It was on June 2, 2004 that the US Department
of Defense announced that the forthcoming simultaneous deployment of seven aircraft
carrier strike groups (CSG) under ‘EX Summer Pulse 04’to demonstrate the US
Navy’s ability to provide credible combat power across the globe by operating
in five theatres with other US, allied, and coalition military forces. This was
to be the US Navy’s first exercise of its new transformational operational
construct, the Fleet Response Plan (FRP)—which is about new ways of operating,
training, manning, and maintaining the fleet that results in increased force
readiness and the ability to provide significant combat power to POTUS in
response to a national emergency or crisis—all this being part of the US Navy’s
‘Sea Power 21’ strategy. Beginning in early June and continuing through to August
2004, the US Navy exercised the full range of skills involved in simultaneously
deploying and employing its CSGs around the world. The exercise included
scheduled deployments, surge operations, joint and international exercises, and
other advanced training and port visits. Under the FRP construct, the US Navy
is required to provide six CSGs in less than 30 days to support contingency
operations around the globe, and two more CSGs can be ready in three months to
reinforce or rotate with initially responding forces, to continue presence
operations in other parts of the world, or to support military action in
another crisis. The seven aircraft carriers involved in the exercise were the
Norfolk-based USS George Washington CSG and the San Diego-based USS John C
Stennis CSG (both deployed at the outset of the exercise); the Yokosuka-based
USS Kitty Hawk; the Mayport-based USS John F Kennedy CSG (which began a
combined and joint exercise early in June, followed by a scheduled overseas
deployment); the Norfolk-based USS Harry S Truman CSG (which conducted a
scheduled training exercise, followed by overseas operations with the
Norfolk-based USS Enterprise CSG, beginning in early June); and the USS Ronald
Reagan (which conducted operations in the US Northern Command and US Southern
Command theatres during the ship’s inter-fleet transfer from Norfolk to its
Pacific Fleet homeport of San Diego).
It was this unprecedented, combined show
of multinational naval might that provided the spark for China to seriously contemplate
the usage of land routes for trade and commerce, instead of relying solely on
sea lanes of communications (SLOC). Back in 2004, China's economy was heavily dependent
on foreign trade, 90% of which traveled by sea. China's near seas—the Yellow
Sea, the East China Sea and the South China Sea—are bounded by what Chinese
strategists call the ‘First Island Chain’, a series of islands (many of which
are controlled by US allies) that stretches from Japan to The Philippines to
Indonesia. To reach ports on China’s eastern coast, seaborne trade from the
west must now pass through maritime chokepoints such as the Strait of Malacca (through
which 82% of China’s crude oil imports passed in 2013). Passage through these
maritime chokepoints is secured by another country: the US, the world’s
dominant naval power. The geographic enclosure of China’s near seas would thus make
it relatively easy for an adversary to disrupt or interdict China’s SLOCs.
China still faces many challenges in developing its ability to project sufficient naval power to safeguard seaborne
trade as it passes through distant chokepoints. Instead, China must rely on the
US to provide security of the sea-lanes. Although maritime security is
ostensibly a public good, China worries that, as a potential peer competitor to
the US, it will not always be able to rely on the US to protect its shipping.
Consequently, back in late 2004, Beijing
conceived the ‘Belt and Road Initiative’ in order to mitigate the risk of
maritime interdiction by constructing transit routes along six land-based economic
corridors: 1) The China-Mongolia-Russia corridor, anchored by the Trans-Siberian
railway. 2) The New Eurasian Land Bridge, anchored by a set of railways running
from central China (Wuhan, Chongqing and Chengdu) to Europe via Kazakhstan,
Russia and Belarus. 3) The China-Central Asia-Western Asia Corridor, passing
through Central Asia, Iran and Turkey to reach Europe. 4) The China-Pakistan Economic
Corridor (CPEC), which would extend the Karakoram Highway, which already crosses
the mountains between China and Pakistan, and build highway and rail links all
the way through Pakistan to the port of Gwadar. 5) The Indochina Peninsula
Corridor. 6) The Bangladesh-China-India-Myanmar Corridor.
In
all these corridors, China has since 2005 been
enhancing existing transportation networks, constructing new roadways and building
intermodal transport hubs and energy pipelines. Two of these corridors, the China-Mongolia-Russia corridor and the New Eurasian Land Bridge, will
be entirely overland. They center on existing transcontinental railway lines
and mainly focus on delivering relatively high value-added goods, such as consumer
electronics, which are sensitive to rapid changes in demand. China will shift a
small fraction of its total trade to these routes, providing an outlet for
industries in China’s interior and giving the country a measure of insurance
against naval interdiction. China will continue investing in port
infrastructure along other corridors in the Belt and Road Initiative,
particularly in the Bay of Bengal and the Indian Ocean Region (IOR). However, China will
find ways to link land and maritime routes, aiming to bypass the South China
Sea chokepoints and minimise the distance of any single maritime leg of Chinese
merchant shipping. For example, the CPEC could allow some China-made goods to
travel overland to Pakistan before embarking for Africa and the Middle East at Gwadar.
And of course, the Belt and Road investments will also serve to build political
support for China.
Crude oil represents
almost one-fifth of the China’s energy demand. In the decisive year of 1993,
the Middle Eastern and African countries, namely Oman, Yemen and Angola were
among China’s most prominent crude oil suppliers. China’s foreign oil supplies
from 1993 till 1999 originated between 40% and 61% per in the Middle East, and
supplies from Africa accounted for up to 18%. Since 1995, countries such as Saudi
Arabia, Kuwait, Iran, Iraq, Angola, Sudan, Equatorial Guinea, Libya and Congo
were among those which have supplied crude oil to China. CNPC had since 1996 invested
substantially into Iranian, Nigerian and Sudanese oil fields. By 2003, Sudan and Iran accounted for
almost 7% and 14% of China’s imported crude oil stock,
In 2009 China needed
almost 120 million tons to cover its domestic crude oil needs. By 2020, China
will become the world’s largest nett importer of crude oil, reaching around 13
million barrels a day of nett oil consumption by 2035, which means nearly 80% of
its crude oil consumption will depend on imported oil. In 2013, China overtook
the US to become the world’s largest nett importer of crude oil and liquid
fuels, and its total oil imports are expected to reach 9.2 mbd by 2020, nearly
four times the level of 2005. Meanwhile, Chinese natural gas demand is growing
fast, rising 11.4% last year to 163.4 billion cubic metres. China plans to
boost the share of natural gas in its energy mix to 10% by 2020, from under 5%
in 2010, in order to cut its dependency on coal, which now supplies 70% of its
energy needs. Part of this will be met by China’s huge shale gas reserves,
although large-scale production of shale gas isn’t expected before late this decade.
Trade between Iran and China soared from
US$4 billion in 2003 to more than US$20 billion in 2009. By 2013, it had
doubled to US$53 billion. Presently,
China accounts for 25% of Iran’s foreign trade. In 2011, approximately 10%
of China’s crude oil imports were from Iran. But CNPC’s rapid global expansion into easier operating environments
reduced the need for it to push further into Iran. In 2012 China had cancelled
a US$4.7 billion project to develop
the South Pars gas field. An Iranian decree officially excluding CNPC from the $2.5
billion contract North Azadegan oilfield project’s
Phase-2 near the Iraqi border came into force in April 2014. Iran’s oil
reserves are one of the largest in the world after Venezuela, Saudi Arabia, and
Canada. The country is also home to 18% of the total natural gas reserves in
the world. In the near future, Iran may re-award Phase-2 of the North
Azadegan oilfield to China for development. CNPC and Iran’s PEDEC have already
signed an initial agreement to produce 25,000 barrels a day from the field.
CNPC had earlier also participated in Phase-1 of North Azadegan and had begun
production of 75,000 bpd last October. China’s Sinopec Group and CNPC will had begin
producing 160,000 bpd barrels from South Azadegan and Yadavaran in southwestern
Iran from October 2016. Phase-1 of the Yadavaran oilfield will yield 85,000
bpd. Yadavaran, which Iran shares with Iraq’s
Sinbad, was awarded to Sinopec about nine years ago in a US$2 billion deal to
operate Phase-1 in July 2014 and raise recovery to 200,000 bpd in Phase-2.
In 2008 CNPC renegotiated a production-sharing
contract to develop Iraq’s al-Ahdab oilfield, which it had previously entered
into with the Iraqi government during the Saddam Hussein era. The new technical
service agreement granted development rights to CNPC for 23 years. A year
later, in 2009, CNPC combined with UK-based BP in a consortium that won the
rights to develop the Rumaila field and to increase its output from 985,000 bpd
to 2.85 million bpd. CNPC also formed a consortium in December 2009 with
France’s TOTAL and Malaysia’s PETRONAS to successfully bid for the Halfaya
field. The consortium’s plateau production
target is 535,000 bpd. The
Halfaya oilfield has estimated reserves of 4.1 billion barrels of oil. In
May 2010 China National Offshore Oil Corp (CNOOC) acquired a stake in the Maysan
oilfields along the Iraq–Iran border. Chinese companies have secured a
significant foothold in the Iraqi upstream sector, with investments in roughly
20% of Iraqi oilfield projects. They have also signed deals that more than
double Iraqi exports of crude oil to China, a process that started in 2013 as
Baghdad lowered its export prices. In April 2014 CNPC gained its first
upstream stake in the United Arab Emirates through a deal with its Emirati
counterpart, Abu Dhabi National Oil Company (ADNOC). The deal is Abu Dhabi’s
first concession deal with China, and highlights the UAE’s shift away from
traditional Western international oil companies to Asian partners.
All in all, the Communist Party of China
has constructed or invested in energy projects in more than 50 countries to
date. This enabled Beijing to import approximately 60% of its crude oil supply
in 2014 as well as about 32% of its natural gas supply. In 2011, China imported
almost 5 million barrels of crude oil per day, of which almost 50% came from
the Middle East, and 20% came from Russia. In addition, China’s imported crude
oil from Africa totaled 1.23 mbd, which accounted for about 20% of China’s
total imported crude oil. Presently, China imports at
least 52% of its crude oil from the Middle East. Approximately 43% of this has
to pass through the Strait of Hormuz, while 82% of all Chinese oil imports and
34% of LNG imports must pass through the Strait of Malacca. In order to minimise
its dependence on SLOCs transiting through the Malacca Strait, China in June 2010
zeroed in on Myanmar for solutions.
In late January 2015, Beijing opened a
pipeline linking southwestern Yunnan to Maday Island, east of the coastal city
of Kyaukpyu in Myanmar, and also began operationalising an oil tank farm
accommodating 12 storage tanks. China National Petroleum Corp’s (CNPC) Huanqiu
Contracting and Engineering Corp subsidiary built the 12 tanks, each with a
capacity of 100,000 cu m. Total storage capacity is thus 1.2 million cu m, or
about 7.6 million barrels. Maday Island, just 10 sq km in area with almost no other
infrastructure, is also the origin point for both a crude oil pipeline for
carrying 440,000 barrels per day, and a natural gas pipeline intended to ship
12 billion cu m annually to China’s land-locked southwestern province of
Yunnan. The
oil pipeline, costing US$2.45 billion to build—with US$1.20 billion coming from
Myanmar and US$1.24 billion from China—starts in Maday, enters China at Ruili
in western Yunnan province, then heads to Chongqing. It runs for 771km in
Myanmar and 1,631km in China. This 2,400km-long
pipeline is bringing bring 23 million tons of Middle Eastern and African oil
into China every year. In 2010, CNPC’s Yunnan branch started work on an oil
refinery project in Kunming, designed to handle more than 10 million tons per
year. The natural gas pipeline became operational in late September 2013. It
brings gas from Myanmar’s offshore Shwe fields off the coast of Rakhine, a
western state bordering Bangladesh, to Yunnan province. Myanmar has proven natural gas reserves of 2,540 billion cubic metres
and crude oil reserves of 3.2 billion barrels. These two pipeline have saved 30%
of delivery time, since the distance the crude oil and LNG from the Middle East
and Africa has to travel by sea has been cut by 2,000km.
To Be Concluded
