38.8 bn to import crude oil,
up from $ 25.9 bn the previous year.
• Its import bill for crude oil and petroleum
products constituted almost a third of India’s
total import bill and contributes significantly to
India’s persisting trade deficit, which stood at $
51.5 bn
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India Oil Imports by Country 2004
Saudi Arabia 25
Other 28,7
Nigeria 15,7
Iraq 8,7
Iran 10
Kuwait 11,9
Source: International Energy Agency
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India Energy Mix 2005
Nuclear 1
Hydro 5
Gas 8
Coal 54
Oil 32
Source: BP review
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China’s Energy Security
• China shifted from self sufficiency to becoming a net-importer of oil
in 1993 and “energy security” became part of its discourse for the
first time.
• In 2000 imports doubled and the bill tripled and energy security
became a dominant theme.
• The recent, ultimately unsuccessful bid by CNOOC to acquire
Unocal has reinforced perceptions in Beijing that the US will not
allow China reliable access to the global energy market.
• Safe delivery of major importance, because China has no blue water
navy to protect its trans-oceanic supplies. Main concern is the
“Malacca Dilemma”, linked to the Taiwan question.
• China’s basic policy is supply-increase over demand-moderation.
For every US$ worth of output, Chinese energy consumption is 4.3
times that of the US; 7.7 times of Germany; 11.5 times of Japan.
• Key to security is diversification of suppliers and transport routes.
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Persian Gulf and Asia Pacific Regions
• In 1995 the Persian Gulf and the AP region supplied
almost 90 % of China’s oil-imports, with Indonesia alone
accounting for 31 %. Over the past decade the Persian
Gulf’s portion has hovered just below 50 %.
• At the same time, growth in the share of Africa and
Russia has offset a dramatic decline in the contribution
of the AP region in China’s oil import mix.
• In 2005 the Persian Gulf and Africa accounted for more
than ¾ of China’s crude imports
• Russia, China’s 4th largest supplier provided 10 %
• Indonesia, the region’s 2nd largest producer (after China)
and once China’s largest supplier is now a net importer.
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China: A Regional Power with some Global Influence
and the Ambition to become a Two-Ocean Country
Gwadar
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Iran and China:
Two old Asian Empires
Who don’t accept ‘Diktats’ from the US
• Iran alone already accounts for about 11 % of China's oil imports,
and in October 2004, the state-controlled China Petroleum and
Chemical Corporation, known as Sinopec, one of China's three
major oil companies, signed an oil and natural gas agreement with
Tehran that could be worth as much as $70 billion.
• Beijing agreed to develop the giant Yadavaran oil field and buy 250
m. tons of LNG over the next 30 years; Tehran agreed to export to
China 150,000 bpd, at market prices, for 25 years.
• US EIA and PIW expect Persian Gulf to supply at least 53 % or up
to 75 % of China’s oil needs by 2015.
• As Beijing's search for resources prompts it to reinforce relations
with Iran, Myanmar, and Sudan, China is challenging the United
States' moral hegemony and its ability to check states whose
records it abhors.
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India and the US:
“The World’s Largest
Democracies, Natural Allies”
• The Bush Administration in 2001 downgraded China from
“Strategic Partner” to “Competitor”.
• In March 2005, S.o.S. Rice said that it is now US policy to “help
India become a major world power in the 21st century”.
• In December 2006, president Bush signed an agreement on civil
nuclear cooperation with India, calling it the “foundation of a new
strategic partnership”.
• US officials hope the agreement will give US companies such as
Westinghouse a “leg up” in contracts for nuclear plants in India, but
that cannot proceed until the bilateral agreement is final.
• US has now exempted India from IAEA inspections and unilaterally
recognized it as a nuclear power, despite the fact that it has not
signed the NNPT.
• Grave implications on how to handle Pakistan and Iran.
• Indian PM Singh said he would not accept US condition of an
annual report to Congress on India’s relations with Iran.
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Strategic and “Real Politik”
Context of the US-India
Nuclear Deal
• Washington has been annoyed by the 15 year old plan to build a gaspipeline from Iran through Pakistan to India.
• India rejects US pressure on its historical relations with neighbor Iran.
• The US has persuaded India to accept flexible treatment on nuclear
energy, buy American equipment for new nuclear plants etc. as an
alternative cource of energy to Iranian gas.
• American strategy is to build up India as an “democratic” ally for
the containment of “Communist” China.
• “India will never be an ally (of the US) … but we will be a friend” a
senior Indian diplomat said.
• A newly assertive Russia under Putin is also rebuilding its strategic
relations with India.
• India will later this year decide whether it will for the first time buy
American F-15/16s or again buy Russian Sukhois, which have shown
their superiority in simulated fights with Americans .
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India divided over Nuclear Deal and
US Partnership
• Bharat Karnad, an Indian defense analyst at the Center
for Policy Research in New Delhi, argued in a
Hindustan Times article just before the agreement that
India's unthreatening posture symbolizes its
submission to the United States.
• “A deep-rooted mother vein of servility mixed with
complacency prevail in New Delhi,” he wrote in The
Asian Age, another national daily. He bemoaned the
“easy option of riding another state's coattails” and
projected that “India will continue to be what it has
always been, a ‘big little’ country bobbing along like
cork in water - all buoyancy and drift, and no
substance.”
The Hindustan Times, July 2005.
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India and China:
Partners here, Rivals there
• Indian oil companies engage in similar government-sponsored,
preferentially financed asset purchases in “problem countries” like
Sudan, Iran, Uzbekistan. India has not come under the same
international criticism as China.
• In Sudan India and China cooperate, in Kazakhstan they compete
and China gets the better end of the deal because the latter two
share a landborder.
• In 2005 ONGC lost a bid for Toronto-listed PetroKaz to Petrochina.
• In January 2006, India and China set aside rivalries and agreed to
cooperate in securing supplies and prevent their competition from
driving up prices. CNPC and ONGC signed an agreement for joint
bids in Central Asia/Caspian Region, Africa and Latin-America.
• India has agreed to transfer Compressed Natural Gas technology
to China.
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Gwadar, Pakistan
New focal point for strategic rivalry
between the US, China and India
• China and the US have gotten into a major contest for the Gwadar
port in Pakistan.
• China partly financed Gwadar’s construction in response to the
American presence in Afghanistan and Pakistan, and to monitor US
activity in the Middle East, Indian naval movements in the Arabian
Sea, and future Indo-US maritime cooperation in the Indian Ocean.
• China has so far paid $ 200 m of the $ 1.16 bn cost of Gwadar.
• Gwadar is on Pakistan's Arabian Sea coast, 72 km from Iran. It is
near the mouth of the Persian Gulf and 400 km from the Strait of
Hormuz, through which 40 % of the world’s oil passes.
• China has put together a “string of pearls” from the Gulf to SouthChina. Gwadar is the westernmost pearl which should also help
transform the economy of its landlocked Xinjiang Region.
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India and the Middle East
• Due to its large Muslim population, India has supported
Arab nations and Iran and kept Israel at arms length for
five decades.
• The warming of US-India relations in recent years has
led to some change
• American Jewish organizations support the US-India
nuclear deal on the grounds that it will help wean
India off its dependence on Middle Eastern oil.
• India’s ONGC has set up a refinery in Saudi Arabia, but it
is widely felt that China gets more consideration from the
Saudi’s than India, simply because China has more
strategic weight.
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Yadavaran
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Kazakhstan and
Russia
• To avoid over-dependence on the Gulf, Kazakhstan and
Russia are extremely important to China, especially
because their supply-routes are overland.
• Current Chinese imports from K.& R. are 11 %. China
wants to increase this amount to 20 % through pipelines.
• First and longest phase of the 3.000 km pipeline from the
Caspian port of Atyrau to Dushanzi in Xinjiang is already
in use.
• Russia still has not made a firm commitment to build a
2.247 km pipeline from Angarsk, Eastern Siberia to
Daqing in China’s Northeast, due to a 2002 rival bid from
Japan to circle the pipeline around Northeast China to
the Pacific port of Nakhodka.
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“West-Pipelinistan”
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East Pipelinistan
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China Dominant Foreign
Oil Power in Sudan
• Half of China’s oil imports
are from the ME, half from
Africa.
• It is China’s strategic policy
to get oil from anywhere,
particularly there where the
US is not in control.
• In 1997 US sanctions
banned US oil-companies
from Sudan.
• CNPC poured hundreds of
millions in Sudan’s oil
industry, took a 40 % stake
in Sudan’s “Greater Nile”,
constructed oil fields, a
refinery and pipelines.
• India has also invested
massively in oil assets,
including a pipeline.
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Sino-European
Rivalry in Africa
• At the EU-China Summit in Helsinki, the
EU criticized China for its close relations with Sudan.
China abstained in the UN Security Council vote
authorising the transition from an AU to a UN force in
Darfur. China trades oil for arms with Sudan.
• After entering Africa, Chinese enterprises are much more
adroit in operating in Africa than European ones, and
Europeans feel that many of their interests in Africa
have been “squeezed out” by China.
• As a result European countries are becoming more and
more anxious. Europe feels more and more that it cannot
deal with the Chinese colossus and that it will be
increasingly marginalized unless it gets closer to the
United States.
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Ineffective State-institutions and
Powerful State-Companies with
mixed record on the Global Market
• State oil majors compete in market, dominated by multinationals for a
century; pay above market with state support for strategic reasons
and thus drive up prices further. China’s NOC’s are the most
profitable of SOE’s.
• CNPC was forced to drop out of a bid for Slavnet after a Duma
resolution opposed a foreign buyer.
• In February 2005, Sinochem failed in its attempt to purchase an oil
refinery in Inchon, Korea, when shareholders voted to oppose it.
• Most spectacular setback was CNOOC’s failure to buy UNOCAL, due
to Congress’ opposition to the “China Threat”.
• Fierce debate on-going whether China should stop relying on the big
three for its oil needs or create private conglomerates, modelled on
Royal Dutch/Shell or Exxon Mobile.
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Strategic Petroleum Reserve
• China has the largest foreign currency reserves in the
world - $ 1.06 trillion, but it has hardly any oil reserves –
seven days (Japan: 200 !).
• Often compared with “Three Gorges Dam” because
debate is as opaque and controversial.
• Opponents from China’s economic bureaucracy, oil
industry and academia have argued that China cannot
afford an SPR. “China should allocate investment to
current rather than future problems.”
• Opponents of SPR argue that China relies for 2/3 on
coal and therefore doesn’t need oil-reserves.
• India has an SPR of 12, 13 days
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