China Fuels Far-fetched Energy Plans


By Michael Lelyveld

China's energy shortages have raised hopes for several huge pipeline projects in countries stretching from Central Asia to Burma and Thailand. But experts say that all of the plans to supply China will face enormous costs.

In the past few weeks, press reports have highlighted several big projects that could help feed China's soaring energy demand.

Despite the government's steps to slow the growth of China's economy, oil imports have kept rising at double-digit rates. In the first seven months of the year, imports of crude oil jumped 39.5 percent from a year earlier, according to state customs data. Over the past two years, China's growth in oil imports has been the highest in the world.

China's appetite for raw materials

Nations in Southeast Asia have been especially eager to help China meet its demand and earn a piece of the profits from import projects. On August 28, The New York Times reported in a front-page story on the regional impact of China's appetite for raw materials in countries like Australia, which has been selling China millions of tons of iron ore.

Last year, China became the world's biggest iron ore importer, sparking a bonanza in Australia's business with the opening of new mines and rail lines for exports. Profits at Australian supplier BHP Billiton climbed nearly 80 percent last year with the China boom, the Times said.

Even bigger trade with Australia is developing in supplies of liquid natural gas, or LNG, for China's coastal cities like Shanghai. China has already signed a 25-year deal with Australia's Woodside Energy for LNG imports valued at $25 billion. Another is in the works that could be worth $30 billion.

The Times said that many countries are competing to do business with China, but there also concerns that the deals are helping Beijing in "pressing countries to fall in line on its top foreign policy priority: its claim over Taiwan."

Illegal imports

Aside from the political pressures to toe the line on Beijing's agenda, other import deals have raised worries about illegal imports. China is buying vast quantities of smuggled teak wood for furniture from Burma using tens of thousands of Chinese workers on the Burmese side of the border, the paper reported. Burma's military government is subject to a series of international sanctions, including a comprehensive import ban by the United States.

But projects to meet China's energy needs are seen as the biggest prize. China has been considering a plan to build an oil pipeline from Burma's west coast port of Sittwe, formerly called Akyab, through Mandalay to Kunming, the capital of China's southwest province of Yunnan.

The project is seen as giving China a more direct route for oil tankers from the Middle East, without having to sail through the congested Straits of Malacca. China fears that the passage south of Singapore, which is as little as 2.5 kilometers (1.5 miles) wide at some points, may be vulnerable to terrorist attacks.

The 1,200-kilometer pipeline plan through Burma, which would cost $2 billion, is backed by the Yunnan provincial government and is awaiting approval by the State Council for the 11th Five-Year Plan starting next year, the South China Morning Post reported.

In Thailand, the government has similar plans for either a pipeline or a canal to cross the country's narrow Isthmus of Kra, which divides the Andaman Sea in the west from the Gulf of Thailand and the South China Sea to the east. The route would also avoid the Malacca Straits, which is crowded with 50,000 ships a year, raising China's security concerns. The distance is shorter than the Burma project -- only 102 kilometers in the case of the canal -- but the construction cost could top $20 billion.

Thailand is also promoting a 230-kilometer pipeline across the isthmus with cooperation from China National Chemical Import and Export Corporation, or Sinochem. Thai officials believe that a pipeline for oil products could cost as little as $700 million to build.

Too expensive

On top of that, Chinese officials are considering yet another ambitious project to pipe natural gas from western Kazakhstan into the new 4,000-kilometer West-East pipeline to Shanghai, China Daily reported last month. But the officials said the project for a "Pan-Asian Global Energy Bridge" to Central Asia, which would add thousands of kilometers to Shanghai's gas route, is still "premature."

In fact, experts interviewed by Radio Free Asia see all of the projects as not only premature but far too expensive.

In the case of the gas pipeline from Central Asia, analysts say that China first proposed the idea in the mid- 1990s, but it was soon rejected as unrealistic.

Kang Wu, a China energy expert and fellow at the East-West Center of the University of Hawaii, said the idea for Central Asian gas has been revived in part because of China's disappointment over Russia's failure to build a promised oil pipeline from Siberia to Daqing. Wu noted that China has already agreed on building an oil pipeline from Kazakhstan instead of the Russian project, raising interest in the possibility of a gas line, as well.

Wu said that China is still developing its gas sector and trying to figure out how to make the West-East project pay for itself. Adding a gas line from western Kazakhstan, which is at least 2,300 kilometers from China's western border, seems economically impossible now.

Competing with Russia

Robert Ebel, director of the energy and national security program at the Center for Strategic and International Studies in Washington, said that competition with Russia in Central Asia could also make it hard for China to get enough gas for such a long line.

As for the Burma pipeline, Kang Wu said there is far less demand in Yunnan Province than in other parts of China to support the cost of the project. Southwest China does not even have a refinery that would be able to process the imported crude oil.

"If they build for transit and the transmission from the Middle East, it doesn't make any economic sense. Southwest China is relatively less populated and remote, and no refinery. You'd have to build a big refinery to justify the pipeline, and a big refinery is perhaps not needed in Yunnan Province," said Wu.

Security of supply

The South China Daily said, "The provincial authorities argue that, while the project does not make sense in economic terms, it is necessary to guarantee the future security of the mainland's oil imports."

Analysts are just as skeptical about the commercial value of a pipeline or a canal through the isthmus in Thailand. Sam Dale, the Singapore bureau chief of Petroleum Intelligence Weekly, notes that the idea of a canal is as old as the 19th century, when it was originally proposed by the builder of the Suez Canal. But Dale said that a canal or pipeline would not solve China's security problems while only adding to its costs.

Dale said a pipeline would be cheaper to build than a canal, but it would still raise the handling and delivery costs for China's oil imports.

Despite all the drawbacks, Robert Ebel said China has been considering more costly plans to protect its energy security as its energy demand grows.

Who will foot the bill?

But Ebel said that the extra security that China seeks will come at an excessively high price. "I would think that just on the economic basis alone, these pipelines wouldn't fly. But when you bring in the security of supply, then it takes on a different look, and if the Chinese are willing to pay for security supply that might be measured in four to five dollars a barrel, then they might think it's worth it. It would be more costly, but they might consider that in terms of national interest, that the cost is worth it."

How much China is willing to pay remains to be seen. Last month, the president of Russian Railways, Gennady Fadeyev, made headlines by claiming that Chinese oil companies had pledged to pay the transportation costs of shipping oil to China if Russia's giant Yukos oil company goes bankrupt.

Yukos is facing billions of dollars in tax bills, and its biggest shareholders are under arrest. But traders of PetroChina and Sinopec denied any such arrangement, International Oil Daily reported. One Sinopec trader was quoted as saying, "Logistically, it also makes no sense for China to foot others' bills."


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