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.