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Sunday, January 09, 2022
Autonomy in China's Energy Security Strategy
ANBOUND

On October 21, 2021, when visiting Shengli Oilfield, Chinese President Xi Jinping stressed that "China, as a major manufacturing country, must have its own energy industry in order to develop the real economy". The sixth plenary session of the 19th Central Committee of the Communist Party of China also stressed "balancing development and security imperatives" and "incorporating security imperatives into all areas throughout the process of national development". China's major security issues include ensuring food security, energy security, resource security, industrial security, and supply chain security. The Central Economic Work Conference held in December 2021 stressed the need to "ensure energy supply" and "further promote the energy reform and speed up efforts to build the country into a major power in terms of energy". Recently, President Xi has repeatedly talked about the supply of primary products, including energy, mentioning that "for a big country like China, ensuring the supply of primary products is a major strategic issue".

It can be seen that China has put the energy security issue at the top of its strategic security agenda. China has set its strategy to secure food security, that is, to achieve "food autonomy". Now, a similar strategy is proposed to secure energy security, namely "energy autonomy". According to official data, during the "13th Five-Year Plan" period, China's ability to secure energy autonomy has been maintained at more than 80%.

The central government is certainly right to stress the critical importance of energy security. Chinese policymakers are concerned that a major shortfall in the supply of primary products could turn into a major risk event for the country. Researchers at ANBOUND believe that China's energy security issue as a whole is similar to that of food security. Nevertheless, it differs in a few key areas. While China can achieve food autonomy (i.e., rice, wheat) with its own efforts, it will be more difficult for the country to achieve energy autonomy when it comes to traditional energy sources such as oil and gas.

According to figures previously disclosed by Central Financial and Economic Affairs Commission, China's dependency ratio on oil imports was 77% in 2020, 81% on iron ore imports, 78% on copper concentrate imports, and 84% on soybeans imports. In addition, China's dependency ratio on natural gas imports was also high. According to the IEA's Global Energy Review 2021, China's natural gas consumption reached 328 billion cubic meters in 2020, accounting for 8.6% of world consumption; imports of compressed natural gas and liquefied natural gas were 47.66 billion cubic meters and 92.64 billion cubic meters, respectively, totaling 140.3 billion cubic meters, accounting for 14.9% of world natural gas trade and the dependency ratio was about 42%.

Therefore, from the perspective of energy resource endowment, energy production, energy consumption, and "dual carbon" goals, ANBOUND's researchers believe that China's definition of "energy autonomy" must be different from that of "food autonomy". It is almost impossible for China to fully achieve energy security. As the world's largest energy consumer, China's energy security is more about the concept of "comprehensive security", which is to ensure that its future energy needs are met stably through a variety of comprehensive means. In our view, China's comprehensive energy security includes the following aspects:

First, the production capacity of domestic traditional energy should be expanded and improved to enhance energy production efficiency; and new traditional energy reserves should be actively explored and discovered. In addition, it should ensure the security and stability of overseas oil, gas, and coal import sources and import channels, and form a security system supported by diversified overseas energy supplies. After decades of operation, China has built up a supply network of overseas oil and gas from a number of locations, including the Middle East, Africa, South America, Central Asia, Russia, ASEAN, Oceania, and the United States. However, maintaining the security of traditional energy supplies in the context of rising geopolitical frictions will pose a growing challenge to China. Recently, the political turmoil in Kazakhstan has sounded the alarm bell for China's energy security. Therefore, on the one hand, China needs to construct a supply system of traditional energy to ensure energy security; on the other hand, China needs to reduce its over-dependence on fossil fuels.

Second, China needs to continue promoting the development of various renewable energy sources and reduce its dependence on fossil fuels. Under climate change, China's energy security is not just a question of "whether there is energy", but also a question of "what energy to use". Data show that by the end of October 2021, China's cumulative installed power generation capacity using renewable energy exceeded 1 billion kilowatts, doubling that of the end of 2015, with the capacities of hydropower, wind power, solar power, and biomass power remaining the world's largest. Still, the challenge of changing the energy consumption composition in China is significant. Coal accounted for 56.8% of China's energy consumption composition in 2020, followed by oil at 18.9%, natural gas at 8.4%, and primary energy and other non-fossil energy sources (including hydropower, nuclear power, wind power, and other clean energy sources) at 15.9%. It can be seen that it is a long-term process for green energy to contribute to China's energy security.

ANBOUND has previously put forward another strategic proposal to solve energy security issues, which is to build a "hydrogen society". Getting rid of dependence on fossil fuels is an important issue for China's energy security. As mentioned earlier, fossil fuels account for more than 84% of China's energy consumption composition, which is certainly not in line with the future requirements for addressing climate change. Under many constraints, it is entirely possible for China to take extraordinary measures to lead the world in the use of hydrogen energy, which will not only make substantial contributions to tackling global climate change, but also support China's energy security. At the same time, China can also vigorously develop new industries that match the hydrogen society and promote economic growth.

Third, China's energy security issue is not only about the energy supply side but also about the energy consumption side. Significantly improving the efficiency of traditional energy use and reducing the amount of energy required through efficiency improvements will enhance China's energy security capabilities. We have always believed that China's energy-saving and energy consumption reduction should not start with a lofty plan, which often introduces disruptive technologies and completely changes the energy production and consumption system. Such a plan is costly and unrealistic, and more often than not it would hurt economic and industrial development. In the short to medium term, the only way to effectively reduce energy consumption and improve energy security in China is to adopt appropriate technologies to improve energy efficiency. According to our calculations, if China's energy efficiency is raised to the world average level, based on the energy consumption in 2020, China can reduce the consumption of 1.66 billion tons of standard coal, and the corresponding reduction of carbon emissions will be up to 1.25 billion tons. According to estimates by domestic scholars, China's total energy consumption per unit of GDP in 2030 will drop by about 30% compared with that in 2020, depending on continuous progress in technological, structural, and managerial energy conservation.

Final analysis conclusion:

"Energy autonomy" is the latest requirement of China's energy security strategy. However, this requirement does not simply equate to "energy independence", nor is it only about solving the problem of "the availability of energy". Under the multiple pressures of economic development, increasing geopolitical friction, and global climate change, the implication of energy security for the country should be more of a "comprehensive security". China should ensure energy security for its future development from various aspects, including traditional energy supply security, geopolitical security, energy consumption composition adjustment, hydrogen society construction, and energy efficiency improvement.

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