China’s Energy Security

At a recent Houston
conference, a senior Chinese official touted what he described as “a new
system of power in China and the world.” And while Zhiwei Wang was referring to
electricity rather than geopolitics, he may as well have been talking about
both. China’s rise is closely linked to the country’s energy security, and the
rest of the world’s energy security is increasingly linked to China’s rise.

For the United States, the implications go beyond energy.
China’s arrival as the world’s largest energy consumer may well help redraw the
geostrategic map.

To begin to parse the potential consequences of this “new
system,” it’s important to understand why China has become such an important
global energy player in the first place. Ultimately, it’s because of the
tyranny of scale: that big population of 1.3 billion requires big economic
growth. The results are big, too: while the high growth rates of the last two decades
have not benefited
the Chinese population evenly, they have lifted an astonishing 600 million
people out of
poverty.

All of that growth required energy, and, indeed, China’s
energy demand has increased more than 500%
since 1980. China is now the world’s largest energy consumer and, as of last
year, the world’s largest
net importer of oil. (The United States overall still consumes 3 times as
much oil per
capita, but with the new oil boom, we are meeting more of our own needs
domestically.)

The top energy source fueling China’s rise has been domestic
coal, which was also true for the United States for much of the industrial
revolution. China also consumes some
petroleum, which it used to be able to source domestically. Today, the country
is 60% dependent on imports to meet its petroleum needs.

And that’s where energy numbers start to get
geostrategically interesting.

China is seeking to diversify its fuel mix, for three main
reasons. The first is the general principle that greater diversity yields more
security. Concentration of supply makes a country more vulnerable to disruption
by everything from natural disasters, to sanctions to political or market
upheavals.

Second, as the makeup of the Chinese economy has shifted, the
number of privately- owned vehicles has shot up from 8 million in 1990 to about
105 million as
of 2013. China is duly following a worldwide pattern in which the
transportation sector, with its overwhelming dependence on petroleum fuels, is
something of an economic chokepoint. Diversifying suppliers helps mitigate the
risks, though the government
commitment to electric vehicles would be even better, if it works.

The environment is the third diversification driver. China’s
reliance on coal has contributed to its infamously polluted skylines (see this
nifty app
that tracks real-time air quality in Chinese cities). The Chinese government
has set ambitious
goals for dealing with the problem, including switching away from coal to
other, cleaner energy sources.

These efforts at fuel diversification represent a clear-eyed
approach to improving Chinese energy security, but the implications for the
rest of the world’s energy security are more ambiguous.

First, there’s just the nature of natural resources. Geologically
speaking, there are suffiicent fossil fuel resources to meet global demand for
some time to come, but energy-producing nations are notoriously inefficient
about getting resources out of the ground and into the market. That means
there’s always a risk of a zero sum energy supply, as long as the world depends
on fossil fuels.

This competition for resources has the potential to
exacerbate other tensions, particularly when it comes to the big Asian
economies. Natural gas may be the bellwether, as China increasingly competes in
the LNG market with Korea and Japan.

But it’s not just how much energy China uses that can affect
geopolitics; it’s also the way China
gets its energy. China has long courted marginal nations such as Sudan and Iran
for resource relationships. It looked
for a time as though China might be moving away from such disruptive trade
partners – by supporting sanctions on Iran, for example. But recent major
deals with Russia, in the midst of Western sanctions, UN condemnation, and
continued aggression in Ukraine, seems a bit like doubling down.

The deals with Russia point to another geopolitical energy shift.
The United States used to be the biggest customer for global oil, but is heading
fast for North American self-sufficiency. China is now the biggest worldwide customer
and a significant investor in energy infrastructure (including in the United
States), led by national energy companies that are an extension of state power
and policy objectives.

Furthermore, strong economic relationships tend to correlate
with strategic partnerships for most nations, and China is especially adept at
using economic policy as foreign policy. In such relationships, arms transfers can
be part of the deal. According to SIPRI, the majority of
Chinese arms exports are within the Asia-Pacific region, which reflects China’s
strategic focus on that region. Nearly 25%, however, have gone to
energy-producing countries, with the lion’s share to Iran, Sudan, and South
Sudan.

If that trend deepens, there could be important implications
for U.S. security interests—particularly if China’s arms exports are an
indicator of a burgeoning affinity between China and Russia.

With a long shared
border, these two countries have generally had a tense relationship, but even as
pipeline politics are bringing them closer, their strategic and defense
partnership is growing. On May 9^th, China’s President, Xi Jinping
attended a large
military parade in Russia, discussing a flock of new deals on energy,
defense, and Central Asia. Monday, the two nations started a combined
military exercise in the Mediterranean Sea. What will it mean for U.S.
national security if these
two militarily advanced nations, with complementary capabilities and
fraught relationships with the U.S., share their technologies with each other?

Whatever this changing relationship has in store, the sands
are also shifting in the Middle East—where the United States has important
economic and military partnerships, including more than $26 billion in arms
exports. In just the past five years, for example, China’s imports of oil from
Saudi Arabia have nearly doubled, making China the Saudi’s largest customer. If
Arab public opinion is any indicator, a strategic shift is well underway: an annual poll conducted
in six Arab countries showed for the first time in 2012 (the most recent poll
conducted) that China was the preferred superpower. The United States was a
distant 6^th place, behind Pakistan.

China’s pursuit of energy security is not all bad news, or
at least it doesn’t have to be. China, after all, shares with the United States
and all consumer countries a strong interest in stable, affordable energy
markets. That gives as much motive for cooperation as it does for competition.
Pipeline politics can have a stabilizing effect, both for rivals, such as
Russia, and for energy-poor countries that desperately need the resources. And
China’s significant investments in renewables and recent
commitments with the United States on Greenhouse Gas Emissions could have a
profound, positive effect on global environmental health.

If Zhiwei Wang has his way, based on what he said in Houston,
energy could prove to be the ultimate global unifier. He described a future power
grid that would straddle the globe, linking all nations to the world’s best
renewable resources through transcontinental, ultra-high-voltage power lines.

When it comes to China, you go big, or you go home, whether
it’s the grid or geopolitics.