[Vacets-local-dc] [FYI: China fuels energy cold war]

[Hai Tran]

Hello,

Guess what? If China needs oil and natural gas for economic
development and cannot get enough from other sources, what will they
do with the oil and gas in the Paracel (Hoang Sa) and Spratly (Truong
Sa) archipelagos?

The Chinese will not hesitate to start a war to grab it! What will the
European countries and America do? NOTHING!

The communist rulers in Vietnam have already made up their minds about
submission to China to be guaranteed political power monoply. Just
look at the way they reacted to the Chinese navy's killing of 9
fishermen in the Gulf of Tonkin on January 8: they suppressed the news
about the incident; when the students were planning a demonstration in
front of the Chinese embassy in Hanoi, these students were picked up
by security police.

Now, there is nothing on their web sites or in their print media about
the incident.

The cadres and and the rich have already sent their children and their
assets abroad. When the time comes, they will come knocking for
political asylum.

And that's the end of Vietnam as we know it!


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Asia Times Online
March 2, 2005 

China fuels energy cold war
By Chietigj Bajpaee 

HONG KONG - A notable feature of 2004 was the volatility in oil prices
- New York light sweet crude prices reached a peak of US$55.67 on
October 25, ending the year up 33.6% at $43.45 per barrel. While a
number of supply-side and supply-chain factors have contributed to
this situation, the most significant long-term factor contributing to
rising oil prices is an increase in Asian demand, most notably from
China. China's unprecedented growth not only makes it a driver of a
long-term increase in energy prices, but also the most vulnerable to
rising oil prices.

China, which has been a net oil importer since 1993, is the world's
number two oil consumer after the US and has accounted for 40% of the
world's crude oil demand growth since 2000. China's proven oil
reserves stand at 18 trillion barrels, and oil imports account for
one-third of its crude oil consumption.

China has initiated numerous policies to cope with its increasing
energy needs, including stepping up exploration activities within its
own borders, diversifying beyond oil to access other energy resources,
such as nuclear power, coal, natural gas and renewable energy
resources, promoting energy conservation and encouraging investment
into energy-friendly technologies such as hydrogen-powered fuel cells
and coal gasification.

China has also joined the United States and Japan in developing
strategic petroleum reserves, with the creation of 75 days of
emergency reserves in four locations in Zhejiang, Shandong and
Liaoning provinces.

Nevertheless, in the face of sporadic power shortages, growing car
ownership and air travel across China and the importance of energy to
strategically important and growing industries such as agriculture,
construction, and steel and cement manufacturing, pressure is going to
mount on China to access energy resources on the world stage.

As a result, energy security has become an area of vital importance to
China's stability and security. China is stepping up efforts to secure
sea lanes and transport routes that are vital for oil shipments, and
diversifying beyond the volatile Middle East to find energy resources
in other regions, such as Africa, the Caspian, Russia, the Americas
and the East and South China Sea region.

However, just as China has for centuries engaged in competition for
leadership of Asia, the developing world and status on the world
stage, so the need for energy security has now raised the possibility
of further competition and confrontation in the energy sphere.

This competition has so far been limited to the economic sphere
through state-owned oil and gas companies such as China Petroleum &
Chemical Corporation (Sinopec), China National Petroleum Corporation
(CNPC), its subsidiary PetroChina and China National Offshore Oil
Corporation. However, as oil prices rise and China imports an
increasing amount of its energy needs, the competition is likely to
spill over into the political and military spheres. There are already
indications of this.

China's quest for energy resources on the world stage is creating a
destabilizing effect on international and regional security. Fueled by
the lack of a coherent multilateral approach to energy security in
Asia and by China's already tense relations with neighboring states,
the competition for energy resources may prove to be the spark for
regional and international conflict. In many cases, China is vying for
energy resources in some of the most unstable parts of the world. Its
involvement in regions with raging conflicts could potentially draw it
into the disputes, escalating a regional conflict into an
international conflict.

Sino-Japanese energy competition
While Sino-Japanese trade has reached unprecedented levels in recent
years, the economic progress could be unraveled by political and
military confrontation, and by energy competition. China continues to
have tense relations with Japan as a result of a number of issues.
These issues include, but are not limited to, Chinese opposition to a
Japanese permanent seat on the United Nations Security Council, former
Taiwanese president Lee Teng Hui's visit to Japan at the end of 2004,
and Japanese Prime Minister Junichiro Koizumi's annual visits to the
Yasukuni Shrine that honors Japan's war dead, including 14 Class A war
criminals.

There has also been discussion in Japan about cutting its overseas
development assistance to China in the presence of China's improving
standard of living, high growth levels and confrontational relations
with Japan. These tensions are likely to be further enflamed by both
states' quest for energy security. Both states are net oil importers,
with Japan importing as much as 80% of its oil needs.

In an attempt to access energy resources closer to home and
diversifying beyond the Middle East, Japan and China have been
actively lobbying Moscow for an oil pipeline. Beijing is pushing for a
2,400 kilometer route from Angarsk in Siberia to Daqing in China's
northeast Heilongjiang province, while Tokyo favors a 4,000 kilometer
pipeline from Taishet to the Pacific port of Nakhodka.

The Japanese-backed proposal was announced the winner at the end of
2004. However, with the sometimes tense relations between Japan and
Russia, as seen most recently over Koizumi's sail around the disputed
Northern Territories/ Southern Kurils on September 2, and Japan and
Russia not having signed a formal peace treaty ending the hostilities
of World War II, the construction of the pipeline may still experience
several delays. Furthermore, China is not yet out of the picture as
there are still discussions to build a branch from the Japanese
pipeline to China by 2020.

Closer to home, a territorial dispute between China and Japan in the
East China Sea, which both sides claim as their exclusive economic
zone (EEZ), is being further fueled by reports of vast supplies of oil
and gas in the region. The disputed territory includes the Diaoyu or
Senkaku islands and the Chunxiao gas field northeast of Taiwan, which,
according to a 1999 Japanese survey, holds 200 billion cubic meters of
gas. Japan regards the median line as its border, while China claims
jurisdiction over the entire continental shelf. In 2003, China began
drilling in the area after the Japanese rejected a Chinese proposal to
develop the field jointly. Although the Chunxiao gas field is on the
Chinese side of the median line, Japan claims that China may be
siphoning energy resources on the Japanese side.

The competition recently took the form of a military confrontation
following the incursion of a Chinese nuclear-powered submarine into
Japanese waters off the Okinawa islands on November 10 last year. The
intrusion was followed by a two-day chase across the East China Sea.
While China offered a swift apology for the incursion, this was soon
followed by the intrusion of a Chinese research vessel into Japanese
waters near the island of Okinotori. The vessel is believed to have
been surveying the seabed for oil and gas drilling purposes. This was
the 34th maritime research exercise by Chinese vessels within Japan's
EEZ in 2004, up from eight in 2003, with China not giving prior
notification in 21 of the 34 cases.

Adding to these tensions is Japan's shift from its post-war pacifist
and defensive posture toward a more active military role in the
region, as seen with the current deployment of its Self Defense Forces
to Iraq. Furthermore, Japan has for the first time identified China as
a potential security threat in its National Defense Program Outline
released in December 2004. Three issues have been identified that
could spark a conflict between China and Japan: natural resources in
the disputed East China Sea, the disputed status of the Senkaku or
Diaoyu islands and Japanese support for the US in a conflict with
China over Taiwan. Mistrust and animosities rooted in Japanese
atrocities during World War II combined with a confrontation over
tangible issues, such as territory and energy resources, and a more
active role by both states on the world stage create a recipe for a
volatile situation.

Securing sea lanes 
To China's south, another long-standing maritime territorial dispute
in the South China Sea over the Spratly and Paracel islands threatens
to be further enflamed by China's quest for energy security. The 130
islands making up the Paracel islands, which have been occupied by
China since 1974, are also claimed by Vietnam and Taiwan. The 400
islands of the Spratly islands are claimed partially by the
Philippines, Brunei and Indonesia, and are fully claimed by Vietnam,
Taiwan and China.

Relations between China and the Association of Southeast Asian Nations
(ASEAN) have improved with China signing up to ASEAN's Treaty of Amity
of Friendship and Cooperation in 2003 and all sides signing the
Declaration of the Conduct of Parties in the South China Sea in 2002.
Nevertheless, tensions remain. In violation of the 2002 agreement,
five states have permanent military garrisons on the atolls in
addition to surveillance facilities under the guise of "bird watching"
towers, weather huts and tourist facilities. The fact that Taiwan is
not a signatory to any of these agreements is also a cause for
concern.

A particular source of tension derives from the sometimes volatile
relations between China and Vietnam. Most recently, China has
commenced joint pre-exploration studies with the Philippines in the
South China Sea, which has been openly opposed by Vietnam. China,
meanwhile, has protested to PetroVietnam welcoming international bids
for drilling and exploration activities in the disputed waters and
Vietnam starting commercial flights and tours of the disputed
territory.

Both states have engaged in sporadic clashes on at least four
occasions, the most violent of which took place in 1988 in which the
Chinese sank three Vietnamese naval vessels, killing 76 sailors.
Sino-Vietnamese tensions have recently taken a back seat to the
burgeoning trade relationship between both states, with China now
becoming Vietnam's third-largest trading partner. A hotline was also
established between both states in August 2004 as part of a commitment
to resolve land and sea border disputes by peaceful means. However, as
China expands its naval power projection capabilities and becomes
increasingly desperate to access potential energy resources in the
region, conflict may once again overtake cooperation.

These regional territorial disputes also have the potential to
escalate into international conflicts, given the importance of the
waterways to international trade and the number of bilateral security
commitments between regional states and major world powers, such as
between the US and the Philippines, Singapore and Thailand, and
between numerous Western powers and their former colonies (eg the
British to Malaysia and Singapore, the French to Vietnam). For
example, following the Chinese occupation in February 1995 of the
Mischief Reef, which is 135 miles west of the Philippine islands of
Palawan, the US conducted naval exercises with the Philippines close
to the disputed territory. The joint exercises may be regarded as a
warning to China's increasingly aggressive posturing in the region.

Also in Southeast Asia, China is pushing to secure the narrow Malacca
Strait, which experiences 40% of the world's piracy. As much as 80% of
China's oil imports flow through the 630 mile-long strait, which is
just 1.5 miles wide at its narrowest point. Like Japan and the US,
China is pushing to acquire a national fleet of very large crude
carriers, or VLCCs, that could be employed in the case of supply
disruptions brought on by an accident or terrorist attack along the
Malacca Strait or a US-led blockade during a conflict over Taiwan.
Currently, only 10% of China's crude oil imports come aboard Chinese
vessels. China's growing anxiety over the security of its oil imports
was demonstrated in June 2004, when China conducted its first
anti-terror exercise simulating an attack on an oil tanker.

China is also looking into bypassing the straits with discussions for
a pipeline to Myanmar, as well as possibly Bangladesh, Pakistan or
Thailand. Pakistan looks like an unlikely candidate given the threat
of terrorist attacks on pipelines traversing its territory. A pipeline
through Bangladesh would have to cross the territory of strategic
competitor India. Increasing sectarian violence in southern Thailand
coupled with the country's close relationship with the US make a
pipeline through Thailand unlikely as well. This leaves Myanmar as the
most likely option, with a 1,250 kilometer pipeline from the deepwater
port of Sittwe on the Bay of Bengal to Kunming in Yunnan province.
Coupled with India's desire to access energy resources within Myanmar
and Myanmar's proximity to India's troubled northeast insurgencies,
Myanmar has become a potential stage for Sino-Indian energy
competition.

Central Asia: The new great game 
On its western borders, China has been an active player in the new
great game. As part of its "Go West" development policy, China's
longest pipeline, the 4,200 kilometer Tarim Basin to Shanghai gas
pipeline, came online in August 2004. China's west-to-east pipeline
could potentially be extended to Kazakhstan and Turkmenistan and even
further to Iran and the Caspian Sea. In October 2004, construction
began on a 988 kilometer pipeline from Atasu in northwestern
Kazakhstan to Alataw Pass in China's Xinjiang province, which will
carry 10 million tons of oil a year once it is completed in 2005. The
Chinese are also helping to develop oil fields in Uzbekistan and
hydroelectric power projects in Kyrgyzstan and Tajikistan.

China's growing engagement with Central Asia has been motivated by a
number of strategic interests. China led the creation of the Shanghai
Cooperation Organization (SCO), which began as the Shanghai Five in
1996. This body was formed in the presence of a civil war in
Tajikistan, Taliban rule in Afghanistan, a series of terrorist attacks
in Xinjiang, and Islamist revivalism in Uzbekistan under the Islamic
Movement of Uzbekistan/Turkestan (IMU/IMT) and more recently by
Hizb-ut Tahrir.

SCO has moved from resolving border disputes to fighting the "three
evils" of extremism, terrorism and fundamentalism and promoting
greater economic integration and development in Central Asia and
China's west. The Central Asian states have agreed to China's "Five
Principles of Peaceful Coexistence", as well as subscribing to China's
viewpoint on numerous regional and international issues, including
Taiwan, Tibet, Xinjiang and the need for a multipolar world. Under the
aegis of the SCO, China has also expanded its military presence in
Central Asia, establishing an anti-terror center in Tashkent and
engaging in its first joint military exercises with a foreign army in
Kyrgyzstan in 2002.

However, China's increasing presence in Central Asia has been
accompanied by a Russian reengagement with the region, an increasing
US presence following September 11 as well as an increasing role by
India (using its historical links), Saudi Arabia and Pakistan (using
their religious links), Turkey and Iran (using their cultural links)
and South Korea and Japan (that are relying on economic links to the
region).

Numerous overlapping power blocs are emerging in the region, which
spill over into the energy arena. For example, improving Sino-Indian
relations have manifested in the energy sphere, with the chairman of
Xinjiang autonomous region, Ismail Tiliwandi, making a trip to India
in October 2004 to discuss transport links and a Sino-Indian natural
gas pipeline project. With a growing military presence in the region
and increasing desperation to access the region's energy resources, it
is conceivable that Central Asia could re-emerge as the stage for
future great power conflicts.

China expands in the Middle East 
China has also attempted to improve relations with its
already-established oil suppliers, such as Saudi Arabia and Iran, by
selling them military technology, investing in their industries and
energy infrastructure and looking the other way with respect to their
human-rights records.

Currently, China derives 13.6% of its oil imports from Iran. In March
2004, China signed a $100 million deal with Iran to import 10 million
tons of liquefied natural gas over a 25-year period in exchange for
Chinese investment in Iran's oil and gas exploration, petrochemical
and pipeline infrastructure.

Growing Sino-Iranian relations are undermining US sanctions against
Iran. The Bush administration has sanctioned Chinese companies 62
times for violating US or international controls on the transfer of
weapons technology to Iran and other states.

The US Central Intelligence Agency has submitted a report to US
Congress stating that Chinese companies have "helped Iran move toward
its goal of becoming self-sufficient in the production of ballistic
missiles". In the ongoing controversy over Iran's uranium enrichment
program, China has also opposed bringing the issue before the UN
Security Council, and has even threatened to veto any resolution that
is brought against Iran.

As Saudi-US relations have soured in the post-September 11 world, the
Saudi-US strategic partnership may be supplanted by a Sino-Saudi
partnership. Saudi oil shipments to the US declined in 2004, while
they increased to China. Sinopec has won the right to explore for
natural gas in Saudi Arabia's al-Khali Basin and Saudi Arabia has
agreed to build a refinery for natural gas in Fujian in exchange for
Chinese investment in Saudi Arabia's bauxite and phosphate industry.
Cooperation in the economic and energy spheres complements an already
burgeoning relationship in the military sphere, as seen with China
selling Saudi Arabia Silkworm missiles during the Iran-Iraq War in the
1980s, and both states having strong relations with Pakistan.

Russia: Revival of the strategic triangle
Russia is China's fifth-largest crude oil supplier, with LuKoil now
replacing Yukos as China's main supplier of Russian oil. China is
expected to import at least 10 million tons of oil from Russia in 2005
and 15 million in 2006, while Russian rail shipment capacity is
expected to increase from 20 million tons in 2004 to 60 million tons
by 2006.

The controversy over the sale of Yugansk, which produces 60% of Yukos'
oil output and pumps 11% of Russia's oil, has also highlighted the
increasing presence of Chinese energy companies in Russia. While the
mysterious buyer, Baikal Finance Group, ended up selling its stake in
Yugansk to Rosneft in December, which may be acquired by Russian
state-owned Gazprom, this does not preclude the possibility of Yukos'
assets being acquired by China. China's CNPC has allegedly been
offered a 20% percent stake in Yukos and provided a $6 billion loan to
Rosneft to purchase Yugansk.

China's support for Russia's accession into the World Trade
Organization and growing Sino-Russian trade and cooperation in the
fight against terrorism is further cementing Sino-Russian relations.
Sino-Russian energy relations appear to be mirroring political and
military relations. Just as China increasingly relies on Russian
energy resources, so it also constitutes Russia's biggest buyer of
Russian military hardware. Russia and China are also to engage in
their largest joint military exercises later this year.

In fact, growing Sino-Russian energy cooperation resurrects former
Russian prime minister Yevgeny Primakov's idea for a strategic
triangle between Russia, India and China. These states are bound
together by their shared interests in the fight against terrorism, the
push for a multipolar world and respect for the principles of state
sovereignty and non-intervention with regards to their respective
"separatist" movements in Chechnya, Kashmir and Taiwan.

Now the energy sector can be added to this list of shared interests.
India and China are already collaborating in the energy sphere, with
India holding a 20% stake and China a 50% stake in the development of
the Yahavaran oil field in Iran. China Gas Holdings has also
established an alliance with India's largest energy conglomerate,
Gail. With India and China vying for assets in Yukos,
Sino-Indian-Russian collaboration in the energy sphere could be
further cemented.

Stepping on US toes in Africa and the Americas 
As China has made limited progress in accessing energy resources on
its doorsteps due to poor relations with neighboring states, it has
shown growing interest in accessing energy resources further afield.

For example, a consortium 40% owned by China's CNPC pumps over 300,000
barrels per day in Sudan. China is also a major supplier of arms to
the Sudanese government, which has just concluded a peace agreement
with the main rebel group in the south, the Sudan People's Liberation
Movement (SPLM), ending 20 years of conflict sparked over the
allocation of oil revenues. The Sudanese government is still engaged
in a conflict in the Darfur region of western Sudan using proxy
militias. China is also vying for energy resources in Angola and other
energy-rich African states by offering arms and aid for oil.

China is also acquiring energy resources in the Americas. While
attending the annual Asia-Pacific Economic Cooperation summit in Chile
in November 2004, Chinese President Hu Jintao announced an energy deal
with Brazil worth $10 billion, supplementing a $1.3 billion deal
between Sinopec and Petrobras for a 2000 kilometer natural gas
pipeline.

China is also acquiring oil assets in Ecuador, as well as investing in
offshore petroleum projects in Argentina. During Venezuelan President
Hugo Chavez's visit to Beijing last December and Chinese Vice
President Zeng Qinghong's visit to Venezuela in January, China also
committed to develop Venezuela's energy infrastructure by investing
$350 million in 15 oil fields and $60 million in a gas project in
Venezuela.

On January 20, during Canadian Prime Minister Paul Martin's visit to
Beijing, China and Canada also signed a joint statement on energy
cooperation which included accessing Canada's oil sands and uranium
resources. China's growing energy interests in the Americas have been
accompanied by a growing involvement in the region's security.

In October, China sent a UN peacekeeping contingent to Haiti in its
first military deployment to Latin America. Ironically, Haiti is one
of only 25 states that recognize Taiwan rather than China. The US is
looking on with caution as China encroaches on a region that has
traditionally been under its sphere of influence and a major supplier
of energy resources. Venezuela and Canada together provide the US with
a quarter of its energy imports.

Conclusion 
Friction between China and the West has so far focused on the question
of China's undervalued exchange rate, its human-rights record and
relations with "rogue" states. However, competition over energy
resources is now becoming an additional area of contention.

China's growing presence on the international energy stage could
ultimately bring it into confrontation with the world's largest energy
consumer, the US. While China and the US have launched the US-China
Energy Policy Dialogue, both states are also engaged in a competition
for energy resources in Russia, the Caspian, the Middle East, the
Americas and Africa. This competition could potentially combine with
other areas of friction. For example, in the event of China engaging
in a conflict with Taiwan, Japan or India or internal repression such
as a repeat of the Tiananmen Square massacre of 1989, the US could
censure China's actions by an oil embargo or by blocking vital sea
lanes in the Malacca Strait, thus sparking a wider conflict.

It is not by coincidence that China has made progress in resolving its
border disputes with India and Russia, while failing to make progress
on territorial disputes with Japan in the East China Sea and in the
South China Sea, given that the latter involve access to potential oil
and gas resources. In this context, China's claim to pursuing a
"peaceful ascendancy" policy and putting aside areas of disagreement
in favor of creating a stable environment for economic development is
limited to areas where China's vital strategic interests are not
threatened.

Chietigj Bajpaee is a researcher for Civic Exchange, a Hong Kong-based
political think-tank. He has been a researcher for the London-based
International Institute for Strategic Studies and a Risk Analyst for a
New York-based risk management company. He has a graduate degree in
international relations from the London School of Economics and an
undergraduate degree in economics and government from Wesleyan and
Oxford Universities.




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