China and Energy

[muse]

China will shortly be the number one consumer of energy - oil, coal, and alternates each have a economic, environmental and and each has a geostrategic implications:


China: Energy superpower
By Michael T Klare

If you want to know which way the global wind is blowing (or the sun shining or the coal burning), watch China. That's the news for our energy future and for the future of great-power politics on planet Earth. Washington is already watching - with anxiety.

Rarely has a simple press interview said more about the global power shifts taking place in our world. On July 20, the chief economist of the International Energy Agency (IEA), Fatih Birol, told the Wall Street Journal that China had overtaken the United States to become the world's number one energy consumer. One can read this development in many ways: as evidence of China's continuing industrial prowess, of the lingering recession in the United States, of the growing popularity of automobiles in China, even of America's superior energy efficiency as compared to that of China.

All of these observations are valid, but all miss the main point: by becoming the world's leading energy consumer, China will also become an ever more dominant international actor and so set the pace in shaping our global future.

Because energy is tied to so many aspects of the global economy, and because doubts are growing about the future availability of oil and other vital fuels, the decisions China makes regarding its energy portfolio will have far-reaching consequences. As the leading player in the global energy market, China will significantly determine not only the prices we will be paying for critical fuels but also the type of energy systems we will come to rely on.

More importantly, China's decisions on energy preferences will largely determine whether China and the United States can avoid becoming embroiled in a global struggle over imported oil and whether the world will escape catastrophic climate change.

How to rise to global preeminence

You can't really appreciate the significance of China's new-found energy prominence if you don't first grasp the role of energy in America's rise to global preeminence.

That the northeastern region of the young United States was richly endowed with waterpower and coal deposits was critical to the country's early industrialization as well as to the North's eventual victory in the Civil War. It was the discovery of oil in western Pennsylvania in 1859, however, that would turn the US into the decisive actor on the global stage. Oil extraction and exports fueled American prosperity in the early twentieth century - a time when the country was the planet's leading producer - while nurturing the rise of its giant corporations.

It should never be forgotten that the world's first great transnational corporation - John D Rockefeller's Standard Oil Company - was founded on the exploitation and export of American petroleum. Anti-trust legislation would break up Standard Oil in 1911, but two of its largest descendants, Standard Oil of New York and Standard Oil of New Jersey, were later fused into what is now the world's wealthiest publicly traded enterprise, ExxonMobil. Another descendant, Standard Oil of California, became Chevron - today, the third-richest American corporation.

Oil also played a key role in the rise of the United States as the world's preeminent military power. This country supplied most of the oil consumed by Allied forces in both World War I and World War II. Among the great powers of the time, the US alone was self-sufficient in oil, which meant it could deploy massive armies to Europe and Asia and overpower the well-equipped (but oil-starved) German and Japanese militaries. Few realize this today, but for the architects of America's victory in World War II, including president Franklin D Roosevelt, it was the nation's superior endowment of petroleum, not the atom bomb, that proved decisive.

Having created an economy and military establishment based on oil, American leaders were compelled to employ ever-more costly and desperate measures to ensure that both always had an adequate supply of energy. After World War II, with domestic reserves already beginning to shrink, a succession of presidents fashioned a global strategy based on ensuring American access to overseas petroleum.

As a start, Saudi Arabia and the other Persian Gulf kingdoms were chosen to serve as overseas "filling stations" for US refiners and military forces. American oil companies, especially the descendants of Standard Oil, were aided and abetted in establishing a major presence in these countries. To a considerable extent, in fact, the great postwar strategic pronouncements - the Truman Doctrine, the Eisenhower Doctrine, the Nixon Doctrine, and especially the Carter Doctrine - were all tied to the protection of these "filling stations".

Today, too, oil plays a critical role in Washington's global plans and actions. The Department of State, for example, still maintains an elaborate, costly, and deeply entrenched military capability in the Persian Gulf to ensure the "safety" and "security" of oil exports from the region. It has also extended its military reach to such key oil-producing regions as the Caspian Sea basin and western Africa. The need to retain friendly ties and military relationships with key suppliers like Kuwait, Nigeria, and Saudi Arabia continues to dominate US foreign policy. Similarly, in a warming world, a growing American interest in the melting Arctic is being propelled by a desire to exploit the polar region's untapped hydrocarbon reserves.

Planet coal?

The fact that China has now overtaken the United States as the world's leading energy consumer is bound to radically alter its global policies, just as energy predominance once did America's. No doubt this will, in turn, alter the course of Sino-American relations, not to speak of world affairs. With the American experience in mind, what can we expect from China?

As a start, no one reading newspaper business pages could have any doubt that Chinese leaders view energy as a - possibly the - major concern of the country and have been devoting substantial resources and planning to the procurement of adequate future supplies. In addressing this task, those leaders face two fundamental challenges: securing sufficient energy to meet ever-rising demand and deciding which fuels to rely on in satisfying these requirements. How China responds to these challenges will have striking implications on the global stage.

According to the most recent projections from the US Department of Energy (DoE), Chinese energy consumption will grow by 133% between 2007 and 2035 - from, that is, 78 quadrillion to 182 quadrillion British thermal units (BTUs). Think about it this way: the 104 quadrillion BTUs that China will somehow have to add to its energy supply over the next quarter-century equals the total energy consumption of Europe and the Middle East in 2007. Finding and funneling so much oil, natural gas, and other fuels to China is undoubtedly going to be the single greatest economic and industrial challenge facing Beijing - and in that challenge lays the possibility of real friction and conflict.

Although most of the country's energy funds are still expended domestically, what it spends on imported fuels (oil, coal, natural gas, and uranium) and energy equipment (oil refineries, power plants, and nuclear reactors) will significantly determine the global price of these items - a role that, until now, has been largely filled by the United States. More important, however, will be the decisions China makes about the types of energy it will come to rely on.

If Chinese leaders were to follow their natural inclinations, they would undoubtedly avoid relying on imported fuels altogether, given how vulnerable foreign-energy dependence can make a country to overseas supply disruptions or, in China's case, a possible US naval blockade (in the event, say, of a prolonged conflict over Taiwan). Li Junfeng, a senior Chinese energy official, was recently quoted as saying, "Energy supply should be where you can plant your foot on it" - that is, from domestic sources.

China does possess one kind of fuel in abundance: coal. According to the most recent DoE projections, coal will make up an estimated 62% of China's net energy supply in 2035, only slightly less than at present. A heavy reliance on coal, however, will exacerbate the country's environmental problems, dragging down its economy as health-care costs mount. In addition, thanks to coal, China is now the world's leading emitter of climate-altering carbon dioxide. According to the DoE, China's share of global carbon-dioxide emissions will jump from 19.6% in 2005, when it barely trailed the US at 21.1%, to 31.4% in 2035, when it will tower over all other countries in net emissions.

As long as Beijing refuses to significantly reduce its reliance on coal, ignore its rhetoric on global-warming negotiations. It simply won't be able to take truly meaningful steps to address climate change. In this way, too, it will alter the face of the planet

Recently, the country's leaders seem to have become far more sensitive to the risks of excessive reliance on coal. Massive emphasis is now being placed on the development of renewable energy systems, especially wind and solar power. Already, China has become the world's leading producer of wind turbines and solar panels, and has already begun exporting its technology to the United States. (Some economists and labor unions, in fact, claim that China is unfairly subsidizing its renewable-energy exports in violation of World Trade Organization rules.)

China's growing emphasis on renewable energy would be good news if it resulted in substantial reductions in coal use. At the same time, the country's drive to excel at these techniques could push it into the forefront of a technological revolution, just as early American dominance of petroleum technology propelled it to the front ranks of world powers in the twentieth century. If the United States fails to keep pace, it could find the pace of its decline as a world power quickening.

Whose Saudis are they?

China's thirst for added energy could also lead quickly enough to friction and conflict with the United States, especially in the global competition for increasingly scarce supplies of imported petroleum. As its energy use ramps ever upward, China is using more oil, which can only lead to greater political economic, political, and someday possibly even military involvement in the oil-producing regions - areas long viewed in Washington as constituting America's private offshore energy preserves.

As recently as 1995, China consumed only about 3.4 million barrels of oil per day - one-fifth the amount used by the United States, the world's top consumer, and two-thirds of the amount burned by Japan, then number two. Since China pumped 2.9 million barrels per day from its domestic fields that year, its import burden was a mere 500,000 barrels per day at a time when the US imported 9.4 million barrels and Japan 5.3 million barrels.

By 2009, China was in the number-two spot at 8.6 million barrels per day, which still fell far below America's 18.7 million barrels. At 3.8 million barrels per day, however, domestic production wasn't keeping pace - the very problem the US had faced in the Cold War era. China was already importing 4.8 million barrels per day, far more than Japan (which had actually reduced its reliance on oil) and nearly half as much as the United States. In the decades to come, these numbers are guaranteed only to get worse.

According to the DoE, China will overtake the US as the world's leading oil importer, at an estimated 10.6 million barrels per day, sometime around 2030. (Some experts believe this shift could occur far sooner.) Whatever the year, China's leaders are already enmeshed in the same power "predicament" long faced by their American counterparts, dependent as they are on a vital substance that can be acquired only from a handful of unreliable producers in areas of chronic crisis and conflict.

At present, China obtains most of its imported oil from Saudi Arabia, Iran, Angola, Oman, Sudan, Kuwait, Russia, Kazakhstan, Libya, and Venezuela. Eager to ensure the reliability of the oil flow from these countries, Beijing has established close ties with their leaders, in some cases providing them with significant economic and military assistance. This is exactly the path once taken by Washington - and with some of the same countries.

China's state-controlled energy firms have also forged "strategic partnerships" with counterpart enterprises in these countries and in some cases acquired the right to develop major oil deposits as well. Especially striking has been the way Beijing has sought to undercut US influence in Saudi Arabia and with other crucial Persian Gulf oil producers.

In 2009, China for the first time imported more Saudi oil than the US, a geopolitical shift of great significance given the history of US-Saudi relations. Although not competing with Washington when it comes to military aid, Beijing has been dispatching its top leaders to woo Riyadh, promising to support Saudi aspirations without employing the human rights or pro-democracy rhetoric usually associated with American foreign policy.

Much of this should sound exceedingly familiar. After all, the United States once wooed the Saudis in a similar way when Washington first began viewing the kingdom as its overseas filling station and turned it into an unofficial military protectorate. In 1945, while World War II still raged, president Roosevelt made a special trip to meet with King Abdul Aziz of Saudi Arabia and establish a protection-for-oil arrangement that persists to this day. Not surprisingly, American leaders don't see (or care to recognize) the analogy; instead, top officials look askance at the way China is poaching on US turf in Saudi Arabia and other petro-states, portraying such moves as antagonistic.

As China's reliance on these overseas suppliers grows, it is likely to bolster its ties with their leaders, producing further strains in the international political environment. Already, Beijing's reluctance to jeopardize its vital energy links with Iran has frustrated US efforts to impose tough new economic sanctions on that country as a way of forcing it to abandon its uranium-enrichment activities.

Likewise, China's recent loan of $20 billion to the Venezuelan oil industry has boosted the status of President Hugo Chavez at a time when his domestic popularity, and so his ability to counter US policies, is slipping. The Chinese have also retained friendly ties with President Omar Hassan Ahmad al-Bashir of Sudan, despite US efforts to paint him as an international pariah because of his alleged role in overseeing the massacres in Darfur.

Arms-for-oil diplomacy on a dangerous planet

Already, China's efforts to bolster its ties with its foreign-oil providers have produced geopolitical friction with the United States. There is a risk of far more serious Sino-American conflict as we enter the "tough oil" era and the world supply of easily accessible petroleum rapidly shrinks.

According to the DoE, the global supply of oil and other petroleum liquids in 2035 will be 110.6 million barrels per day - precisely enough to meet anticipated world demand at that time. Many oil geologists believe, however, that global oil output will reach a peak level of output well below 100 million barrels per day by 2015 and begin declining after that. In addition, the oil that remains will increasingly be found in difficult places to reach or in highly unstable regions. If these predictions prove accurate, the United States and China - the world's two leading oil importers - could become trapped in a zero-sum great-power contest for access to diminishing supplies of exportable petroleum.

What will happen under these circumstances is, of course, impossible to predict, especially since the potential for conflict abounds. If both countries continue on their current path - arming favored suppliers in a desperate bid to secure long-term advantage - the heavily armed petro-states may also become ever more fearful of, or covetous of, their (equally well-equipped) neighbors.

With both the US and China deploying growing numbers of military advisers and instructors to such countries, the stage could be set for mutual involvement in local wars and border conflicts. Neither Beijing nor Washington may seek such involvement, but the logic of arms-for-oil diplomacy makes this an unavoidable risk.

It is not hard, then, to picture a future moment when the United States and China are locked in a global struggle over the world's remaining supplies of oil. Indeed, many in official Washington believe that such a collision is nearly inevitable. "China's near-term focus on preparing for contingencies in the Taiwan Strait ... is an important driver of its [military] modernization," the Department of Defense noted in the 2008 edition of its annual report, "The Military Power of the People's Republic of China". "However, analysis of China's military acquisitions and strategic thinking suggests Beijing is also developing capabilities for use in other contingencies, such as a conflict over resources ... "

Conflict over planetary oil reserves is not, however, the only path that China's new energy status could open. It is possible to imagine a future in which China and the United States cooperate in pursuing oil alternatives that would obviate the need to funnel massive sums into naval and military arms races. President Barack Obama and his Chinese counterpart, Hu Jintao, seemed to glimpse such a possibility when they agreed last November, during an economic summit in Beijing, to collaborate in the development of alternative fuels and transportation systems.

At this point, only one thing is clear: the greater China's reliance on imported petroleum, the greater the risk of friction and conflict with the United States, which relies on the same increasingly problematic suppliers of energy. The greater its reliance on coal, the less comfortable our planet will become. The greater its emphasis on alternative fuels, the more likely it may make the 21st century China's domain. At this point, how China will apportion its energy needs among the various candidate fuels remains unknown. Whatever its choices, however, China's energy decisions will shake the world.

Michael T Klare is a professor of peace and world security studies at Hampshire College and the author, most recently, of Rising Powers, Shrinking Planet. His previous book, Blood and Oil, was made into a documentary film and is available at Michael T. Klare's "Blood and Oil". To catch Klare discussing China's energy superpowerdom on Timothy MacBain's latest TomCast audio interview

 

[huzihaidao12]

Detailed article, future energy problems would be a big problem in the world, just look at any cheap, abundant new energy sources appear. .

 

[muse]

Or is it a message to stay away from middle east if you don't want problems?

---------- Post added at 01:58 PM ---------- Previous post was at 01:57 PM ----------

Friends:



China resets terms of engagement in Central Asia
By M K Bhadrakumar

Nursultan Nazarbayev has a way of drawing lines in the sand. The president of Kazakhstan recently told global oil and metal majors that new laws would allow only those foreign investors that cooperate with his industrialization program to tap his nation's mineral resources.

"We will work only with those who propose projects helping diversification of the economy," he said at a December 4 investment conference in Astana, the Kazakh capital, which was attended by ArcelorMittal, Chevron, Total, ENRC and other investors. To any unwilling to collaborate, he said: "We will look for new partners, offer them favorable conditions and resources to fulfill projects."

For good measure, he added that Beijing has asked Kazakhstan - a country the size of Europe but with just 16 million people - to allow Chinese farmers to use one million hectares of Kazakh land to cultivate crops such as soya and **** seed.

Pro-Western elements in Kazakh politics have since taken to the streets. On December 17, addressing a rally in Almaty, Bolat Abilov, co-chairman of the opposition party Azat [United Social Democratic Party] drew an apocalyptic scenario: "If we tomorrow give, or distribute, one million hectares of land, it would mean 15 people working per hectare. That means 15 million people would be brought from China. If one of those 15 people were to give birth each year, that would be the end. In 50 years, there would be 50 million Chinese [in Kazakhstan]."

A rally was held outside the Chinese consulate in Almaty with placards reading, "Mr Hu Jintao, we will not give up Kazakh land!"

A pipeline to the heart of Asia ...
Nazarbayev's message was direct: Western investors could keep their money if interested only in exploiting Kazakhstan's mineral wealth. The president was speaking as a momentous event in the history and politics of Central Asia was resetting the terms of engagement for foreigners in the region: the development of an ambitious 7,000 kilometer pipeline to link the region's gas fields to cities on China's eastern seaboard.

Ten days after Nazarbayev spoke, Hu arrived on a Central Asian tour for the formal commissioning of the 1,833-kilometer pipeline connecting gas fields in Turkmenistan, Uzbekistan and Kazakhstan (and possibly Russia) to China's Xinjiang Autonomous Region.

Turkmenistan says it alone can supply 40 billion cubic meters (bcm) of gas a year through the pipeline for three decades once it reaches full capacity. That is about half China's current annual consumption.

Uzbekistan signed an agreement with China in November last year to export up to 10 bcm gas a year. (A 2006 estimate put Uzbekistan's gas reserves at 1.8 trillion cubic meters.) A branch line of the Turkmen-China trunk pipeline passes through the town of Gazli, in the Bukhara region, where the Uzbek gas can be fed into it. China has invested in the Uzbek gas fields in the region. The Uzbek reserves are primarily concentrated in the Qashqadaryo province and near Bukhara alongside which the Chinese pipeline passes.

Kazakhstan is set to export another 10 bcm gas through another branch pipeline connection. China, which is preparing for a massive increase in consumption, wants natural gas to account for 10% of its energy mix by 2020, from 3% in 2005. China consumed 77.8 bcm of natural gas last year, a little more than its domestic output of 77.5 bcm. However, the nation faces a natural gas shortage of 70-110 bcm by 2020, according to the 2009 Energy Development Report published by the Chinese Academy of Social Science, an official think-tank. All China's gas imports are currently in the form of LNG and it is separately raising its LNG import capacity to 15 million to 18 million tons by the end of next year.

There was widespread skepticism among observers whether the Central Asia pipeline project would see the light of day. Indeed, China pushed ahead against Western views that last year's renewed unrest in Xinjiang put it at risk. "China is putting a lot of eggs in one basket,'' one British expert said. "An awful lot of oil and gas is coming through a small region. Looking now at trends in Xinjiang, you could ask whether a route from Central Asia is actually more secure than routes through Southeast Asia or the South China Sea."

The implication was obvious: that China's Central Asian pipeline could become a sitting duck for terrorists. As Robert Ebel, at the Center for Strategic and International Studies in Washington, put it, security could be impossible if the pipelines become targets as they pass through vast stretches of sparsely populated areas in Central Asia and Xinjiang. "There is no way you can protect a pipeline along its entire length. It just can't be done", Ebel, a security expert, maintained. Unrest in Xinjiang, particularly, threatens the Central Asian pipeline, he added. "I'm sure it's causing grey hairs on the people in Beijing," he said.

... sends shock waves to Washington

The American experts have drawn a doomsday scenario for the Chinese pipeline. Writing in the Central Asia & Caucasus Institute Analyst of Johns Hopkins University in October last year, Stephen Blank of the US War College branded Xinjiang as a "pressure cooker" which Beijing is nowhere near controlling.

Growing nervousness in Washington about the Chinese pipeline was quite palpable. The US Senate Foreign Relations Committee held a rare hearing in July regarding China's geopolitical thrust into the Central Asian region. Testifying at the hearing, Richard Morningstar, the US special envoy for energy, underlined that the US needed to develop strategies to compete with China for energy in Central Asia.

This was perhaps the first time that a senior US official has openly flagged China as the US's rival in the energy politics of Central Asia. US experts usually have focused attention on Russian dominance of the region's energy scene and worked for diminishing the Russian presence in the post-Soviet space by canvassing support for Trans-Caspian projects that bypassed Russian territory. In fact, some American experts on the region even argued that China was a potential US ally for isolating Russia.

Certainly, 2009 was a turning point in American discourses on Chinese policies in Central Asia. As China's Turkmen gas pipeline got closer to completion, US disquiet began to surface.

"China is having increasing and heavy influence in Central Asia,'' Morningstar said. ``It is hard for us [the US] to compete with China in some of these countries. It's easy for Turkmenistan to make a deal with China when China comes in and says, 'Hey, we're going to write a check for X amount of money, we're going to build a pipeline'. That's not a hard deal to accept, and we [US] can't compete in that way."

Morningstar put forward two suggestions. One, "to develop a strategy to deal with that [Chinese policy] and encourage the US companies to negotiate creatively with Turkmenistan". Two, Washington should also think about whether it makes sense for US companies to cooperate with China in such countries.

Scope for US-China cooperation over Central Asian energy resources is very limited. In geopolitical terms, there is a conflict of interest between the two countries. One principal objective of China is to lock in energy sources that are not dependent on supply routes passing through the Malacca Straits, which the US controls and could prove a choke point in the event of a US-China confrontation.

Besides, Morningstar himself put his finger on the crux of the problem. While it was good for China's energy-hungry economy to get "clean energy" such as natural gas, the "gas that goes to China competes with gas that could go westward".

Beijing raises the stakes ...

However, the US realizes that devising a counterstrategy to China's is easier said than done. China's presence in the Central Asian energy scene was not a single day's happening. Painstaking diplomacy spread over years went behind it. It was back in 1997 that Kazakhstan and China agreed to build a 3,000 km crude oil pipeline and would later double capacity to 20 million tonnes a year.

In 2005, CNPC International paid almost $4 billion for a 33% stake in PetroKazakhstan. The following year China bought up Kazakh oil assets worth nearly $2 billion in the Karazhanba oil and gas fields (which has proven reserves of more than 340 million barrels), agreed to purchase 30 bcm gas from Turkmenistan ((later increasing this to 40 bcm), and committed $210 million to look for oil and gas in Uzbekistan over the next five years.

In 2008, Kazakhstan and China agreed on jointly developing oil and gas reserves on the continental shelf of the Caspian Sea, while China's Guangdong Nuclear Power Co and Kazakhstan's state nuclear firm Kazatomprom agreed on boosting uranium output in their joint venture.

In April 2009, China made the mother of all energy deals by agreeing to lend Kazakhstan $10 billion in an unprecedented "loan-for-oil" deal and also agreed with state-owned KazMunaiGas to jointly buy oil producer MangistauMunaiGas for $3.3 billion.

In 2009, China also agreed to issue a $3 billion loan for developing the Central Asian state's largest gas field, South Iolotan, which is estimated to contain anywhere between 4 trillion and 14 trillion cubic meters of gas, according to Britain's Gaffney, Cline and Associates - making it one of the world's five largest gas deposits.

By the time the US woke up to China having a clear energy strategy for Central Asia, the strategy was already working. Western calculations went awry in two directions. First, they estimated that, in the ultimate analysis, Central Asian states would be wary of dealing with their giant neighbor and prefer Russia and the West. Second, they blindly assumed that Russia in any case was bound to perceive the Chinese gains as a threat to its own strategic interests and would therefore resist and checkmate Beijing at some stage, indirectly serving Western interests.

To the dismay of the West, not only have the Central Asian states warmed to Chinese overtures, but they are basking in all the Chinese attention and relishing the harder bargains they are able to strike in negotiating prices and contracts with Western companies.


Again, China's engagement in Central Asia has been comprehensive and not confined to oil and gas. Central Asians have been seeking precisely such input from foreign countries as Nazarbayev voiced in Astana. Speaking to Chinese media in Ashgabat on the eve of Hu's arrival for the commissioning of the gas pipeline on December 14, Turkmen President Gurbanguly Berdymukhamedov highlighted repeatedly how his country's relations with China have become "multi-faceted".

"They now cover all major areas - politics, economy, trade, culture, science, education,'' Berdymukhamedov said. "And, so, of course, there are a lot of topics for discussion during our meeting with the president of China. The main thing is that they all have a positive context, the very favorable background as the basis for negotiations, and their starting position on both sides favors complete mutual understanding and trust, equality and respect, unity of views on key issues of world politics and bilateral relations."

Western experts often speak in a dismissive tone that the Central Asians prefer the Chinese because they never raise difficult issues such as democracy and human rights. But this is far too simplistic a reading. Central Asian countries see Western discourse on democracy and human rights as doublespeak from countries that pander to authoritarian regimes without scruples when it suits their business interests.

Central Asian countries draw satisfaction that eventually Washington is no more trampling on the region's sensitivities and ethos. The fashion in which Uzbekistan taught an enduring lesson to the European Union and the US regarding mutual respect and equitable relationship was widely noted in the region's capitals.

But that is only part of the story. The main thing is that China has reset the terms of the West's engagement with Central Asia. Western countries need to negotiate hard with Central Asian interlocutors squarely. Secondly, while they are under compulsion to abandon the cherry-picking approach they once took - touching the region's precious minerals and shying away from any further involvement such as in the manufacturing sector or agriculture - the ground rules of engagement that Nazarbayev spelt out at the investors' forum in Astana give a foretaste of what is to come.

China's track record in Turkmenistan displays the new standards for the west. China-Turkmenistan trade has jumped 40 times since 2000; 35 enterprises are working in Turkmenistan today with Chinese capital. Chinese companies are active in sectors of the Turkmen economy as diverse as oil and gas, telecommunications, transport, agriculture, textile, chemical and food industries, healthcare and construction.

From Ashgabat's point of view, China's interest in comprehensive engagement with the Turkmen political economy stands in contrast with the predatory instincts of the Western companies that zero in on the mineral industry with maniacal zeal. Certainly, in the process, China also ends up taking a big share of the Turkmen energy sector.

... but reassures Moscow

The second aspect to be noted is that with the commencement of China's Central Asia pipeline, Russia's post-Soviet control of gas exports from Central Asia has ended. The American commentators have tried to propagate this in terms of China's gain turning out to be Russia's loss. But it isn't quite a zero-sum game in that sense. Beijing has been unusually forthright in discussing the delicate issue of whether China is locked into competition with Russia over Central Asia's energy.

"China is pursuing diversification of energy imports, while the Central Asian countries are pursuing diversification of exports,'' said Zhang Xiyuan, the Chinese foreign ministry official briefing the press on Hu's visit to Ashgabat. "This kind of cooperation will naturally continue and has room to develop."

In other words, China's cooperation with Central Asia rests on a convergence of mutual interests. Chinese commentaries have stressed that "export diversification" as a strategic option has became necessary for Central Asian countries after the financial crisis and as European countries' demand for the region's natural gas has decreased.

Pan Guang, director of the Shanghai Center for International Studies and a prominent scholar, says China's "huge foreign-exchange purchasing capacity and advantageous geographical position is extremely attractive" to the gas exporters of Central Asia. China's energy cooperation will also promote development of non-energy industries in the region such as chemical, agricultural, transport infrastructure construction and light industries, according to the Chinese analysts. Russia's security interests would also be served, as unemployment, a root of instability, will be cut, they said.

Taking all factors into account, therefore, the People's Daily newspaper concluded that the Chinese pipeline was an opportunity for Russia.

"Some people in Russia are concerned and media agencies have exaggerated the event to attract public attention, asserting that China will become Russia's major strategic competitor in the Central Asian energy industry,'' the newspaper said. "In fact, it is not the case.

"Experts believe that the pipeline can transport natural gas produced both in Turkmenistan and in Russia ... [the] China-Russia pipeline mainly transports oil and natural gas produced in the eastern Siberian region. It is difficult to transport natural gas produced in both the western Siberian region and Russia's European part, so the China-Central Asia natural gas pipeline will perhaps act as a 'key' to addressing the issue.

"In addition, the natural gas cooperation between China and Central Asia is open and non-exclusive, and does not seize Russia's market or compete with Russia for resources," the People's Daily said.

In essence, the Chinese argument is that while the Turkmen-Uzbek-Kazakh pipeline possibly makes inroads into Europe's energy options it won't hurt Russia's interests. The argument is well founded. With the commissioning of the Turkmen gas pipeline, there is no doubt that US and European energy diplomacy in Central Asia has been rendered a lethal body blow.

Through one mega project, Beijing has what Moscow has been striving for over a decade with a piecemeal approach. The European Union's chances of winning Turkmen supplies for its US-backed Nabucco pipeline project (connecting the Caspian with southern Europe) now seem severely diminished. Moscow can heave a sigh of relief, as the Nabucco project planned to cut Russia out of Europe's direct gas trade with the Caspian.

Therefore, if there is a zero-sum game, it is like this: China's gain is Europe's loss, which in turn can be Russia's gain since Russian gas is now certain to remain Europe's main energy source for the foreseeable future. Needless to say, Europe's continued dependence on Russian energy constitutes a vital chip for Moscow in its efforts to forge partnerships with major European countries.

Indeed, Russia can now advance its ambitious North Stream and South Stream gas pipelines to Europe without constantly having to look over its shoulder for competition from rival US-backed Trans-Caspian pipelines such as Nabucco.

Again, the US and Europe couldn't have missed the Chinese warning that Beijing intends to make a serious bid at some time for the Russian gas produced in its western Siberian region as well as its European part (which are at present the principal sources of supply for Europe). In effect, China has projected itself as a competing consumer of Russian gas.

All in all, the Chinese pipeline considerably strengthens Russia's stance. This probably explains the quiet satisfaction in Russian Prime Minister Vladimir Putin's voice when he was asked about the implications of the Turkmenistan-China gas pipeline.

"The commissioning of the Turkmenistan-China pipeline is not going to affect our plans to expand our own pipeline network, which could possibly also reach China,'' Putin said. "I am referring to China's growing consumption of primary energy resources. We maintain regular, close contact with our Chinese colleagues on this issue. We know how fast the demand is growing there, and they too are closely monitoring the situation. The gas link to Turkmenistan will not undermine our plans."

Most important, the "loss" of Turkmen gas for Nabucco means that the project itself now critically depends on sourcing Iranian gas. In other words, Iran figures prominently in any serious European plans (strongly backed by the US) to diversify its gas imports so as to cut down dependence on Russian energy supplies.

US draws Central Asia into AfPak ...
To be sure, 2009 will be noted by historians as a landmark year for Central Asian security. For the first time in the post-Soviet period, a truly regional project has taken shape in Central Asia. It is a novel experience for a region torn asunder by numerous intra-regional tensions, irritants and misunderstandings - be it over water-sharing, Islamists, the environment or the "great game". This was underscored by the presence of the presidents of Turkmenistan, Uzbekistan and Kazakhstan at the ceremony launching the Turkmen gas pipeline project.

It cannot be lost on the Central Asian elites that China has made such a high level of regional cooperation possible. Hu in his speech at the ceremony cited the Turkmen pipeline as a model of regional cooperation. China is reaping the benefit of some 15 years of patient, painstaking diplomacy. It will now be a Herculean task for the West to whip up Sinophobia among the Central Asians.

At the same time, China is assuming an enormous responsibility in the region as at no time previously. The gas pipeline makes China a "stakeholder" in Central Asian security. The bond now goes far beyond fighting the three forces of "terrorism, separatism and extremism", which was how China focused its phenomenally successful diplomacy in the mid-1990s.

Looking ahead, the coming year will see the US intensify efforts to counter China's influence in Central Asia. The alarm bells are ringing in Washington. At the US Senate Foreign Relations Subcommittee special hearing on Central Asia on December 15, George Krol, the deputy assistant secretary of state for South and Central Asian affairs, said: "This administration does not consider Central Asia a forgotten backwater, peripheral to US interests. The region is at the fulcrum of key US security, economic, and political interests. It demands attention and respect and our most diligent efforts and the Obama administration [is committed] to this very approach." [Emphasis added.]

Never before has an American official stated US intentions towards post-Soviet Central Asia in such strong words. Indeed, there is an implied warning to Beijing that the US is watching its forays into the region closely and will not let them pass without challenge.

From present indications, the US attempt is to widen the gyre of its AfPak strategy so as to draw the Central Asian region into it. In empirical terms, a case already exists for including the region in the AfPak strategy. For one thing, the Northern Corridor for supply of the North Atlantic Treaty Organization (NATO) contingents in Afghanistan and the sourcing of materials from the region for Afghan reconstruction already make the regional governments important collaborators in the war effort.

The increased presence of NATO troops in Afghanistan can only lead to a bigger role for Central Asian countries that is bound to bring them into a closer working relationship. There is also reason to believe that the Afghan war has already spilt over to Central Asia. The exact background to this remains open to interpretation but the fact is that there has been a spurt in militant activities in Central Asia (and Xinjiang).

Deputy Assistant Secretary Krol framed it diplomatically by underlining that a policy priority of the US will be "to expand cooperation with the Central Asian states to assist coalition efforts to defeat extremists in Afghanistan and Pakistan and bring stability and prosperity to the region". This goes hand in hand with the effort to "increase the development and diversification of the region's energy resources and supply routes".

Potential threats that could come from Central Asia, apart from the possibility of "state failure" would compel the US to pay close attention to the region, Krol said. He also invoked archetypal fears about terrorists getting hold of weapons of mass destruction, which has proved a useful argument for substantiating US intervention in Iraq and Afghanistan.

"While these [Central Asian] countries voluntarily relinquished their nuclear arsenals after the fall of the Soviet Union, today the region is still engaged in activities relevant to the proliferation of weapons of mass destruction, namely, uranium mining, plutonium production and the fabrication and testing of biological and chemical weapons," Krol said.

In a measure of US determination to place itself in a lead role in Central Asia, the Obama administration has announced the constitution of a new framework of annual high-level bilateral dialogue with each of the region's countries.

... as it runs out of options

US interests would have been best served if Russia and China were at loggerheads in Central Asia. But that does not seem to be the way things are happening.

Moscow looks favorably on China's investments in Central Asia, according to Stephen Blank of the US War College. "By opening the RFE [Russian Far East] to Chinese investment and blessing similar investments in Central Asia, Moscow is reversing its policies toward both the Far East and Central Asia,'' Blank wrote in August. "In effect, this and other similar deals open the door to a huge expansion - with Moscow's assent - of China's strategic profile in both regions. The creation of a new regional order in the RFE and Central Asia is beginning to take shape and China is set to become the region's security manager, ensuring foremost that its portfolio investments are safe and secure."

The shift in the Kremlin's traditional policy with regard to the RFE has been necessitated largely by the downturn in the Russian economy following the global economic crisis and the sharp drop in oil revenue. Moscow was pursuing a policy aimed at developing the RFE and eastern Siberia almost exclusively through revenues from energy exports to Europe. But with the slackening energy demand in the European market and sharply reduced income from exports, the Kremlin cannot sustain the pursuit of such a dogged policy option anymore. It has been compelled to rethink.

This was evident in May when Russian President Dmitry Medvedev admitted that the development of the RFE needed to be coordinated with Beijing's regional strategy of rejuvenating northeast China's dilapidated industrial base. Unsurprisingly, the Russian policy shift also implies the jettisoning of any attempt to prevent Chinese economic penetration of Central Asia.

Secondly, Moscow faces difficulty in underwriting the security and stability of the Central Asian region on its own steam. This is despite the region's direct impact on Russia's national security interests. At the same time, Moscow has a congruence of interests with China in forestalling NATO's expansion into the Central Asia's security. The interplay of these factors encourages Moscow to regard favorably the stepping up of Chinese involvement in Central Asia.

Of course, writings appear in the Russian media occasionally about China's economic "conquest" of Central Asia, but official policy does not seem to encourage such a perspective. The new thinking in Moscow with regard to Chinese investments in RFE and Central Asia may have already begun to pay off. Medvedev claimed during a visit by Hu to Moscow in June that Russia and China had clinched deals worth $100 billion by a "special mechanism" facilitating massive Chinese investments in regional projects. It is going to be very difficult for the US to disrupt these plans. As Blank put it: "For all those who are watching for the emergence of China as a dominant economic and political player in Asia, these new deals with Russia have a profound significance that we overlook at our peril."

China has the huge advantage of financial muscle. It can simply outspend the US or European countries. Short of stoking the fires of militancy and ethnic unrest in Xinjiang, the US may have run out of options to disrupt China's emerging leadership in Central Asia. On its part, Beijing knows that the stability of Xinjiang is crucial for China's Central Asia policy - and vice versa. The two have become inextricably linked in the Chinese regional strategy.

Beijing knows that "foreign devils on the Silk Road" - militant groups with foreign backers - can harass China by blowing up long stretches of the pipelines which are impractical for Beijing to protect in Xinjiang's vast mountains and deserts. That is one solid reason why Beijing has not been taken in by the US overtures for cooperation in Afghanistan nor is enamored by Obama's standing invitation to step into South Asia as the arbiter of peace and regional security.

Beijing is extremely wary of the hidden intentions behind the Afghan strategy Obama recently unveiled. In fact, Chinese criticism of the US troop surge in Afghanistan has become quite forceful lately. Last Thursday, the People's Daily wrote:

Yes, sometimes history does recur ... The shadow of the Vietnam War even now still hovers ... what unfolds is replicating the model in Iraq, and further back, in Vietnam.

The war-torn Afghan population will not side with the slumbering Karzai government nor will they welcome the US presence. On the other hand, the bigger footprint made by the enhanced US troops and its NATO allies only help fuel the insurgency and trigger more fierce resistance ... Taliban dies hard.

The predicament facing the US and the one-year old Obama administration is that at the time, there seems no policy that can reverse the undoing in Afghanistan, even with more troops and better-placed tactics. But the young president will try whatever he can to steer clear of the pitfall that would turn the superpower into an occupying power.

China (and Russia) have reason to be on guard that Obama's Afghan surge and the new strategy as a whole essentially aim at pursuing longstanding US strategic interests of controlling Central Asia and containing Russia and China through "soft power" - methods different from those of the previous US administrations. Clearly, the Russian-Chinese cooperation in Central Asia factors in the US game plan in the Hindu Kush, which is shrouded in mystery. Having said that, China will also find it worrisome that Russia tends to speak in two voices at times about its ties with NATO within the "reset" of relations with the US.

The specter of an open-ended US military presence in the region haunts China. After all, China was the US's accomplice against the Soviet Union in the Afghan jihad in the 1980s and should know that Washington has myriad ways to make use of radical and extremist elements as instruments of geopolitics. China can see right in front of its eyes the horrible example of its "all-weather friend" Pakistan, which by associating with US strategy in Afghanistan has been dragged into the vortex of instability and become the target of religious extremists and militants.

Ambassador M K Bhadrakumar was a career diplomat in the Indian Foreign Service. His assignments included the Soviet Union, South Korea, Sri Lanka, Germany, Afghanistan, Pakistan, Uzbekistan, Kuwait and Turkey.

 

[huzihaidao12]

Diversification of energy sources is good. Central Asia is more close range, therefore cheaper, but our relationship with Iran or Saudi Arabia is very good, and oil imports will not be a big problem, the only problem may be the United States?

 

[mike05]

I think China is on the right path by building all these high speed railways while steel and abundant oil is still available. Once oil prices skyrocket taking the HSR will be the best means of transport especially since they can be powered by nuclear energy of equivalent forms of clean energy.

As said by a Chinese engineer roads (Transportation) are like the blood veins of a nation, without them the nation cannot move forward. (No source quoted from a BBC documentary)

 

[muse]

Well there is a lot to go over but one of the things that stands out for me is that with these overland pipelines, China deprives those who may seek advantage over her, of using the choke points of straights of Hormuz and Malacca straights - in other words, those large navies, may not have been as good an investment as first thought - secondly, with the overland pipelines, China engages her neighbors in a very different manner, that is to say, it gets a chance to employ "development as foreign policy" -- is there a lesson in this for others?

Look for instance at how the Turkomen saw the Chinese policy/business model and contrasted it with the Western model?

And while all the talk of alternatives is good and fine and green and all that - reality is that fossil fuels deliver bank for the buck, so to speak, they are economical and technology that uses energy has been developed specifically to use fossil fuel -- alternatives is a very , very, very large project, it is an entire paradigm shift, a shift in technology, in thinking and behavior, in other words, not cheap to effect. And if it's really that good and so possible, why isn't the West leading in that effort?? Not cheap!

 

[mike05]

Well there is a lot to go over but one of the things that stands out for me is that with these overland pipelines, China deprives those who may seek advantage over her, of using the choke points of straights of Hormuz and Malacca straights - in other words, those large navies, may not have been as good an investment as first thought - secondly, with the overland pipelines, China engages her neighbors in a very different manner, that is to say, it gets a chance to employ "development as foreign policy" -- is there a lesson in this for others?

Look for instance at how the Turkomen saw the Chinese policy/business model and contrasted it with the Western model?

Sorry mate I'm not familiar with the policies that make up the above so I leave it for someone else to reply or I'll risk looking like a fool

And while all the talk of alternatives is good and fine and green and all that - reality is that fossil fuels deliver bank for the buck, so to speak, they are economical and technology that uses energy has been developed specifically to use fossil fuel -- alternatives is a very , very, very large project, it is an entire paradigm shift, a shift in technology, in thinking and behavior, in other words, not cheap to effect. And if it's really that good and so possible, why isn't the West leading in that effort?? Not cheap!

Chinese usually like to plan for the long term, no doubt oil is still the best and cheapest form of energy but we have witness what happens when oil hits the 100> level and this plus some events around the world already indicates demand for oil is exceeding supply. Currently most governments in developing countries subsidizes the price of petrol to keep the population happy assuming say in 10 years time oil does hit the levels we saw in 08 and does not come down subsidies will have to be reduced and the population will need an alternative form of transportation. HSR at least can be run on electricity powered by Nuclear which is a viable source once the infrastructure has been put in.

Price of oil impacts the entire supply chain everything from steel prices to food prices. Large projects to shift away from this paradigm may not be cheap but it is a lot cheaper now then say in 10 - 15 years time thats for sure.

 

[cloneman]

Very informative articles and its a good thread.Thanks,Pakistani friends.

 

[cloneman]

Well there is a lot to go over but one of the things that stands out for me is that with these overland pipelines, China deprives those who may seek advantage over her, of using the choke points of straights of Hormuz and Malacca straights - in other words, those large navies, may not have been as good an investment as first thought - secondly, with the overland pipelines, China engages her neighbors in a very different manner, that is to say, it gets a chance to employ "development as foreign policy" -- is there a lesson in this for others?

Look for instance at how the Turkomen saw the Chinese policy/business model and contrasted it with the Western model?

And while all the talk of alternatives is good and fine and green and all that - reality is that fossil fuels deliver bank for the buck, so to speak, they are economical and technology that uses energy has been developed specifically to use fossil fuel -- alternatives is a very , very, very large project, it is an entire paradigm shift, a shift in technology, in thinking and behavior, in other words, not cheap to effect. And if it's really that good and so possible, why isn't the West leading in that effort?? Not cheap!

I agree with most of the points here,but I dont think China is systematically exporting a developing model. And I dont think the current Chinese developing model is perfect, acturally its far from it. The only country that fully copied the Chinese developing model is the Vietam. It looks successful and their economy developed for a decade over annual 8% increasement. It could be explaned as that they have similar political systerm,culture and background with China.For the central Asian countries,I dont know if it will be succeful if they learn something from China.

 

[muse]

Clone

I think you may have misunderstood what I am referring to -- I'm not suggesting exporting China's internal model - what I am referring to is the use of "Development" as a instrument of foreign policy:

China's presence in the Central Asian energy scene was not a single day's happening. Painstaking diplomacy spread over years went behind it. It was back in 1997 that Kazakhstan and China agreed to build a 3,000 km crude oil pipeline and would later double capacity to 20 million tonnes a year.

In 2005, CNPC International paid almost $4 billion for a 33% stake in PetroKazakhstan. The following year China bought up Kazakh oil assets worth nearly $2 billion in the Karazhanba oil and gas fields (which has proven reserves of more than 340 million barrels), agreed to purchase 30 bcm gas from Turkmenistan ((later increasing this to 40 bcm), and committed $210 million to look for oil and gas in Uzbekistan over the next five years.

In 2008, Kazakhstan and China agreed on jointly developing oil and gas reserves on the continental shelf of the Caspian Sea, while China's Guangdong Nuclear Power Co and Kazakhstan's state nuclear firm Kazatomprom agreed on boosting uranium output in their joint venture.

In April 2009, China made the mother of all energy deals by agreeing to lend Kazakhstan $10 billion in an unprecedented "loan-for-oil" deal and also agreed with state-owned KazMunaiGas to jointly buy oil producer MangistauMunaiGas for $3.3 billion.

In 2009, China also agreed to issue a $3 billion loan for developing the Central Asian state's largest gas field, South Iolotan, which is estimated to contain anywhere between 4 trillion and 14 trillion cubic meters of gas, according to Britain's Gaffney, Cline and Associates - making it one of the world's five largest gas deposits.

By the time the US woke up to China having a clear energy strategy for Central Asia, the strategy was already working. Western calculations went awry in two directions. First, they estimated that, in the ultimate analysis, Central Asian states would be wary of dealing with their giant neighbor and prefer Russia and the West. Second, they blindly assumed that Russia in any case was bound to perceive the Chinese gains as a threat to its own strategic interests and would therefore resist and checkmate Beijing at some stage, indirectly serving Western interests.

To the dismay of the West, not only have the Central Asian states warmed to Chinese overtures, but they are basking in all the Chinese attention and relishing the harder bargains they are able to strike in negotiating prices and contracts with Western companies.


Again, China's engagement in Central Asia has been comprehensive and not confined to oil and gas. Central Asians have been seeking precisely such input from foreign countries as Nazarbayev voiced in Astana. Speaking to Chinese media in Ashgabat on the eve of Hu's arrival for the commissioning of the gas pipeline on December 14, Turkmen President Gurbanguly Berdymukhamedov highlighted repeatedly how his country's relations with China have become "multi-faceted".

"They now cover all major areas - politics, economy, trade, culture, science, education,'' Berdymukhamedov said. "And, so, of course, there are a lot of topics for discussion during our meeting with the president of China. The main thing is that they all have a positive context, the very favorable background as the basis for negotiations, and their starting position on both sides favors complete mutual understanding and trust, equality and respect, unity of views on key issues of world politics and bilateral relations."

Notice the long term developmental focus and the win-win formulation - see, in the end, all people want a materially better, dignified life.

You will notice that the author does acknowledge the US rebuttal or rather misrepresentation:

It is hard for us [the US] to compete with China in some of these countries. It's easy for Turkmenistan to make a deal with China when China comes in and says, 'Hey, we're going to write a check for X amount of money, we're going to build a pipeline'. That's not a hard deal to accept, and we [US] can't compete in that way."

This feeble attempt at misrepresentation is sad - it shows that that they still don't get it - because if any country could have made such a policy work, it would have been the US, but reality is that it choose not to engage in that manner - why? Because "win-win" is not a formulation it thought it needed, it is not used to such thinking, it is out of touch with what the world wants of it - and that's tragic because the US apart from the view as competing power, is a great country and society, just really really lost it's way and must pay a heavy cost.

 

[manava]

i think china should develop more of high tech technology along with other developing countries .. so that we can reduce our dependence on Oil ... for example cheap high tech electric cars.... and generating high tech solar panels and biomass plant with can produce electricity street wise for lighting homes around that street and houses around that street.. these kind of innovative things can be done by china which USA couldn't do because of oil lobby... guys in my country government taxes almost 50% for petrol and diesel... so these so called democratic governments cannot take out these things.. and china can lead us on this front ..

 

[muse]

These kind of innovative things can be done by china which USA couldn't do because of oil lobby...

Can you back up the claim that the "oil lobby" in the USA is preventing investing in alternate sources of energy including non-fossil fuel energy??

See, I don't think you'll be able to do that because it's just not so --

guys in my country government taxes almost 50% for petrol and diesel... so these so called democratic governments cannot take out these things.. and china can lead us on this front .

I want you to think about all the other technological changes that would have to be brought about with when a switch from one source and kind of energy is made to another -- now China has financial resources but is it wise to expend them as some are advocating? I don't think so -- First, where if not in the USA is there the technological know how and financial imperative to develop alternate sources of energy?? So, why isn't it being done more vigorously?? Why if such a change is around the corner are countries scrambling for chunks of the Arctic and Antarctic? And if these are successful, what other areas may become open to "claims" by Europeans and such, as if this were not the 21st but the 15th century?

There is no reason for China to take a lead, certainly, the sciences should be fully developed, but economic and geostrateic imperatives should be considered equally.

 

[cloneman]

Clone

I think you may have misunderstood what I am referring to -- I'm not suggesting exporting China's internal model - what I am referring to is the use of "Development" as a instrument of foreign policy:




Notice the long term developmental focus and the win-win formulation - see, in the end, all people want a materially better, dignified life.

You will notice that the author does acknowledge the US rebuttal or rather misrepresentation:



This feeble attempt at misrepresentation is sad - it shows that that they still don't get it - because if any country could have made such a policy work, it would have been the US, but reality is that it choose not to engage in that manner - why? Because "win-win" is not a formulation it thought it needed, it is not used to such thinking, it is out of touch with what the world wants of it - and that's tragic because the US apart from the view as competing power, is a great country and society, just really really lost it's way and must pay a heavy cost.

Mm,its hard to say that.I think for the Chinese goverment,the primary target is to get stable oil supply.A few places on this planet has oil reserve and we dont have too many choices.For example in central Asia,we cant say:well,Kazakhstan is a friendlly country,lets give them more money and import more oil from them than other central Asian counties. Its somehow that if you have oil and want to sell it to me,I will buy it.

 

[cloneman]

i think china should develop more of high tech technology along with other developing countries .. so that we can reduce our dependence on Oil ... for example cheap high tech electric cars.... and generating high tech solar panels and biomass plant with can produce electricity street wise for lighting homes around that street and houses around that street.. these kind of innovative things can be done by china which USA couldn't do because of oil lobby... guys in my country government taxes almost 50% for petrol and diesel... so these so called democratic governments cannot take out these things.. and china can lead us on this front ..

US is a leading power in clean energy,second the EU.China is good at massive manufaction of clean energy related products.And the US has strong intention to have an energy revolution,dont under-estimate their ability.

 

[cloneman]

China Leading Global Race to Make Clean Energy


Link http://www.nytimes.com/2010/01/31/business/energy-environment/31renew.html?pagewanted=1&_r=1
TIANJIN, China — China vaulted past competitors in Denmark, Germany, Spain and the United States last year to become the world’s largest maker of wind turbines, and is poised to expand even further this year.
China has also leapfrogged the West in the last two years to emerge as the world’s largest manufacturer of solar panels. And the country is pushing equally hard to build nuclear reactors and the most efficient types of coal power plants.

These efforts to dominate renewable energy technologies raise the prospect that the West may someday trade its dependence on oil from the Mideast for a reliance on solar panels, wind turbines and other gear manufactured in China.

“Most of the energy equipment will carry a brass plate, ‘Made in China,’ ” said K. K. Chan, the chief executive of Nature Elements Capital, a private equity fund in Beijing that focuses on renewable energy.

President Obama, in his State of the Union speech last week, sounded an alarm that the United States was falling behind other countries, especially China, on energy. “I do not accept a future where the jobs and industries of tomorrow take root beyond our borders — and I know you don’t either,” he told Congress.

The United States and other countries are offering incentives to develop their own renewable energy industries, and Mr. Obama called for redoubling American efforts. Yet many Western and Chinese executives expect China to prevail in the energy-technology race.

Multinational corporations are responding to the rapid growth of China’s market by building big, state-of-the-art factories in China. Vestas of Denmark has just erected the world’s biggest wind turbine manufacturing complex here in northeastern China, and transferred the technology to build the latest electronic controls and generators.

“You have to move fast with the market,” said Jens Tommerup, the president of Vestas China. “Nobody has ever seen such fast development in a wind market.”

Renewable energy industries here are adding jobs rapidly, reaching 1.12 million in 2008 and climbing by 100,000 a year, according to the government-backed Chinese Renewable Energy Industries Association.

Yet renewable energy may be doing more for China’s economy than for the environment. Total power generation in China is on track to pass the United States in 2012 — and most of the added capacity will still be from coal.

China intends for wind, solar and biomass energy to represent 8 percent of its electricity generation capacity by 2020. That compares with less than 4 percent now in China and the United States. Coal will still represent two-thirds of China’s capacity in 2020, and nuclear and hydropower most of the rest.

As China seeks to dominate energy-equipment exports, it has the advantage of being the world’s largest market for power equipment. The government spends heavily to upgrade the electricity grid, committing $45 billion in 2009 alone. State-owned banks provide generous financing.

China’s top leaders are intensely focused on energy policy: on Wednesday, the government announced the creation of a National Energy Commission composed of cabinet ministers as a “superministry” led by Prime Minister Wen Jiabao himself.

Regulators have set mandates for power generation companies to use more renewable energy. Generous subsidies for consumers to install their own solar panels or solar water heaters have produced flurries of activity on rooftops across China.

China’s biggest advantage may be its domestic demand for electricity, rising 15 percent a year. To meet demand in the coming decade, according to statistics from the International Energy Agency, China will need to add nearly nine times as much electricity generation capacity as the United States will.

So while Americans are used to thinking of themselves as having the world’s largest market in many industries, China’s market for power equipment dwarfs that of the United States, even though the American market is more mature. That means Chinese producers enjoy enormous efficiencies from large-scale production.

In the United States, power companies frequently face a choice between buying renewable energy equipment or continuing to operate fossil-fuel-fired power plants that have already been built and paid for. In China, power companies have to buy lots of new equipment anyway, and alternative energy, particularly wind and nuclear, is increasingly priced competitively.

Interest rates as low as 2 percent for bank loans — the result of a savings rate of 40 percent and a government policy of steering loans to renewable energy — have also made a big difference.

As in many other industries, China’s low labor costs are an advantage in energy. Although Chinese wages have risen sharply in the last five years, Vestas still pays assembly line workers here only $4,100 a year.
China’s commitment to renewable energy is expensive. Although costs are falling steeply through mass production, wind energy is still 20 to 40 percent more expensive than coal-fired power. Solar power is still at least twice as expensive as coal.
The Chinese government charges a renewable energy fee to all electricity users. The fee increases residential electricity bills by 0.25 percent to 0.4 percent. For industrial users of electricity, the fee doubled in November to roughly 0.8 percent of the electricity bill.

The fee revenue goes to companies that operate the electricity grid, to make up the cost difference between renewable energy and coal-fired power.

Renewable energy fees are not yet high enough to affect China’s competitiveness even in energy-intensive industries, said the chairman of a Chinese industrial company, who asked not to be identified because of the political sensitivity of electricity rates in China.

Grid operators are unhappy. They are reimbursed for the extra cost of buying renewable energy instead of coal-fired power, but not for the formidable cost of building power lines to wind turbines and other renewable energy producers, many of them in remote, windswept areas. Transmission losses are high for sending power over long distances to cities, and nearly a third of China’s wind turbines are not yet connected to the national grid.

Most of these turbines were built only in the last year, however, and grid construction has not caught up. Under legislation passed by the Chinese legislature on Dec. 26, a grid operator that does not connect a renewable energy operation to the grid must pay that operation twice the value of the electricity that cannot be distributed.

With prices tumbling, China’s wind and solar industries are increasingly looking to sell equipment abroad — and facing complaints by Western companies that they have unfair advantages. When a Chinese company reached a deal in November to supply turbines for a big wind farm in Texas, there were calls in Congress to halt federal spending on imported equipment.

“Every country, including the United States and in Europe, wants a low cost of renewable energy,” said Ma Lingjuan, deputy managing director of China’s renewable energy association. “Now China has reached that level, but it gets criticized by the rest of the world.”