The Hindu Business Line : China bracing for energy demand

MORE often than not, the pace of economic growth of India and China has been a topic of keen interest among intellectuals, policy-makers and even the common man. Most recently, the Finance Minister quoted the example of China in defence of his move to open up the aviation, insurance and telecom sectors to foreign direct investment.

Though China's domestic saving rate is almost twice at 45 per cent than India's 23 per cent, many do not know that a substantial portion of the FDI in mainland China comes from what is known as "round tripping" — recycled black money that pours into the mainland via Hong Kong. It does happen in India as well, but to a much lesser extent.

What must inevitably be of interest and concern to India's policy-makers is Beijing's quest for oil security. China seems to be preparing well, while India is tottering. The latter's answer to escalating crude price is periodic upward revision of petroleum products in the domestic market without a long-range strategic oil policy.

With China in the midst of the worst summer power shortages in decades, Beijing has to gear itself up to sensible oil energy security. The whole of the region, starting from Singapore up to Japan, is smouldering in temperatures of 40 degree Celsius plus. Air-conditioning in airports and even five-star hotels is kept at not less than at 25 degree Celsius to save energy.

There are plans for pipelines which would make China's neighbours — principally, Bangladesh, Mayamnar, Pakistan and Thailand — key conduits for future Chinese oil imports. Whichever Asian nation is eventually selected as the conduit, a new kind of strategic partnership would evolve, which, besides economic, will have political overtones.

For instance, the proposal for a pipeline from Bangladesh to Tibet may not get very far, partly because it would have to pass through North-East India, and India is a strategic rival.

China, a net oil exporter until the mid 1990s, has become the largest oil importer next only to Japan, importing about a third of what it consumes. Chinese officials estimate that by 2020 the total internal oil demand will soar to 400 million tonnes.

Domestic production will just be about 47 per cent, that is, 190 million tonnes, meaning that before the end of the next quarter century, dependence on imported oil would have nearly doubled. Nearly 80 per cent of China's current oil imports come from West Asia and West Africa via South-East Asian waterways, primarily the Straits of Malacca and Singapore.

The possibility that the oil flow which now is through these narrow and congested straits could be disrupted either by an accident or a terrorist attack or even from hostilities with the US over Taiwan is something that is acutely worrying Beijing.

Add to this, the very recent decision by Indonesia, Malaysia and Singapore, the three coastal states which control the Malacca straits, to launch co-ordinated naval exercises to patrol the straits, which is a clear signal to both the US and China, that they, and not the former, who is in charge. But that will not stop China from looking at alternative routes of supply.

The country is already spending $3 billion on a 3000 km pipeline to bring oil from Kazakhstan, located in Central Asia, to industrial centres in northeast China.

A possible option, though very expensive and very difficult to implement, is to build a pipeline from Kashgar, a seaport on Pakistan's Arabian coast, to western China. This pipeline could then connect to the domestic pipeline grid. Apart from the expense and difficulty of implementation, the fact that the project would link a country which is known to harbour the Al Qaeda is another worry that Beijing has to take into ac count.

The option to bypass Malacca Straits by jointly investing with Thailand in a 250 km pipeline across the isthmus of southern Thailand is rather promising.

This would link the Siam Gulf with the Andaman Sea. However, the recent violence in southern Thailand and doubts about the economic feasibility of transshipping oil are considerations which cannot be brushed aside. Thailand's closeness with the US is another factor that worries Beijing.

To build a pipeline from the deepwater Myanmar port of Sittwe on the Bay of Bengal to Kunming, capital of Yunnan Province, could be the most attractive proposal. The military junta has a tight grip on the country, despite sanctions by the US and Europe, and there is much cordiality between China and Myanmar.

The pipeline costing about $2 billion, stretching to about 1,250 km, could be extended from Kunming to industrial centres on China's southeast coast.

What does all the above imply vis-à-vis India's quest for oil security? Energy security has become very vital in China's race to economic modernity. China has vast coal resources, but burning it in power stations to generate electricity is a serious polluting exercise.

Beijing's decision to adopt one or more of the proposals detailed above would signify a new form of emerging strategic partnership with whichever Asian state that is chosen with far reaching political implications. India must not only focus on the oil, from where it is imported, but also the interconnectedness between oil and regional political realities.

India should not allow its energy policy to sail along directionless. The race to economic supremacy in this century, and in this region, will hover on how much energy a nation can expend. China is all set to brace itself up well for the task.

(The author is a former National Science Foundation Professor, Royal Society, Belgium. He can be reached at Nair_KPP@yahoo.com)