Can China sate its thirst for energy?

by Michael Richardson

Among the sinews of superpower strength in the 21st century, maximum energy self-sufficiency will be critical as nations jostle to secure supplies of oil and natural gas, as well as food, water and minerals.

This contest for power and influence will take place in a world with many more people and one that is increasingly vulnerable to adverse climate change.

By this measure, how will China shape up against the United States, which became the unchallenged global leader in the second half of the 1900s but is widely expected to be surpassed by East Asia’s re-energized giant this century?

China’s seemingly unstoppable rise as an economic and military power has assumed a life of its own, with its track record of rapid and resilient growth over the past 30 years overshadowing concerns about potential vulnerabilities.

Yet China is becoming increasingly dependent on vital imports of oil and gas, often from faraway and politically-volatile countries in the Middle East, Africa and Central Asia.

Meanwhile, the U.S. is becoming much less reliant on foreign energy supplies to power its economy and transport system. And even if it depends on some imported oil and gas in future, the supplies are likely to be reliable and come mainly from friendly neighbors, including Canada, Mexico, Brazil and Argentina.

In the early 1990s, China still produced enough crude oil to meet its needs. But as growth surged, oil imports rose and they now meet 55 percent of consumption in a country that has become the world’s biggest energy user.

About 85 percent of these imports come by sea in tankers through the narrow Straits of Malacca and Singapore, and the Hormuz Strait in the Persian Gulf. They could be blocked or disrupted in a crisis.

To cut global warming emissions and air pollution, China plans to raise gas use, from 4 percent of energy consumption today to 10 percent by 2020.

As it does so, annual gas demand is projected to triple to about 300 billion cubic meters, making China the third-largest gas market after Russia and the U.S.

By 2020, Chinese gas imports by overland pipeline and by sea will make up nearly 33 percent of demand, up from around 20 percent now and none in early 2006, when China ceased to be self-sufficient in gas.

By contrast, some analysts expect that in the coming decade the U.S. will overtake Saudi Arabia and Russia to become the world’s leading producer of liquid hydrocarbons, counting both crude oil and lighter gas liquids such as propane and ethane.

Already, the U.S. has cut the share of its oil consumption met by imports from over 60 percent in 2005 to 47 percent in 2010. And of all the gas consumed in the U.S., only about 10 percent is imported.

A few years ago, the U.S. appeared to be on the same slippery slope of rising oil and gas dependence as China. But advances in drilling technology enabled it to tap new sources of gas and oil trapped in shale sedimentary rock deep underground, and to do so profitably while keeping the gas price low for consumers.

In the last decade, U.S. shale gas output has risen 12-fold. It now comprises about 25 percent of total gas production. This share is expected to increase to 45 percent by 2035.

China has watched these positive energy developments in America with concern as its own energy security becomes increasingly vulnerable to foreign forces beyond its control.

To reverse the trend, China aims to exploit its huge domestic resources of shale energy. The listed subsidiary of the biggest Chinese state-owned oil company recently announced that it had made a promising gas find in shale rock deposits in Sichuan province.

This prompted Fu Chengyu, chairman of China’s second-largest oil company, to predict that Chinese shale gas production could exceed that of the U.S. in a decade.

If it is to do so, China will have to overcome technical, environmental and pollution problems associated with shale drilling. But it evidently has the necessary shale reserves.

A survey published earlier this year by the U.S. Energy Information Administration said that of 32 countries studied, including the U.S., China had by far the biggest reserves of technically recoverable shale gas.

They would be enough to supply China for more than 300 years, based on current gas consumption levels.

Like the U.S., China sees opportunities to exploit shale oil, run trucks and other transport on shale gas instead of petrol, and turn shale gas into transport fuel and chemicals.

China knows that if it aspires to be a 21st century superpower, it must catch the U.S. in shale gas and shale oil development to regain energy security, as America is doing.

Michael Richardson is a visiting senior research fellow at the Institute of South East Asian Studies in Singapore.