23 January 2011

Pipelines versus Sealanes: Challenges and Opportunities for Securing Energy Resources

Andrew S. Erickson and Gabriel B. Collins, “Pipelines versus Sea Lanes: Challenges and Opportunities for Securing Energy Resources,” in Carrie Liu Currier and Manochehr Dorraj, eds., China’s Energy Relations with the Developing World (New York: Continuum, 2011), 177-94.


Chinese oil demand, growing rapidly, has reached 8.5 million barrels per day (mbtd) even amid the global recession. China became a net oil importer in 1993, and will likely become 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 imports half of its crude oil, at 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% 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 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. Also at stake is: should China develop as a maritime versus continental power, or should it focus on defending against state, as opposed to non-state, 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.

Yet as this chapter will demonstrate, China’s overland oil supply plans may largely be unrealistic, driven by a combination of a misunderstanding of global oil market mechanisms, incomplete assessment of security issues, and the lobbying by local commercial and political interests of a massively overtaxed national energy policy-making apparatus. Some projects—such as the planned line from Russia 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. If we estimate Chinese oil-import demand growth conservatively at an average of 3 percent annually over the next five years, Beijing’s imports will still increase by a total of roughly a 500,000 barrels a day—the combined volume that the pipelines from Russia and Kazakhstan will likely be able to bring in by 2013. Of that total, the 300,000 bpd from Russia will not be “new” overland supplies, but rather, a transfer from rail to pipe as the crude volumes previously carried into China by rail are moved into the pipeline instead. The proposed Burma–China and Pakistan–China lines are simply “shortcut” routes, not true overland supply routes; oil will still have to be carried by sea in tankers to the pipelines’ starting points.

A total figure for these two sources of 500,000 bbl/day may seem low, but it reflects the reality that China’s neighbors have limited capacity to offset its seaborne oil imports. Their reserves are limited in key potential supply areas (e.g., eastern Siberia), and politics further complicate the picture. Kazakhstan, for its part, is pursuing a three-vector oil export policy. It entails shipping oil through the Caspian Pipeline Consortium line to the Russian Black Sea port of Novorossisk; to China through the Atasu–Alashankou line; and, soon, through the $1.5 billion Kazakhstan Caspian Pipeline System to a port on the Caspian Sea, from which it will be carried by tanker to Azerbaijan, there to enter the Baku–Tbilisi–Ceyhan pipeline. The third route may ultimately be able to pump up to fifty-six million tons a year of oil.

Russia, meanwhile, may prioritize oil supplies to the East Siberia–Pacific pipeline, feeding the port of Kozmino, on the Sea of Japan near Nakhodka; from there it can be exported to Japan, South Korea, China, the United States, and other Pacific Basin consumers, not China alone. A spur pipeline from Russia to China is now under construction and is scheduled to enter service in the second half of 2010.

Pipelines are more vulnerable to sabotage and military interdiction than seaborne shipping is. Projects designed to help seaborne shipments bypass choke points (e.g., the Burma–China pipeline) are expensive, can be blockaded, and are vulnerable to weather and other physical disruptions. Seaborne shipping, by contrast, is very flexible and can be routed around disruptions. For this reason, pipeline plans predicated on the idea that bypassing the Strait of Malacca increases oil security are fundamentally flawed. Even if Malacca were completely sealed off by blockade or accident, tankers could be diverted through the Sunda, Lombok, or other passages with little disruption in deliveries and at an additional cost of less than one or two dollars per barrel. Some Chinese analysts now share this conclusion, one noting that “SLOC security is much more important than pipeline transport lines.”

Finally, pipelines are far more expensive than tankers in terms of what must be spent to move a given volume of oil a given distance. Certain pipelines—such as the Pakistan, and possibly the Burma, projects—will likely require substantial subsidies if they are to compete with seaborne imports. Much of the cost of supporting such uneconomical projects, which are driven more by politics than profits, will fall on the Chinese government, which already faces substantial energy-subsidy costs as well as the demands of its new four-trillion-RMB stimulus package, of which more than 25 percent may come from central government funds.

The first section of this chapter will examine operational and prospective pipelines oriented toward China. The projects are arranged chronologically in the order that they have, will, or might become operational. At present, the Kazakhstan–China pipeline is operating at partial capacity, a Russia–China line could become operational within eighteen months, the China–Burma pipeline project is now under construction, and a China–Pakistan pipeline remains entirely aspirational.

The second section 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. … …

Volume Summary

Now the second largest oil-consuming country after the US, China’s growing need for resources will affect its development as well as that of its neighbors and other developing countries. “China’s Energy Relations with the Developing World” examines China’s access to the energy resources of the developing world and its impact on Chinese foreign relations. Contributed by experts in international relations and Chinese politics, the essays look at China’s expanding relations with the Middle East, Africa, Central Asia, Latin America, India; the security implications of China’s quest for energy resources; and, its impact on relations with world powers such as the US. The book also asks whether China’s competition for energy resources will foster cooperation or conflict with other energy-consuming great powers. “China’s Energy Relations with the Developing World” provides is an accessible text that will appeal to students, faculty, and policy makers seeking to understand Chinese politics, energy policy, and the factors that may lie beneath key future geopolitical and security issues.

Table of Contents

Part I. Theoretical and Historical Overview
1. The Strategic Implications of China’s Energy Engagement with the Developing World
Carrie Liu Currier and Manochehr Dorraj

2. The Evolution of China’s Grand Strategy with the Developing World
Lui Hebron

3. The Domestic Political Context for China’s Quest for Energy Security
Jean A. Garrison

Part II. Regional Case Studies
4. China’s Quest for Energy Security in the Middle East: Strategic Implications
Manochehr Dorraj and Carrie Liu Currier

5. China, Russia, and Central Asia: Triangular Energy Politics
Gregory Gleason

6. China’s Energy Relations with Africa

7. China, Latin America, and the United States:  The Political Economy of Energy Policy in the Americas
Gregg B. Johnson and Jesse T. Wasson

8. A Strategic Game: China’s Energy Relations with Japan and India
Jian Yang

Part III. Challenges for the Future
9.  Pipelines versus Sea Lanes: Challenges and Opportunities for Securing Energy Resources
Andrew S. Erickson and Gabriel B. Collins

10. China’s Energy Relations with the Global South: Potential for Great Power Realignment
Charles E. Ziegler