By Wang Jinzhao

Research Report Vol.18 No.5, 2016

I. Significance of Energy Cooperation along the Belt and Road in the Context of Global Energy Revolution

1. Core position of the Belt and Road area in global energy supply

Oil and gas are the main products in global energy trade, and matter a lot in energy security in all countries. Even if North America realizes shale oil and gas revolution, the Belt and Road is still the major supplier of global oil and gas because of its abundant resources. As shown in Table 1, including unconventional resources like shale oil, oil sands, heavy oil and deep water oil, among the top ten economies with the most oil reserves in 2014, seven are within the Belt and Road area, including Saudi Arabia, Iran, Iraq, Russia, Kuwait, United Arab Emirates (UAE), and Libya, whose oil reserves altogether account for 54.7% of the world total. Among the ten economies with the most natural gas, seven are within the area, including Iran, Russia, Saudi Arabia, UAE, Qatar, Turkmenistan and Algeria, whose natural gas reserves altogether take up 68.1% of the total throughout the globe. The top four economies of the seven producers enjoy 58% of the total natural gas reserves in the world (Table 2).

In terms of resource quality, oil and gas along the Belt and Road are of high quality, easy to explore at low costs, making the area a stable global supply of oil and gas. For example, the cost of exploring oil is $10 per barrel in Saudi Arabia; the cost of exploring shale oil in the U.S. is $40-$60 per barrel; the cost of exploring heavy oil is $60 per barrel in Canada, and $80 per barrel in Venezuela. Despite fluctuating international oil prices, the Middle East, Central Asia, Russia, and North Africa are stable oil suppliers. In terms of transport, the Belt and Road, located in the center of Eurasia, is the must-take path by both maritime and land transport, making it a strategic passage in global oil and gas transport.

2. The Belt and Road area is the main source of China’s energy imports

China is quite dependent on oil and gas imports. In 2015, China’s net imports of oil and gas reached 328 million tons and 61.4 billion cubic meters respectively, 60.6% of total oil and 31.8% of total gas used in China. With increasing demandfor oil and gas in the future but limited domestic resources, imports will further rise and it is predicted that by 2030, over 70% of oil and 40% of gas used in China will come from imports. The Belt and Road area is the main source of oil and gas imports. Among China’s ten biggest sources of oil in 2014, nine are within the Belt and Road area, as shown in Table 3, which provided 80.4% of China’s oil imports in 2014. As for gas imports, ten biggest sources are within the area, offering more than 95% of China’s oil imports. Given the distribution and supply-demand of global oil and gas, and the, the Belt and Road will still play a main role as the supplier of oil and gas for China, and the role will be more important (see Table 4).

From the perspective of transport, the Belt and Road is the main channel of energy transport. Land transport and most maritime transport of oil pass through the area, as roughly 80% of China’s oil imports go through the Strait of Malacca, and 38% go through the Strait of Hormuz. Besides, main channels of natural gas transport concentrate in the Belt and Road area.

Geopolitically speaking, thanks to the revolution of shale oil and gas, US energy self-sufficiency greatly influences the world pattern. From the negative side, the United States will be no longer constrained by oil supply when it promotes democracy in the Middle East. It will be tougher and more aggressive, and may even implement tough intervention through political, military or other ways, which will create new changes in the international energy market. On the positive side, with shale gas revolution, there will be more liquefied natural gas (LNG) and low-cost coal from the U.S. in the European market. Russia and the Middle East will have smaller share and influence in energy market, which makes them look forward to more energy cooperation with Asian countries, bringing new opportunities for building the Belt and Road and enhancing China’s energy security.

3. Great significance of energy cooperation for realizing the Belt and Road Initiative

China’s huge market demand stimulates the countries in the Belt and Road area to develop, export and sell resources in order to promote economic growth in those countries. Moreover, in energy industry, China has accumulated rich experience in technology, talents and infrastructure capacity. Countries along the Belt and Road can do well in undertaking China’s industry transfer, solving bottlenecks in energy and infrastructure and promoting local economic development. China and countries along the Belt and Road share many common interests and strong willingness of long-term and stable cooperation in the field of energy. During his visit to the League of Arab States in January 2016, President Xi Jinping put forward the so-called “1+2+3” cooperation pattern. Specifically, “1” refers to one priority, which means both sides should prioritize energy cooperation, to deepen cooperation in the whole industry chain of oil and gas, maintain secure channels of energy transport, and build a strategic partnership which is mutually beneficial, secure, reliable, long-term and friendly. “2” refers to two key areas, i.e., infrastructure development, and trade and investment facilitation. It is crucial to strengthen cooperation in major projects concerning development and people’s livelihood, and build institutional arrangements to promote bilateral trade and investment. “3” refers to nuclear energy, aviation satellite and new energy as the three high-tech areas for breakthrough, based on which we can promote China-Arab cooperation to a higher level.

From the above, the Belt and Road is key to China’s energy security. Given the importance of energy security in China’s overall development, energy cooperation is the highlight of the Belt and Road Initiative, and China needs to enhance energy security through cooperation along the Belt and Road. Furthermore, energy industry can drive the growth of countries within the area. China has strong capabilities of manufacturing and construction, which serves as the first mover in this initiative. Hence energy cooperation weighs much in the process. ...

If you need the full text, please leave a message on the website.