CC BY
26Mikhail Borisov*
ENERGY COMPONENT OF THE INITIATIVE «ONE BELT - ONE ROAD»
Abstract: The enormous scale of China's economy has turned it into a major global consumer of energy. China is not able to meet the growing energy needs by its own production. Its dependence on energy imports has become critical due to the instability of world markets, the tension of the international situation and the limited number of sup-pliers.The implementation of China's unprecedented global initiative of the "One Belt -One Road" is intended to solve the problems that have arisen.
Keywords: energy security, One Belt - One Road, 21st Century Maritime Silk Road, Economic Belt of the Silk Road.
Currently China accounts for almost one quarter of the global energy consumption and this figure is growing1. Despite the fact that China provides 46.1% of world coal production, 4.8% - of oil, 3.7% - of gas, 29.1% - of electricity generation at hydropower plants, 8.5% - at nuclear power plants, 20.2% - at plants based on renewable energy, the degree of energy self-sufficiency is only 84% and continues to decline2. The extent of consumption is so high that its own oil reserves will last only one month3. China accounts for one quarter of the oil consumed in the world and half of the annual global increase in its production4.
The rapidly growing energy shortage is being covered up by imports. China is the largest importer of primary energy. Though China is the fifth largest oil producer in the world (despite the fact that the oil reserves / production ratio is only 11.9, with an average global indicator of 80.1), 60% of oil consumed is imported (in 1993-6%, in 2020-73% is predicted)5. With giant mining, even coal is not enough. The self-sufficiency level of this resource is only 86%6. At the same time, the explored reserves of coal per capita make up only 41% of the average world level, oil - 11%, and gas - 4%. Dependence on gas imports is 32%7.
Due to the instability of world energy markets (an increase in the price of a barrel of oil by only $1 "costs" China an additional $0.5 billion8, some geographical
* Borisov Mikhail Glebovich - Ph.D. (Econ.), Senior Researcher, Institute of Oriental Studies, Russian Academy of Science.
1 BP Statistical Review of World Energy. June 2018. https: //www.bp.com /.../ bp / energy ... / statistical-review / bp-stats-review-2018-full-report ...
2 Calculated by: Ibid
3 Calculated by: Ibid
4 Calculated by: Ibid
5 Calculated by: Ibid
6 Calculated by: Ibid
7 Calculated by: Ibid
8 Calculated by: Ibid
shift in energy imports towards the Persian Gulf (more than 30% of oil and gas imports to China come from this troubled region), the huge cost of energy imports (it costs the country $270 billion a year9) the problem of the country's energy (and economic) security has sharply escalated. The Chinese authorities rightly see its decision in diversifying supply sources on the basis of large investments in energy and infrastructure projects in as many countries as possible and in strengthening their economic positions, authority and ability to influence the stability of supplies and pricing.
An unprecedented in scale comprehensive international project "One Belt -One Road" started on the basis of Chinese investment is designed to address the growing threat to energy security. Since it is mainly carried out with Chinese funds by Chinese contractors, more than 80 countries and international organizations, representing 63.1% of the world population, 58.1% - of world oil reserves, 79.9% -of natural gas and 54.2% - of coal immediately declared their participation10.
Table 1
The countries covered by the "One Belt - One Road" project and their share in the world oil market (% in 2015)
Region Country (%)
АСЕАН Malaysia (0.7%), Indonesia (0.9%), Thailand (0.4%), Brunei (0.2%)
West Asia Iran (4.2%), Iraq (4.5%), Saudi Arabia (13.1%), Oman (1.1%), UAE (4.1%), Qatar (1.8%), Kuwait (3.4%), Egypt (0.8%)
Central Asia Kazakhstan (1.8%), Uzbekistan (0.1%), Turkmenistan (0.3%)
Europe Russia (12.4%)
Africa Angola (1.6%), South Sudan (0.1%), Ethiopia (0.1%), Nigeria (1.8%)
Source: BP Statistic Review of World Energy. World Energy. June 2018.
In the first four years of the initiative's existence (2013-2017), Chinese energy companies concluded 497 projects along its route, within which $92.1 billion was "mastered"11. The total investment for the period up to 2030 is estimated at 1US$ trillion12. China's state oil and gas companies alone only in 2017 invested in the energy part of the project US$38 billion13. Risky investments are often carried out with strong government support (Table 2).
9 Calculated by: Ibid
10 Ma Yinging. Energy Going Out Leads China's Belt & Road Initiative. China Petroleum Newspaper, March 11, 2015
11 Asia's Energy Security. NBR Special Report # 68. Www.nbr.org/publications/issue.aspx?id=353
12 Ibid
13 Ibid
Table 2
The state capital of the project "One Belt - One Road"
Organization Capital (US$ Billion)
Industrial and Commercial Bank of China 159
CITIC 133
Bank of China 100
Silk Road Foundation 40
Chinese Development Bank 36
Export-Import Bank of China 19
Source: Asia's Energy Security. Source: Asia's Energy Security. NBR Special Report # 68. www.nbr. org/publications/issue.aspx?id=353 NBR Special Report # 68. Www.nbr.org/publications/issue. aspx?id=353
The initiative "One Belt - One Road" combines two components: the land route, the Economic Belt of the Silk Road (EBSR) and the sea route, Maritime Silk Road of the 21st Century (MSP). Energy investment projects sharply dominate in both components, designed, in addition to commercial benefits, to increase the energy security of the PRC, to diversify the sources of energy supply, making them more reliable and manageable.
The marine component of the project has the greatest practical significance for the Chinese energy. Currently 90% of all oil and gas supplies to the country go by sea, which makes them vulnerable and unsafe, bearing in mind the tense situation in the South China Sea, piracy in the Gulf of Aden and the Malacca Strait, control of the US Navy over communications in the Indian Ocean and the possibility of blocking them in the light of aggravated trade relations between China and the United States, and the need to pass through unreliable geopolitical "narrowness" -the straits of Hormuz and Malacca. More than 80% of Chinese oil imports pass through these straits.
The key link of the Maritime Silk Road is the deep-water port of Gwadar (Pakistan, Baluchistan province) located in the Arabian Sea at the entrance to the strait of Hormuz, built and controlled by China. It is the beginning of the Pakistan-China Economic Corridor (PCEC), which includes an oil pipeline, a gas pipeline and a highway, a railway and several power stations. The total investment in the PCEC will be US$62 billion, of which US$48 billion - in energy projects14.
The Gwadar-Kashgar-Urumqi oil pipeline, which will be built in 2017-2021, has a projected throughput capacity of 1 million barrels of oil per day, and will provide 13% of China's oil imports. Through PCEC, oil from the Middle East, bypassing
14 https://tribune.com.pk/story/1381733/cpec-investment-pushed-55b-62b
the Strait of Malacca, will pass to the consumer 2,500 km. in one week instead of the current 10,000 km. in 3 months15.
An addition to PCEC, beneficial for both Pakistan and China, is the Peace Gas Pipeline commissioned in December 2017 from Iran to Pakistan (bypassing the Strait of Hormuz). China has financed 85% of the construction, provided that a part of Iranian gas will be selected and liquefied in Gwadar for subsequent export to the PRC16. In the same 2017, the Chinese National Oil and Gas Corporation secured a controlling interest in the promising South Pars gas project. As a desire to avoid the passage of the Strait of Hormuz, China should consider m modernization of the port of Korfakkan on the coast of the Gulf of Oman (the emirate of Fujairah, United Arab Emirates). The container terminal is already in operation, the next step is the construction of an oil terminal and a pipeline worth $3.3 billion and a capacity of 25 million tons from the field in Abu Dhabi17. As part of the MSR, China has already built and upgraded a large number of oil and gas ports in the Indian Ocean basin. As the only investor, it has received exclusive rights to operate them (Table 3)
Table 3
Ports in China's long-term lease
Year of construction or modernization Region Country Port Period lease (years)
20152015 Indian Ocean Pakistan Gwadar 40
20152015 Indian Ocean Myanmar Kyapyu 50
2015201 South China Sea Malaysia Kuantan 60
2016 Indian Ocean Djibouti Obok 10
2016 South Ch Malaysia Malacca 99
2017 Indian Ocean Sri Lanka Hambantota 99
2016 South China Ocean Brunei Myapa Moire 60
20172017 Indian Ocean Maldives Fidhu finolu 50
Source: Compiled from: Asia's Energy Security. NBR Special Report # 68. www.nbr.org/publications/ issue.aspx?id=353 NBR Special Report # 68. www.nbr.org/publications/issue.aspx?id=353
The construction of an oil pipeline from Kyapyu port (Myanmar), where tankers will unload, to Kunming (Yunnan province) will allow tankers to avoid passing through the Strait of Malacca. In addition, this route will shorten by 2,000km the distance traveled by tankers and the delivery time of oil to the consumer for 3 weeks. To increase the capacity of this extremely economical and safe route, China began in 2016 to build a parallel railway line. A gas pipeline with a throughput
15 Ibid
16 https://vk.com/muslim_military? w = wall-55205927_4076
17 http://finance.sina.com/2017-02-24/doc-ifyavwwcv8679279.shtml
capacity of 20 billion cubic meters of myanmar gas per year will complete the Myanmar-China energy corridor18.
Extremely promising to ensure the uninterrupted transportation of hydrocarbons to China may be the Kra Istmus Canal (or the Thai Canal), which connects the Andaman Sea with the Gulf of Siam, bypassing the Strait of Malacca and, accordingly, the port of Singapore. It will shorten the route to Chinese ports of the South China Sea by 1,200 km. and for 3 days. The only potential investor is China. Construction has not yet begun, despite the presence of the Sino-Thai Memorandum of 2015 on its commencement, as the Thai government is under pressure from forces not interested in the implementation of this project and in China's acquisition of control over a strategic road equal in scale to the Panama or Suez Canal. China, on the other hand, has a ready project worth US$25 billion for 10 years with the involvement of 30 thousand Chinese workers19.
The construction of the Canal does not present technical difficulties: its design length is 102 km. (Compare: Panama Canal - 82 km.), Width - 160 m. (Panama Canal - 150 m.), Depth - 16 m. (Panama Canal - 14 m.) Like the Suez Canal, the Kra Istmus Canal will be without a lockes20.
China has become a key investor and executor of the second line of the Suez Canal, capable of passing large-capacity tankers and gas carriers. This made it possible to reduce the cost and expand the supply of hydrocarbons from Algeria and to reduce their routes many times. As a follow-up to this project, China is building the largest LNG port in Charschel in Algeria21.
The African branch of the MSR will become increasingly important. In 2018, the deep-water port of Lamu (Kenya) built by Chinese companies was commissioned with a railway and pipelines to transport oil from South Sudan and Ethiopia with a total investment of US$25 billion22. In 2018, the first stage of the port of Bagam-oyo (Tanzania) began to work, which will become the largest hub (including the energy hub), providing the entire East Africa23. Chinese companies have received exclusive rights to explore and subsequently exploit oil fields on the shelf of Gambia, Senegal and Guinea-Bissau, as well as on Lake Albert in Uganda24.
An important element of the MSR is its Arctic part called "Ice Silk Road". It is expected that by 2020, between 5% and 15% of all Chinese foreign trade will go through the Northern Sea Route, and about one quarter of this volume will be provided by transportation of liquefied gas from the Yamal LNG project, 20% of
18 New China - Myanmar oil pipeline bypasses. URL: https: //www.forbusiness.com/markets/2_oil-to-china/
19 Thailand, Cnina to team up on long-proposed Kra Istmus canal. 05/18/2015. URL: https: //www. wantchinatimes.com/news-subclass-cnt.aspx? id = 20150518000069 & cid = 1101
20 Ibid
21 https://tribune.com.pk/story/1381733/cpec-investment-pushed-55b-62b
22 URL: http: //www.reuters.com/article/Kenya-port-lamu-idUSLSN0CX38D20130411
23 www.cnpc.com.cn
24 Ibid
which is financed by China's national oil and gas corporation and another 10% -by the Silk Road Fund25.
Successful participation in the Yamal LNG project contributed to the expansion of the MSR program in the Arctic. At the end of 2017, the same Chinese National Oil and Gas Corporation signed a contract with the state of Alaska for the construction of a giant production and logistics LNG complex in the Arctic with a total investment of US$20 billion with a prospect of exporting 80% of the produced gas to China26.
The water area of the Malay Archipelago occupies an important place in the energy strategy of the MSR. In 2014 the Indonesian authorities launched the initiative "Indonesia - the sea axis of the world", which envisages the transformation of Indonesia, located at the junction of two oceans, into a transport, logistics and trade hub of global importance. Since such a large-scale project requires huge investments, the Indonesian government has called for the cooperation of international investors. Since this Indonesian initiative embraces the same water area as the MSR, China immediately called on Indonesia to jointly implement these largely coinciding and complementary projects. Indonesia readily accepted this proposal as it expects to receive considerable benefits from cooperation27
MSR passes the Sunda Strait between the energy-rich island of Sumatra and the economically developed island of Java which concentrates 2/3 of the country population. China intends to build 24 ports in this region (of which 4 are coal and 2 gas terminals), 8,700 kilometers of access and main railway lines, 1,000 km. of highways and electric power facilities with a total capacity of 35 MW28. At the same time, there is an increase in the volume of Chinese investments in the coal mining of Indonesia (Sumatra), which is the main supplier of coal to the PRC (and the world's leading exporter), turned into such by Chinese investments.
Large-scale investments in the port infrastructure of the countries of the Indian Ocean basin are accompanied as a necessary concession, by agreements cocluded with host states on the long-term lease of part of the ports for arranging naval facilities in order to ensure the safe operation and safety of the constructed facilities. The first agreement was concluded in 2015 with Djibouti to ensure sustainable and safe navigation in the Gulf of Aden and the Bab el Mandeb Strait. In fact, this is the first PRC naval base outside the country. In 2017, it was decided to increase the number of marines of the PRC from 20,000 people to 100,000 people with accommodation in the ports of Djibouti and Gwadar "to ensure the safety of navigation"29. Subsequently, the People's Republic of China gained territory for its
25 China Stakes in the Russian Arctic. The Diplomat. Jan. 20182018
26 Ibid
27 https://www.jokowinomics.com/2015/04/24/berita/antara-jalur-sutra-china-dan-procktinfrastruktur-indonesia
28 Ibid
29 Minnic Chan. Overseas Ambitions. South China Morning Post, March 2017, http://www.scmp.com/news/ china/diplomacy-defence/article/2078275/overseas-ambitions-expand-china-plans-400pc-increase
naval bases in the Maldives, the Cocos Islands, in the port of Kiapu, on the Mergui Archipelago (Myanmar)30.
The land component of the initiative "One Belt, One Road" - the program "Economic Belt of the Silk Road" - is no less important for ensuring China's energy security than the "Maritime Silk Road of the 21st Century". Its strategy involves, above all, the creation of a reliable corridor of energy supplies from Central Asia to China. China considers Central Asia as a reliable and agreeable supplier of oil and gas (since there are no other options for selling energy raw materials for the continental countries of the region which do not have the necessary investment and material resources) to the country's western regions lying far from the sea, and as an alternative supplier in case of blocking of sea routes.
China has invested enormous resources in the energy sector of Central Asia. The volume of accumulated Chinese investment in the oil and gas industry of Kazakhstan in 2017 was estimated at US$45 billion, in the extraction and transportation of natural gas in Turkmenistan - at US$15 billion, China's oil and gas projects in Uzbekistan are estimated at US$2 billion31. In addition, about US$5 billion is planned to be invested in Central Asian hydropower projects and US$2 billion in the raw material base of nuclear energy32.
The main infrastructure energy project in the region is one of the largest in the world gas pipeline "Central Asia - China", capable of pumping 85 billion cubic meters of Turkmen and Uzbek gas per year, which can provide up to 40% of the import needs of China. By 2018, A, B, and C lines operated at full capacity, providing 24% of annual import requirements. By 2020, the D "Turkmenistan-Uzbekistan-Tajikistan-Kyrgyzstan-China" line will be built with a carrying capacity of 10% of the current annual consumption of the PRC33.
Chinese companies are also actively investing in expanding the resource base of Turkmenistan and Uzbekistan both rich in natural gas (5th and 9th places in the world in explored reserves, respectively) in order to improve the reliability of long-term supplies and partial control over resources. The PRC National Oil and Gas Company conducts exploration and development of promising fields in the area of the former Aral Sea and on the right bank of the Amu-Darya river34.
Kazakhstan, which has promising oil and gas reserves, commensurable with the Middle East, and directly bordering on the PRC territiry, is becoming the key country in the energy sector of the Silk Road Economic Belt. Chinese companies control about 80% of oil produced in the country35. "Western Kazakhstan-China"
30 Ibid
31 URL: http: //www.haiguan.info/CustomData/MonthReport.aspx? Guid = 2288
32 Ibid
33 www.cnpc.com.cn
34 Ibid
35 www.newskaz.ru/economy/201105/148126.html
oil pipeline, which reached the projected throughput capacity, provides about 5% of oil consumption in the PRC36.
China has not overlooked Tajikistan and Kyrgyzstan which do not possess large fuel reserves, but are abundant in hydropower resources used so far by only 5% (in the world's first"ten" in their hydropower potential). Negotiations on construction of hydroelectric cascades on the Vakhsh and Nyryn rivers are in the final stage37. A serious obstacle to the implementation of the projects was the tough stance of Uzbekistan on the vital use of these transboundary rivers for the country, but the huge investment opportunities of the PRC are able to solve this problem.
The ambitious plan to import clean energy to China also applies to Kazakhstan. The project (which, however, was closed, and then restored, since the issue of tariffs has not yet been resolved) includes the construction of 12 power units of one of the world's largest coal-fired thermal power plant with a capacity of 7,200 MW in Ekibastuz and an export transmission line Ekibastuz - Urumqi. The total estimate of the project is $9.5 billion. Its annual output should be 40 billion kilowatts (4% of China's electricity consumption)38.
The role of Kazakhstan as a source of raw materials for the Chinese atomic energy is growing. Kazakhstan's share of Chinese uranium imports is 62% and is increasing at a fast pace39. The PRC is developing its nuclear energy industry at a pace that is ahead of the development of the national raw material base. Kazakhstan, whose share in the world uranium market is 40% (and continues to grow), and its reserves are far from being explored, is for China almost an indispensable long-term supplier40. Chinese companies do not only conduct exploration, development and enrichment of uranium, but also produce fuel elements. Kazakhstani authorities say the country is ready to build the first nuclear power plant using Chinese investment and technologies with partial electricity supply to China41. Uranium is also being explored in Uzbekistan.
Thus, in Central Asia, the main contours of realizing the energy component of the Silk Road Economic Belt have emerged. We are talking about creating a corridor for the delivery of energy carriers or electric power, which provides about 15% of China's energy needs, and is controlled by China42.
Russia plays a big role in the energy strategy of the SREB. Energy resources imported from the Russian Federation are the cheapest for China, since their
36 Calculated from: BP Statistical Review of World Energy June 2018. https://www.bp.eom/_/bp/energy_/ statistical-review/bp-stats-review-2018-full-report ..
37 sputnic-tj.com/economy/2016042010193/9682.html
38 Calculated from: BP Statistical Review of World Energy June 2018. https://www.bp.com/.../bp/energy.../ statistical-review/bp-stats-review-2018-full-report ..
39 https://eenergy.media/2017/08/09/atomnaya-energetika/
40 Ibid
41 Ibid
42 Calculated from: BP Statistical Review of World Energy June 2018. https://www.bp.com/.../bp/energy.../ statistical-review/bp-stats-review-2018-full-report ..
supplies imply minimal investment in Russia, and resources are bought directly at the state border.
In 2001-2017 oil imports to the PRC from the Russian Federation grew 40 times, which did not require any investment from China in foreign infrastructure43. Russia in 2015 came on top among the countries exporting oil to China (12% of China's imports)44. Imports come from the Eastern Siberia - Pacific Ocean oil pipeline through the Skovorodino-Datsin (15 million tons per year) and ESPO-Mohe branches (30 million tons per year), as well as Western Kazakhstan - China oil pipeline (10 million tons.). Deliveries are carried out on the basis of a long-term (for 25 years) agreement providing for import of 365 million tons of oil in 2013-203845.
Russia is quickly becoming the main supplier of gas to China (at the beginning of the 21st century, gas from the Russian Federation to the PRC was not practically supplied). When Russia began to implement the Yamal LNG project as well as the Sakhalin-2 project it ranked 8th among the suppliers of LNG to China. However, a real breakthrough is expected when the "Power of Siberia" gas pipeline with a capacity of 38 billion cubic meters of gas per year is lounched in December 2018. With the release of this project, on the basis of an agreement designed for 30 years, China will meet its needs for imports by nearly 20%. In addition, the project "The Power of Siberia - 2" (through Altai) with a capacity of 30 billion cubic meters was designed46.
In 2004-2014 electricity imports to China from Russia increased 10 times. Russia accounts for 50% of Chinese electricity imports, and this figure should increase significantly. The joint project involves the construction of several thermal power plants with a total capacity of 7,200 MW. on the basis of the Erkovetsky coal mine and the power lines to Beijing, which will almost double the supply of electricity from the Russian Federation to the PRC47.
By involving a large number of countries into the orbit of its unprecedented "One Belt - One Road" Initiative, China does not only ensure the security and sus-tainability of energy supply to the country, but also gives, through investments, a powerful impetus to the energy of recipient countries (which, as a rule, is the basis of their economies), largely tying them to Chinese economy. Their economic dynamics become being linked to the state of the Chinese economy. Thus, ensuring its energy security, China is turning into a powerful center of influence not only in the global energy sector, but also the entire economy.
43 www.forbes.ru> Business > SPIEF-2018
44 www.newsruss.ru/doc/index.php/
45 Ibid
46 www.forbes.ru>Eмзнес>ПМЭ0-2O18
47 www.newsruss.ru/doc/index.php/
References
1. Asia's Energy Security. NBR Special Report # 68. Www.nbr.org/publications/issue. aspx?id=353
2. BP Statistical Review of World Energy. June 2018. https://www.bp.com/.../bp / energy.. ./statistical-review/bp-stats-review-2018-full-report...
3. Minnic Chan. Overseas Ambitions. South China Morning Post, March 2017, http://www.scmp.com/news/china/diplomacy-defence/article/2078275/ overseas-ambitions-expand-china-plans-400pc-increase
4. Ma Yinging. Energy Going Out Leads China's Belt & Road Initiative. China Petroleum Newspaper, March 11, 2015
5. https://tribune.com.pk/story/1381733/cpec-investment-pushed-55b-62b https://vk.com/muslim_military?w=wall-55205927_4076
6. https://vk.com/muslmilitary?w=wall-55205927_4076
7. http://finance.sina.com/2017-02-24/doc-ifyavwwcv8679279.shtml
8. New China - Myanmar oil pipeline bypasses. URL: https://www.forbusiness.com/ markets/2.. .oil-to-china/
9. Thailand, Cnina to team up on the long-proposed Kra Istmus canal. 05/18/2015. URL: https://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20150518000069 &cid=1101
10. URL: http://www.reuters.com/article/Kenya-port-lamu-idUSLSN0CX3820130411
11. www.cnpc.com.cn
12. China Stakes in the Russian Arctic. The Diplomat. Jan. 20182018
13. https://www.jokowinomics.com/2015/04/24/berita/antara-jalur-sutra-china-dan procktinfrastruktur-indonesia
14. URL: http://www.haiguan.info/CustomData/MonthReport.aspx?Guid=2288; www.newskaz.ru/economy/201105/148126.html
15. sputnic-tj.com/economy/2016042010193/9682.html
16. www.forbes.ru> Business > SPIEF-2018
17. www.newsruss.ru/doc/index.php/
18. https://eenergy.media/2017/08/09/atomnaya-energetika/
