China plays Pipelineistan

For all the rhapsodies on the advent of the New Silk Road, it may have come into effect for good last week, when China and Central Asia got together to open a crucial Pipelineistan node linking Turkmenistan to China’s Xinjiang.

By 2013, Shanghai, Guangzhou and Hong Kong will be cruising to ever more dizzying heights courtesy of gas supplied by the 1,833-kilometer Central Asia Pipeline from Turkmenistan – operating at full capacity. The pipeline will even help China achieve its goals in terms of curbing carbon emissions.

And in a few years China’s big cities will also be cruising courtesy of oil from Iraq.
China needs Iraqi oil. But instead of spending more than US$2

trillion on an illegal war, Chinese companies got some of the oil they needed from Iraq by bidding in a legal Iraqi oil auction. And in the New Great Game in Eurasia, instead of getting bogged down in Afghanistan, they made a direct deal with Turkmenistan, built a pipeline, profited from Turkmenistan’s disagreements with Moscow (Gazprom stopped buying Turkmen gas last April, which cost the Central Asian “stan” $1 billion a month), and will get most of the gas they need.

The running myth is that China is addicted to oil. Coal would be more like it. The No 1 global emitter of greenhouse gases, China still produces more than 70% of its energy from coal. Beijing will inevitably get deeper into biogas or solar energy, but in the short term most of the “factory of the world” runs on coal. Of its verified energy reserves, 96% are coal.

This does not imply that China’s shortage of raw materials such as oil and iron ore does not have the possibility of materializing Beijing’s planners’ worst nightmare – making the country a hostage to foreign raw-material producers (iron ore plays a significant part in China’s strategic relationship with Brazil). But diversifying oil supplies is a matter of extreme national security. When oil reached $150 a barrel in 2008 – before the US-unleashed financial crisis – China’s media accused foreign Big Oil of being “international petroleum crocodiles”, and insinuated that the West’s hidden agenda was ultimately to stop China’s relentless development dead in its tracks.

Twenty-eight percent of the world’s total proven oil reserves are in the Arab world. China badly needs this oil – with its factories churning out everything from sneakers to laptops, its car market booming like there’s no tomorrow (last month alone it produced 1.34 million vehicles), and Beijing constantly increasing its strategic oil reserves.

Few may know that China is actually the world’s fifth-largest oil producer, at 3.7 million barrels per day (bpd), just below Iran and slightly over Mexico. In 1980, China consumed only 3% of the world’s oil. Now it’s already around 10% – the world’s second-largest consumer, overtaking Japan but still way behind the US at 27%.

According to the International Energy Agency (IEA), China will account for more than 40% of the increase in global oil demand up to 2030. And this assumes that China’s gross domestic product will grow at “only” 6%. In 2009, even with the global financial crisis, China’s GDP is expected to have grown 8%.

Asia Times