China Comment

Energy, Environment, and Economy

Xinjiang’s Energy Resources

Resources buried under Xinjiang account for over 20% of China’s future petroleum reserves, over 40% of its coal reserves, and Xinjiang has potential for large uranium deposits. Recent terrorist attacks and instability in Xinjiang makes it worthwhile to examine just what the Chinese have of interest in the region. Below, I explore the importance of Xinjiang’s security to Beijing’s energy policy. (Examination of a political point-of-view calculation will have to wait until later.)

An Overview of Xinjiang’s Energy Resources

“Xinjiang’s annual oil and gas equivalent output… ranks the first in the country… The third national resources evaluation shows that: Xinjiang’s total oil and natural gas resource reserves exceeded 30 billion tons… Recently, Xinjiang has been producing 75,000 tons of crude oil daily, occupying 14.4 percent of the country’s daily crude oil output. In 2007, Xinjiang’s oil and gas equivalent reached 44.94 million tons” which was the highest production value of all Chinese provinces” (People’s Daily).

“Xinjiang produced 26.4 million tons of crude oil and 21.2 billion cubic meters of gas last year, or 43.3 million tons of oil equivalent, representing a rise of 13.6 percent from 2006. [Note, these estimates differ slightly from People’s Daily’s estimates] As a result, Xinjiang, with estimated reserves of 20.8 billion tons of oil and 10.8 trillion cu m of gas, has been designated as a strategic area to replace Heilongjiang [in the Northeast] in China’s oil industry” (Stephen Blank, Jamestown).

“[B]eneath Xinjiang’s dusty soil and mountainous steppes lies buried 40% of China’s coal reserves. Equally abundant and far more precious to the central government are oil and natural gas deposits that total the equivalent of about 30 billion tons of oil and represent one-fourth to one-third of China’s total petroleum reserves” (Peter Navarro).

* A short, four page report on Xinjiang’s energy potential by the WSI (World Security Institute).

Xinjiang’s Coal

“It is predicted that during the 11th Five-Year Program period (2006-10), in the Zhundong area of eastern Xinjiang, the total installed capacity to be constructed – based on coal resources there – will reach 8.8 million kilowatts, and that of coal-to-methanol, coal-to-olefin, and coal-to-oil projects will total 7.6 million, 1.96 million and 3 million tons respectively. The aforesaid projects are expected to generate sales revenue of some 55 billion yuan (US$7 billion) after going into production… In 2006, raw-coal output in Xinjiang increased by some 3.6 million tons over 2005” (Asia Times).

“In accordance with the region’s 11th Five-Year Program, by 2010 Xinjiang’s raw-coal output is expected to exceed 100 million tons, and its installed capacity to top 10 million kilowatts” (Asia Times). 

Xinjiang’s Natural Gas

“The Tarin Basin alone has proven reserves of over one billion tons of crude and 59 billion cubic meters of natural gas” (Martin Andrew, Jamestown Foundation).

Xinjiang’s Wind

Xinjiang is also home to the Dabancheng wind farm, one of the largest in China, and has potential for much more wind power expansion. And “The Ala Mountain Pass region… will have an installed base of wind farms totaling 1 GW” by 2015 (Renewable Energy World).

“(Although significant power-grid transmission to the East would be a logistical problem to overcome.) “Currently, the total wind power capacity installed in Xinjiang accounts for 20% of nationwide capacity installed… The total capacity is estimated to reach 43.8 million kW, which can generate 1 00 billion kWh of electric power and is nine times of the current electric power generated in Xinjiang” (World Security Institute).

Energy Security and Transportation

* “The 2008 People’s Republic of China (PRC) White Paper on Diplomacy placed energy security as a major centerpiece of the country’s foreign policy…The White Paper specifically emphasized that China is currently the world’s second largest producer and consumer of energy, and therefore an indispensable part of the global energy market, and is increasingly playing a prominent role in ensuring global energy security” (Russell Hsiao, Jamestown).

* “Central Asia can serve as a transshipment area for Middle East oil should war ever break out over Taiwan or China’s various claims for oil reserves in the South China Seas” (Peter Navarro). Pipelines through Xinjiang connect China with Turkmenistan, Kazakhstan (2010), and also run through Uzbekistan. It is vital to China’s energy security that these energy pipelines are secured.

* Crude Oil reserve bases are also located in Xinjiang, which will be useful if coastal oil reserves in Zhejiang or Fujian come under fire due to a Taiwan conflict.

* Xinjiang’s vast resources can help China wean itself off of foreign countries’ energy. If developed properly, and if China restrains its energy consumption, the country can continue to possess a modicum of energy independence.

Conclusion

Security of Xinjiang’s resources is central to Beijing’s strategy of becoming a developed nation. Without Xinjiang’s resources, the Chinese would depend even more on the vagaries of the Malacca Strait for transshipment of energy. Russia’s new pipeline into China will help alleviate some of China’s dependence on pipelines through Xinjiang, should said pipelines become plagued by sabotaguge (which is unlikely). Additionally, more energy diversification is planned with expansions of China into Myanmar energy.

Still, China’s domestic energy hub for the future is Xinjiang. Its supply of energy to the rest of the country is disproportionate to its population and its wealth. Because Xinjiang is key, China will continue to be harsh in its crackdowns against splittists, terrorists, and overly zealous religion adherents.

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27 August, 2008 Posted by | China Energy, China Future | , , , , , , , , , , | 1 Comment

Natural Gas – Development

Beijing continues its quest to fill its increasingly high energy needs since demand is up 8.6% in 2006, which is a staggering amount compared to global growth rates of under 2%. To mitigate the problem, Beijing plans to ambitiously expand natural gas supplies.

China’s natural gas industry is growing at a rapid pace. 2007 saw 23.1% growth and this year, Natural Gas output will “likely hit 76 billion cubic meters,” on around 15% a year growth!). 

International agreements signed from 2003-2005 are finally coming on-line, and new agreements are being made. Below, I examine what this can this mean for China’s energy security and future geopolitical purposes.

First, for orientation purposes; 1,200 cubic meters of gas equals about one ton of oil (People’s Daily); or a conversion rate of 8.3×10-4.  (Conversions will vary between sources depending on how oil companies rate the density of materials, but for simplification purposes, all numbers below are approximations.)

In 2006, China received 69.6% of its energy from Coal (1.19B tons of oil equivalent in 2006, but 2.5B “natural” tons of coal are expected to be consumed in 2007)^, 21.1% from Oil (350M tons; 183.7M produced domestically, around 47% imported), 5.8% from Hydroelectric, 2.7% Natural Gas (55.6B cubic meters- in 2007 this rose to 69.8B cubic meters), and 0.8% from Nuclear Energy [data from: Rosen (17), and China Daily (2006)]

To make the data easier to compare, cubic meters have been approximately converted into tons:

Tonnage and Percent of Energy Mix (2005-2006)

Coal

1,190M  

69.6% 

Oil

350M

21.1%

Natural Gas                                

 58M*               

 ~3.5%*

 * Roughly converted into tons, thus is estimated down from the 69.8B cubic meters as per the formula explained above. Also, Natural gas data is for 2007.

^ 1 m.ton of coal = 4.879 barrels of crude oil equivalent (Source)
(Chart Data from Rosen and China Daily; 2005 and 2006 numbers except as stated.)

(2009-2010) – New Sources of Imports Coming on line

The Chinese government hopes to double use of Liquid Natural Gas from 2.5% of the energy mix (as of 2005) to 5.5% of the energy mix by 2010, and expects to utilize 200B cubic tons a year (166M tons, or roughly half of current oil consumption) of LNG by 2020 (IHT).

China is fast approaching its goals. In order to facilitate foreign imports, pipelines are being built, and China National Offshore plans to build an additional 10 LNG (Liquid Natural Gas)-capable ports (CER).

In August 2007, PetroChina and Chevron agreed to develop the Luojiazhai natural gas fields in Sichuan. The fields are believed to hold 2.03 trillion cubic feet of natural gas reserves (57,483,144 cubic meters or roughly 48M tons.) (CER).

In July 2008, PetroChina proclaimed “Sulige Gas Field in China’s Inner Mongolia Autonomous Region” can now produce  4.5 billion cubic meters (steres) a year (3.8M tons). By the end of the year, Petrochina hopes to increase output to over 7 billion cubic meters (steres) annually (5.9M tons) (China Institute).

Turkmenistan will be able to export Natural Gas to China, starting in 2009. Under an August 2006 deal, China plans to purchase 30 billion cubic meters in 30 years; averaging to 1 billion cubic meters, or around 833,000 tons a year. 

In June 2008, China signed a deal with Qatargas Operating Co. for delivery, starting in 2009, of 2 million metric tons of LNG annually (CER).

TOTAL: (2009) 8.9M tons yearly
Sulige Gas Field (5.9M yearly) [2009] (Inner Mongolia)
Qatar (2M yearly) [2009]
Turkmenistan (833,000 yearly) [2009]
Luojiazhai Fields (43M reserves) [~2010] (Sichuan)
 

Long Run Forecast

In July 2008, Kazakhstan started a natural gas pipeline (IHT) that should be “completed by June 2010.” When finished, it will carry 30 billion cubic meters of natural gas each year, or around 38M tons.

Sinopec also has high expectations for the Dayi Gas Field in Sichuan. They claim possible natural gas reserves of 100 billion cubic meters (85M tons) (China Institute).

China also, in June 2008, signed a cooperation agreement on natural gas extraction and transportation with Myanmar, which has over 5.7 to 10 trillion cubic feet of natural gas (283,168,199,078 cubic meters; or 238M tons) (China Institute).

In a July 10, 2008 statement, “Russia plans to export 68 billion cubic meters of natural gas to China annually by 2020 [58M tons], the president of the Russian Gas Union said. Valery Yazev, who is also deputy chairman of the State Duma, the lower house of Russia’s parliament, said that Russia planned to supply up to 30 million metric tons (220 million barrels) of crude oil to China via a branch line of the East Siberia – Pacific Ocean pipeline (ESPO)” (China Institute).

TOTAL: (2020) 96M tons yearly
Kazakhstan (38M yearly) [2010-2015]
Russia (58M yearly) [2015-2020]
Dayi Field (85M reserves) [2010-2012] (Sichuan)

 

Geopolitical Security

Future pipelines from Kazakhstan will carry imports that equal half the amount of LNG consumed by China this year. As a result, Central Asian security will become more integral to Beijing’s foreign policy. The pipeline from Kazakhstan crosses Uzbekistan and goes through China’s sometimes-volatile Xinjiang province. New pipelines originating from Central Asian countries will require more People’s Armed Police patrols to guarantee safety, which will tie down a modest amount of troops since the lines present an energy security vulnerability. Anti-terror crackdowns  will  increase in Xinjiang, and possibly Islamic Mosque worship will be more restricted. (Children under a certain age are not allowed in Mosques; although when I visited, it appeared this practice was not entirely enforced.)

Also, Beijing will strengthen ties with the SCO (Shanghai Cooperative Organization) economic and defense grouping of Central Asian states, perhaps attempting to marginalize the United States’ regional influence. Beijing already surpasses the US in trade partner significance to several Central Asian States, trading $12 billion in 2006 (CRS, 71) with the region, compared to 2006 US trade of slightly over $2.3 billion with the region.  (Data from HERE, HERE, HERE, HERE, and HERE for exports; HERE for imports)

With a future pipeline to Myanmar, Beijing might increasingly coddle that regime, like France and Russia at times did to Baghdad in the leadup to the Iraq War.  However, given Myanmar’s undeveloped economy, it may be years before they practically exploit their natural gas. An Indian and a South Korean company are also involved in the explotation. The Myanmar issue will prove to be a complicated one, geopolitically.

Ultimately, Natural Gas is but one of several sources for China’s energy, and it will only account for 5.3% of Beijing’s energy mix by 2010. Coal is currently, and will remain the most important piece of Beijing’s energy plan for the next twenty years. And oil will remain the most vulnerable part of Beijing’s energy plan, since over 47% of China’s oil demand is imported.

Still, the importance of LNG will cause Beijing to bring in foreign experts (such as Shell, and Chevron), and will increase its influence in the Central Asian states. It will be interesting to see how relations and rights negotiations develop over the next two to ten years, given energy prices’ recent fluctuations.

 * Some conversions attempted using this chart and this one. Also of note. “Steres” is another word for “cubic meters.”

Also of Note: Daniel Rosen and the Center for Strategic and International Studies’ AMAZING analysis of China’s Energy Future –  http://www.iie.com/publications/papers/rosen0507.pdf

* China’s Nuclear Power, Wind Power in China.

14 July, 2008 Posted by | China Energy, China Future | , , , , , , , , | 1 Comment