15 March 2010

China’s Oil Security Pipe Dream: The Reality, and Strategic Consequences, of Seaborne Imports

Andrew S. Erickson and Gabriel B. Collins, “China’s Oil Security Pipe Dream: The Reality, and Strategic Consequences, of Seaborne Imports,” Naval War College Review 63.2 (Spring 2010): 88–111.

This article was required reading for the Naval War College National Security Decision Making Department’s Strategy and Theater Security course.

It is widely believed in China that overland pipelines would greatly enhance the security of its oil supply. Market and geopolitical analysis, however, shows that they would not. Chinese decision makers must face the fact that, barring discovery of an economically viable large-scale substitute for crude oil, their nation’s dependence on seaborne imports will only increase. The Chinese would be better advised to explore cooperative steps to safeguard free markets and the seaborne flow of energy imports.

This article assesses the relative dependence of China (as a consumer) on seaborne oil flows between now and 2025. China’s oil security concerns will help shape its military and policy priorities fundamentally, with significant implications for the U.S. Navy in coming years. For the present, it underscores a question of fundamental importance concerning China’s strategic orientation: To what extent will China seek to transform itself from a continental to a continental-maritime power?

Chinese oil demand, growing rapidly, has reached 8.5 million barrels per day (mbpd), even amid the global recession. China became a net oil importer in 1993 and likely became a net gasoline importer by the end of 2009. While still a very significant oil producer, China is now the world’s second-largest oil user. It now imports half of its crude oil, with imports reaching a record 4.6 million bpd in July 2009. Seaborne imports, which overland pipelines will not reduce, constitute more than 80 percent of this total. At present, therefore, 40 percent of China’s oil comes by sea.

Chinese security analysts and policy makers worry about their nation’s “excessive” reliance on seaborne oil shipments. Many believe that by investing in pipelines to deliver oil from neighboring oil producers like Russia and Kazakhstan and building additional lines to “bypass” the Malacca Strait, China can protect its oil imports from possible interdiction during a conflict. A robust internal debate is being waged within China at multiple levels and across a number of disciplines regarding how to ensure access to oil supplies. At stake is the extent to which China should cooperate with international economic institutions versus seeking unilateral military solutions; should develop as a maritime versus continental power; and should focus on defending against state, as opposed to nonstate, actors.

Despite this diversity of opinion, a wide variety of influential Chinese experts, including scholars, policy analysts, and members of the military, believe that the United States can sever China’s seaborne energy supplies at will and in a crisis might well choose to do so. It is widely claimed, for instance, that “whoever controls the Strait of Malacca effectively grips China’s strategic energy passage, and can threaten China’s energy security at any time.” Such views are widely cited to justify pipeline construction, which is proceeding rapidly. China already has fifty thousand kilometers of oil and gas pipelines and will nearly double the amount, to ninety thousand, during the Twelfth Five- Year Plan (2011–15).

Yet as this analysis will demonstrate, China’s overland oil supply plans may largely be a “pipe dream,” driven by a combination of a misunderstanding of global oil market mechanisms, incomplete assessment of security issues, and the lobbying by sectoral and local commercial and political interests of a massively overtaxed national energy policy-making apparatus. Some projects—such as the line from Russia that is now under construction and an existing line from Kazakhstan—are indeed economically viable overland projects that will bring at least limited diversity to China’s oil supplies. Others, however, like the proposed lines through Burma and Pakistan, make much less economic and security sense. In the end, pipelines are not likely to increase Chinese oil import security in quantitative terms, because the additional volumes they bring in will be overwhelmed by China’s demand growth; the country’s net reliance on seaborne oil imports will grow over time, pipelines notwithstanding.

The first portion of the analysis will examine operational and prospective pipelines oriented toward China. At present, the Kazakhstan–China pipeline is operating at partial capacity, a Russia–China line could become operational by late 2010 (and is likely to be in commercial operation by 2011), the Burma–China pipeline is now under construction, and a China–Pakistan pipeline remains entirely aspirational. The second portion of the study will examine Chinese views of how pipelines might enhance China’s oil security and assess the potential for, and utility and disadvantages of, a pipeline-centric oil-security strategy. The final, and concluding, section will suggest how China might enhance its energy security at lower financial and diplomatic cost. … … …