Sep
26

Oil Security and China’s Engagement in South Sudan

 
Earlier this month, China announced plans to deploy one battalion, or 700 troops, to join United Nations peacekeeping operations in the newly independent, war-torn nation of South Sudan. In its byline, the Wall Street Journal said that the deployment marks a “sharp escalation in Beijing’s efforts to protect interests in Africa.” Just yesterday, Chinese officials confirmed these developments. But while China has become a more active player in the region, some media outlets speculated that the country is actually using UN deployments as a cover for protecting its critical energy investments. One thing is for certain: as China’s appetite for energy has grown over the past decade, its recent deployment demonstrates its newfound political and military commitment to a part of the world that is, at best, geopolitically challenging. According to the Energy Information Administration (EIA), China accounted for nearly one-third of global oil demand growth in 2013. Since the first quarter of 2006, its oil demand has grown from 6.5 million barrels per day (mbd) to 10.26 mbd in the second quarter of 2014 (Figure 1). Figure 1. Change (year-over-year) in China Oil Demand, Q1 2006 to Q4 2015 Est. In a recent paper, published by the International Association for Energy Economics (IAEE), development finance analysts Giorgio Gualberti, Morgan Bazilian, and Todd Moss point out that Chinese investment is now integral to the economic vitality of the Sub-Saharan African region. The country’s promotion of the Forum for Sino-Africa Cooperation, as well as the China Africa Development Fund, demonstrate this important trend. The authors add that Chinese trade with the region has also significantly grown over the past decade, and eclipsed declining investments by the United States. The IAEE paper notes that China is now the largest development partner in the region, and accounts for 41 percent of total energy sector commitments. This proportion is greater than the 18 percent stake of the European Union (EU), and one percent stake of the U.S. Overall, their data shows, exports to China and the U.S. are much more concentrated in the fossil fuel and mineral industries than exports to the EU. In South Sudan, China’s energy sector investments represent nearly all of its sector-wide assets. It has outpaced U.S. funds in Ethiopia, Ghana, the Gambia, Zambia, Zimbabwe, and others between 2000 and 2012 (Figure 2). The BBC estimates that, before the country split in 2011, China invested upwards of $12 billion into the former Sudan. Last year, investments in the South paid off: it imported twice as much oil from South Sudan than it did from Nigeria, an OPEC member and major oil producer. Figure 2. Development Finance for the Energy Sector of African Countries from US, EU and China 2000-2012 (USD Millions) Earlier this year, forces loyal to President Salva Kiir shutdown production in South Sudan’s Unity state. Clashes between government forces and rebels have created a humanitarian crisis that has uprooted 1.5 million people thus far, and placed some seven million at risk of hunger or disease. Ongoing tensions have also reduced the country’s oil exports to China by nearly one fifth this year. Careful to avoid its experience with unpredictable supply in Libya, it offered a rare political mediation earlier this year when Foreign Minister Wang Yi met leaders on both sides of the conflict. China has also been active in pushing Ethiopian-led mediation efforts internationally. A political settlement is clearly in China’s economic interest. Just three years ago, a unified Sudan was the second largest non-OPEC oil-producing nation in Africa. In 2010, its oilfields produced 490,000 barrels per day (bbl/d), but military confrontations pushed production to near record lows by the fourth quarter of last year, to an average of 100,000 bbl/d. Today, production is just coming back on line (Figure 3). According to EIA, recent satellite images show heavy damage to the oil infrastructure. The China National Petroleum Corporation, one of the country’s national oil companies, owns a 40 percent stake in the Greater Nile Petroleum Operating Company, and a 41 percent stake in Dar Petroleum Operating Company, the biggest players in Sudan and South Sudan’s oil industries. In SAFE’s “Oil Security 2025,” we highlighted China’s increased bilateral involvement in Sub-Saharan African affairs as a key geopolitical flashpoint. The report points out that as China brings in new energy supplies from the global marketplace, it will also become more vulnerable to supply disruptions and damaging price spikes. Fifty-six percent of China’s oil is imported from abroad. As its population grows and appetite for fuel increases, EIA anticipates that China’s reliance on oil imports will grow to 72 percent by 2040. In the event of a major supply disruption, the country may exert more military and political intervention in developing countries like South Sudan and Angola, an OPEC member and major African oil-producer. China’s economic leverage over the region is certainly valuable in its broader reach for greater political engagement. Oil generates 98 percent of South Sudan’s government revenues, according to the International Monetary Fund. South Sudan now has an economy that is entirely dependent on oil – more so than Angola, another African nation where China has made significant energy investments. And China is in a position to foster improved relations with South Sudan’s northern rival, Sudan. As a landlocked state, South Sudan must cooperate with Sudan in trade and commerce. Most of the region’s oil resources are located in the South, but the infrastructure that connects those supplies to the rest of the world are located in the North. Two major pipelines servicing the region flow northward from South Sudan’s oilfields and refineries to Sudanese export terminals along the Red Sea. As China strengthens its relationships on both sides of the border, it could help both the Sudanese and the South Sudanese realize their mutual interest in resolving ongoing conflicts. Further, as China emerges as a world power, the country’s involvement building strategic partnerships with Sudan and South Sudan may reveal a lot about how China chooses to engage diplomatically with the rest of the world. Contributing to UN peacekeeping operations, and facilitating ongoing conflict mediation between the two countries, may be a start. Ultimately, it may depend on whether or not forces are there primarily to broker political agreements, or protect economic interests.
Sep
26

Consumer Gas Spending Near All-Time High in 2013 Despite Oil Boom

 

SAFE's analysis of the latest data from the Bureau of Labor Statistics finds that despite record domestic oil production, U.S. consumer spending on gasoline remained near all-time highs last year. Recent data from the Consumer Expenditure Survey (CES) from the Bureau of Labor and Statistics (BLS) indicates that the average U.S. household spent more than $2,600 on gasoline in 2013 for the ...

Read More
Sep
25

Oil and Water

 

When most people think of oil production, they imagine a gush of crude oil emerging uninterrupted from the ground. While this scenario is occasionally true when conventional oil fields are first drilled, it rarely lasts for long—the majority of the liquid that comes from an oil well is in fact not oil at all, but something called “produced water.” According ...

Read More
Sep
19

Heavy Duty Vehicle Fuel Economy Matters to All Americans

 

Earlier this year, President Obama announced a plan to bolster the fuel economy of the nation’s medium- and heavy-duty trucks. The new rules, to be prepared by the Environmental Protection Agency (EPA) and the Department of Transportation (DOT), will expand on the first-ever fuel economy standards for heavy-duty vehicles finalized in the administration’s first term. The current rules raised fuel ...

Read More
Sep
17

Understanding Inelasticity of Transportation Demand

 

Last week, the Bureau of Labor Statistics released its latest numbers on consumer spending for 2013. Drawing from the updated figures, we did a write-up of the burden of gas prices on American households, particularly its lowest earners. Overall, 5 percent of U.S. household spending is dedicated to gasoline, with that figure approaching 12 percent for the lowest-earning quintile. However, ...

Read More