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Posted on 25 July 2011
OPINION  
CHINA

A new silk route to China

RS Kalha examines the implications of mega oil pipelines connecting Russia with China

Illustration: Tim Tim Rose

AN ANALYST sitting in Beijing would largely be worried about China’s strategic vulnerability were he to focus on the sea route passing through the Straits of Malacca. Nearly 80 per cent of China’s oil imports pass through this route. China relies heavily on oil, gas and other natural resource commodities to feed its growing economy and these are mainly transported by sea. It is expected that China’s import of crude oil may exceed 300m tons by 2012 given that China is already the world’s second largest importer of oil after the US, and has overtaken Japan.

In 2004, a Chinese newspaper said whosoever controls the Straits of Malacca will have a stranglehold on the energy route to China. The Straits of Malacca, which connect the Indian Ocean and the South China Sea, at its narrowest are only three to four kilometres wide and are one of the busiest waterways in the world. More than 60,000 merchant vessels transit through the Straits each year with giant oil tankers carrying crude from West Asia to the burgeoning economies of China, South Korea and Japan being the more prominent. If the Straits of Malacca were ever to be blockaded, it would mean a detour of at least three to four days extra for ships and that not through safe waters. The Chinese are therefore sceptical of the US and India, the two countries with sufficient naval firepower to cause embarrassment to China-bound shipping, in case it becomes necessary. Because of this, China watches joint exercises between the US and Indian navies with great care and if the Japanese Navy were to join in, Chinese paranoia becomes even more acute.

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The Chinese have already started to take countermeasures to obviate such a necessity. First, they have enhanced the capacity of their strategic reserve whose location and exact quantities are considered a state secret. Second, the Chinese have moved smartly to tie-up additional quantities of crude from countries such as Venezuela so that tankers carrying crude oil for China would not have to cross the Straits of Malacca. In addition, China has recently advanced as loan of $20 billion as enhancement of the line of credit to Venezuela to finance new power plants and infrastructure projects in return for long-term oil supply commitments. Third, and most important of all, are the new pipelines that China is building across the Central Euro-Asian heartland — a new silk route.

As a first step towards this, China has moved rapidly to conclude boundary disputes lingering from the Soviet era with the former Soviet republics of Kyrgyzstan, Uzbekistan and Kazakhstan. With a boundary settlement also successfully negotiated with Russia and Mongolia, China’s entire border with the former Soviet Union and Mongolia is settled and free from incidents and consequent tension. The political and boundary settlements, thus arrived at, make it possible for China to negotiate far-reaching economic and commercial deals with these newly independent but resource-rich nations of Central Asia. Since China is in need of vast amounts of energy for its booming economy, it is natural that it would negotiate crude oil and gas supply arrangements. They did it first with Kazakhstan and by 2004 the construction of a 620-mile long oil pipeline costing about $700 million began, which would join Atasu in Kazakhstan with Alashankou in Xinjiang. The construction was completed by December 2005. This pipeline can carry 2,00,000 barrels a day of crude oil and its capacity could be doubled by 2012.

Similarly, China has moved to tap the vast natural gas resources located in Turkmenistan. It is estimated that Turkmenistan holds the fifth largest gas reserves in the world. By 2009, negotiations were complete for a 1,140 kilometre long gas pipeline that would carry 30bcm gas from Turkmenistan through Uzbekistan and southern Kazakhstan to the Chinese town of Horgos. From here it would link up with the existing Chinese pipeline system. Thus, both crude and gas from Central Asia would soon be fuelling the engines of the Chinese economy and its growth centres situated along its Pacific coastline.

BUT THE most important development has been the construction of the Russian Eastern Siberian-Pacific pipeline, which commenced on April 27, 2009. This became possible as the result of an agreement between Russia and China under which China would offer Russian firms long-term credit amounting to $25 billion in return for 300mt of oil through this pipeline for the period 2011 to 2030.This pipeline begins in the Russian city of Taishet and reaches the Russian Pacific coastline some 2,500 miles away, and is capable of supplying crude to China and other Pacific Ocean countries such as Japan and South Korea. The Russians have built a new oil terminal port at Kozmino on the Pacific coastline. At a point near Skovorodino, inside the Russian Far East, this pipeline is barely 30 miles away from the Chinese border and a branch is being built to supply crude to China directly. The capacity of the pipeline is estimated at 6,00,000 barrels a day. Thus, Russia can supply Siberian crude independently to China as well as to Japan and South Korea.

These pipelines are beyond the reach of a credible military threat, freeing China from the worry of its economic lifeline being choked at the Straits of Malacca. This also gives China a freer hand to manoeuvre, particularly in the South China Sea area. India will have to be very watchful.

For Russia this is a new beginning. It is hugely dependent on its oil and gas exports and so far it could only send them westward since all its pipelines were designed for exports to the west. Russia was always at a disadvantage for it could not sell to another region. The West, on the other hand, could always look at alternative supplies from West Asia, just in case Russia baulked or was not price-competitive. With the opening of the new pipeline, new opportunities have opened up for Russia. If the West declines to lift Russian oil and gas exports, Russia can easily switch supplies to the east through this new pipeline. For Russia this is of great strategic significance.

Thus, as these new pipelines snake through the Euro-Asian heartland, they are following the old silk route to China. In the past, the fabled wealth of Cathay attracted travellers such as Marco Polo from Europe. The goods Marco Polo brought back and the stories of fabulous wealth fired the imagination of the Europeans to seek the wealth through the sea route to the Indies and to China. The overland route was thought to be risky, dangerous and long. Today, the tables have been turned. The wealth of the Central Euro-Asian heartland is attracting nations like the US, Russia and China. How this pans out will determine the fortunes of these countries.

RS Kalha is a former secretary in the ministry of external affairs.
[email protected]

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Posted on 25 July 2011
 

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