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Asia Climate Security : Asia Climate Security :

PPerception and Realityerception and Reality –– A A China EnergyChina Energy perspectiveperspective

A presentation at the Royal United Services Institute for DefencA presentation at the Royal United Services Institute for Defence e

and Security Studies, Whitehall, London, and Security Studies, Whitehall, London, 24 April 200724 April 2007

Andrew K.P. Leung, SBS, FRSAAndrew K.P. Leung, SBS, FRSA

Founder and ChairmanFounder and Chairman

Andrew Leung International Consultants LimitedAndrew Leung International Consultants Limited

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Hunger for EnergyHunger for Energy

•• Global Industrial RevolutionGlobal Industrial Revolution 2121stst C C

•• History’s largest and fastest urbanisation and industrialisationHistory’s largest and fastest urbanisation and industrialisation

•• Already 41% urbanised, to increase to 60% by 2020 Already 41% urbanised, to increase to 60% by 2020

•• 85,000 km expressway in 30 years > US Interstate by 10,000 85,000 km expressway in 30 years > US Interstate by 10,000 kmkm

•• 7 arteries radiating from Beijing; 9 N/S; 18 E/W7 arteries radiating from Beijing; 9 N/S; 18 E/W

•• 19 m cars (2005) = 8@1000 ~ 500@1000 US 19 m cars (2005) = 8@1000 ~ 500@1000 US –– to jump to to jump to 130 m by 2020 (Goldman Sachs)130 m by 2020 (Goldman Sachs)

•• 24 m jobs p.a.24 m jobs p.a. need ‘to stay even’need ‘to stay even’

•• The looming approach of The looming approach of China’s ‘greying period’China’s ‘greying period’

•• China 94% energy selfChina 94% energy self--sufficient but sufficient but 77% from coal77% from coal

•• 40% crude oil imported40% crude oil imported (target 12(target 12--15%) (Japan, almost all; India 15%) (Japan, almost all; India 6060--70%)70%)

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Scramble for OilScramble for Oil

•• Saudi ArabiaSaudi Arabia (17% supply; 90 day strategic oil reserve: 100,000 cu m at (17% supply; 90 day strategic oil reserve: 100,000 cu m at

ZhenhaiZhenhai; 2; 2ndnd in in QingdaoQingdao, both completed), both completed)

•• IranIran –– YadavaranYadavaran US 20bUS 20b

•• KazakhstanKazakhstan –– 1200 km pipeline completed for 10 1200 km pipeline completed for 10 mbmb to N to N XinjiangXinjiang

•• SCOSCO (+ Russia, Kazakhstan, (+ Russia, Kazakhstan, KyrjystanKyrjystan, Tajikistan, Uzbekistan + observers: , Tajikistan, Uzbekistan + observers: India, Pakistan, Iran, Afghanistan, and Turkey)India, Pakistan, Iran, Afghanistan, and Turkey)

•• Africa Africa (1/3 supply) ~ Sudan and Angola(1/3 supply) ~ Sudan and Angola

•• South AmericaSouth America –– Venezuela as key supplier; as Brazil’s 3Venezuela as key supplier; as Brazil’s 3rdrd largest oil export largest oil export destination destination –– US backyard with centreUS backyard with centre--left tendenciesleft tendencies

•• Russia Russia –– modified eastward pipeline but increasing cooperationmodified eastward pipeline but increasing cooperation

•• AustraliaAustralia upbeat with China but Osaka Gas won 25upbeat with China but Osaka Gas won 25--yr deal for 1.5 m tonnes yr deal for 1.5 m tonnes (cheaper and cleaner) LNG p.a. from Gorgon field (NW) (2.5 m ton(cheaper and cleaner) LNG p.a. from Gorgon field (NW) (2.5 m tonnes for nes for US W Coast for 20 yrs) US W Coast for 20 yrs)

•• JapanJapan –– dispute over fields in East China Sea (7 trillion cu ft of natudispute over fields in East China Sea (7 trillion cu ft of natural gas ral gas and 100 b barrels of oil)and 100 b barrels of oil)

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Environmental degradationEnvironmental degradation•• ‘‘China achieves in China achieves in 20 20 what has taken the West what has taken the West 100 yrs100 yrs , but now faces the environment , but now faces the environment

problems of problems of 100 yrs100 yrs’ ’ –– Pan Pan YueYue, Vice Minister, SEPA, Vice Minister, SEPA

•• World’s largest emitter of World’s largest emitter of SO2SO2

•• Set to overtake the US as the world’s largest Set to overtake the US as the world’s largest CO2CO2 emitter by 2009emitter by 2009

•• Pollution costs 8 billion Pollution costs 8 billion yuanyuan a year in a year in healthcare healthcare ((FudanFudan) ) Air pollutionAir pollution kills 400,000 p.a. kills 400,000 p.a. (Jamestown Review, 2005) Environmental loss = 12(Jamestown Review, 2005) Environmental loss = 12--13% of GDP13% of GDP

•• 1/10 1/10 energy @energy @US, 1/5 @Japanese but 2 x @IndianUS, 1/5 @Japanese but 2 x @Indian

•• Energy @GDPEnergy @GDP 7x Japan, 6x US and 3 x India7x Japan, 6x US and 3 x India

•• 7% of world’s 7% of world’s arable landarable land for 20% world populationfor 20% world population

•• DesertificationDesertification –– 25% of land already desert25% of land already desert

•• @ @ freshwater freshwater = 1/3 world average, very unevenly distributed = 1/3 world average, very unevenly distributed –– 64% land with 20% water64% land with 20% water

•• 7 main 7 main riversrivers and 25 of 27 main and 25 of 27 main lakeslakes already polluted; 1/5 already polluted; 1/5 citiescities face water shortages, face water shortages, 90% have pollution problems; 500 m without access to 90% have pollution problems; 500 m without access to safe drinking watersafe drinking water

•• China’s Water CrisisChina’s Water Crisis, Ma Jun (voted by Time Magazine as one of world’s 100 most , Ma Jun (voted by Time Magazine as one of world’s 100 most influential persons, May 2006) influential persons, May 2006)

•• Yellow River running dryYellow River running dry due to increased irrigation, urbanisation, silting, and climatedue to increased irrigation, urbanisation, silting, and climatechange; its floods threaten 78m (change; its floods threaten 78m (When the Rivers Run DryWhen the Rivers Run Dry, Fred Pearce, 2006). , Fred Pearce, 2006).

•• FirstFirst--ever ever National Assessment Report on Climate ChaosNational Assessment Report on Climate Chaos (26.12.2006):(26.12.2006):

•• Av temp in China to rise 1.3 Av temp in China to rise 1.3 --2.1 degrees C by 20202.1 degrees C by 2020

•• Glaciers on Qinghai Tibet Plateau shrinking by 131.4 sq km p.a.Glaciers on Qinghai Tibet Plateau shrinking by 131.4 sq km p.a.

•• Those in Western China melting down by 27.2% by 2050Those in Western China melting down by 27.2% by 2050

•• Extreme weather conditions Extreme weather conditions –– floods, draughts, diseases, water and food scarcityfloods, draughts, diseases, water and food scarcity

•• Calls for dramatic transformation of China’s development modelCalls for dramatic transformation of China’s development model

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Energy security and geopoliticsEnergy security and geopolitics•• SupplySupply ––

•• By 2020 ME will account for 83% of global oil reserves (up from By 2020 ME will account for 83% of global oil reserves (up from 2/3 at present), 2/3 at present),

•• Debate notwithstanding, the topping point is in sight (now ~ 3 dDebate notwithstanding, the topping point is in sight (now ~ 3 decades?) ecades?) –– Half Half Gone, Jeremy Leggett, 2005Gone, Jeremy Leggett, 2005

•• Not how much is left but how soon can it be got out?Not how much is left but how soon can it be got out?

•• Transportation Transportation ––

•• Much passing through IranMuch passing through Iran--controlled Strait of controlled Strait of HortmuzHortmuz and Strait of Malacca and Strait of Malacca (controlled by US with naval base at (controlled by US with naval base at ChangiChangi, Singapore), Singapore)

•• Hence alternative land supply routes Hence alternative land supply routes e.ge.g Central Asia, Russia, Central Asia, Russia, GwadarGwadar PortPort

•• Geopolitics Geopolitics ––

•• Scramble for OilScramble for Oil

•• Oil Oil politikpolitik –– Russia and IranRussia and Iran

•• Territorial disputes Territorial disputes

•• 1996 Iran and Libya Sanctions Act1996 Iran and Libya Sanctions Act

•• EconomicsEconomics –– cost (2004 price rise decreased China’s GDP by 0.8%) and cost (2004 price rise decreased China’s GDP by 0.8%) and volatility, industrialisation, urbanisation, income, employment,volatility, industrialisation, urbanisation, income, employment, overall overall developmentdevelopment

•• EnvironmentEnvironment

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Drive for Sustainable DevelopmentDrive for Sustainable Development•• The impossible The impossible American DreamAmerican Dream

•• 1111thth Five Year PlanFive Year Plan (2006 (2006 --10): 4% saving + 2% reduction p.a.10): 4% saving + 2% reduction p.a.

•• China to invest China to invest US 2.3 trillion inUS 2.3 trillion in energy developmentenergy development 20012001--30 (30 (IEAIEA))

•• US 200 b on US 200 b on renewable energyrenewable energy next 15 yrs (^ 7next 15 yrs (^ 7--10% p.a. by 2010 and 20% p.a. by 2020)10% p.a. by 2010 and 20% p.a. by 2020)

•• 2 2 nuclear powernuclear power stations p.a. for next 15 yearsstations p.a. for next 15 years

•• S/N S/N Water Diversion ProjectWater Diversion Project (US 60 billion)(US 60 billion)

•• Three Gorges DamThree Gorges Dam to increase hydroelectric power from 108 GW to 290 GW by 2020 to increase hydroelectric power from 108 GW to 290 GW by 2020 ––China’s full potential at 400 GWChina’s full potential at 400 GW

•• Wind powerWind power (~ Inner Mongolia) to grow from 1 GW to 30 GW for 13(~ Inner Mongolia) to grow from 1 GW to 30 GW for 13--30 million 30 million households by 2020households by 2020

•• 30 m 30 m solarsolar households households e.ge.g Tibet (60% of world); photovoltaic energy = 65 MW, to Tibet (60% of world); photovoltaic energy = 65 MW, to increase to 300 m sq meters for 2 GW by 2020 (= 40 million tonneincrease to 300 m sq meters for 2 GW by 2020 (= 40 million tonnes of coal p.a.) NYSEs of coal p.a.) NYSE--listed listed SuntechSuntech, within world’s top ten, within world’s top ten

•• SASOL to build SASOL to build CTLCTL plant in plant in NingxiaNingxia and and ShaanxiShaanxi at total cost of US 10 bat total cost of US 10 b

(10 m tonnes of crude oil by 2010; 30 m tonnes by 2020 = 16(10 m tonnes of crude oil by 2010; 30 m tonnes by 2020 = 16 % of China’s crude output)% of China’s crude output)

Attractive current cost US 15 per barrelAttractive current cost US 15 per barrel

•• 33rdrd largest largest ethanol ethanol producer ~ 1 b gallons p.a. in Heilongjiang, producer ~ 1 b gallons p.a. in Heilongjiang, JilinJilin, , LiaoningLiaoning, , AnhuiAnhui and and HenanHenan -- Mandated use of gasoholMandated use of gasohol

•• Incentives for Incentives for energy crops energy crops (+GM)(+GM) e.g. corn, sugar cane, sweet sorghum, and sweet e.g. corn, sugar cane, sweet sorghum, and sweet potato (corn= 20% grain production so drive for rapeseed, waste potato (corn= 20% grain production so drive for rapeseed, waste and and biomass)biomass)

•• US 8 b US 8 b plantplant--oiloil plantation project in Kalimantan, Indonesia, threatens 1.8 m heplantation project in Kalimantan, Indonesia, threatens 1.8 m hectares of ctares of virgin forest (2/3 size of Belgium)virgin forest (2/3 size of Belgium)

•• World’s first World’s first EcoEco--city city at at DongtanDongtan on on ChiongmingChiongming Island, to open in time for Shanghai Island, to open in time for Shanghai Expo 2010Expo 2010

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Energy CooperationEnergy Cooperation

•• Priorities: Priorities: Energy Supply & Security, Exploration, Coordination, Efficiency,Energy Supply & Security, Exploration, Coordination, Efficiency,Safety, Clean and Sustainable Energy R & D and TechnologiesSafety, Clean and Sustainable Energy R & D and Technologies

•• New New DehliDehli initiativeinitiative ((ManiMani ShankarShankar Aiyar,Indian’sAiyar,Indian’s Oil Minister, 11. 2005) Oil Minister, 11. 2005) ––20,000 km oil and gas pipelines linking Russia, Japan, S Korea, 20,000 km oil and gas pipelines linking Russia, Japan, S Korea, China, India, China, India, Thailand, Myanmar, Bangladesh, Pakistan, Iran and Central Asia. Thailand, Myanmar, Bangladesh, Pakistan, Iran and Central Asia. (Iran(Iran--PakistanPakistan--India pipeline could extend to India pipeline could extend to YunnanYunnan, China), China)

•• YadavaranYadavaran: China (50%) India (20%); : China (50%) India (20%); SudanSudan’s Greater Nile Project: China ’s Greater Nile Project: China (40%) India (25%)(40%) India (25%)

•• Pakistan’s Pakistan’s GwadarGwadar PortPort offers alternative route overland for ME and Africa oiloffers alternative route overland for ME and Africa oil

•• FiveFive--country Energy Ministers Meetingcountry Energy Ministers Meeting, Beijing, 16.12.2006 (China, India, , Beijing, 16.12.2006 (China, India, Japan, S Korea, and US)Japan, S Korea, and US)

•• Asian Energy Agency? (Asian Energy Agency? (AEAAEA~ IEA)~ IEA)

•• China exploiting only China exploiting only 40 m of 7.3 billion tonnes40 m of 7.3 billion tonnes standard coal equivalent of standard coal equivalent of renewal energy resourcesrenewal energy resources

•• Cost reduction technologyCost reduction technology for for renewablesrenewables: large: large--scale power 20% > expensive if scale power 20% > expensive if produced in small hydropower stations, 70% > biomass or wind andproduced in small hydropower stations, 70% > biomass or wind and 1010--17 times 17 times > with solar cells.> with solar cells.

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China’s energy agendaChina’s energy agenda

•• Five challengesFive challenges::

•• (a) Supply shortfall(a) Supply shortfall

•• (b) Production capacity(b) Production capacity

•• (c) Coal pollution(c) Coal pollution

•• (d) Obsolete technology(d) Obsolete technology

•• (e) Supply and price volatility(e) Supply and price volatility

•• President President HuHu at at G8 DialogueG8 Dialogue at St Petersburg (17.7.2006):at St Petersburg (17.7.2006):

•• (a) cooperation, coordination and diversification(a) cooperation, coordination and diversification

•• (b) promotion of R & D in clean, safe, economic, and sustainable(b) promotion of R & D in clean, safe, economic, and sustainable energiesenergies

•• (c) geopolitical environment conducive to global energy security(c) geopolitical environment conducive to global energy security and and

stabilitystability

•• International ThermoInternational Thermo--nuclear Energy Reactor (nuclear Energy Reactor (ITERITER) 35 yr ) 35 yr

project for inexhaustible, clean and safe fusion energy project for inexhaustible, clean and safe fusion energy –– EU, EU,

Japan, China, India, Korea, Russia and USJapan, China, India, Korea, Russia and US

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Climate SecurityClimate Security•• Climate Change Climate Change (IPCC)(IPCC)

•• Whole forest types disappearingWhole forest types disappearing

•• Gulf Stream disruptedGulf Stream disrupted

•• Biodiversity lossBiodiversity loss

•• SeaSea--level riselevel rise

•• Global insurance industry threatenedGlobal insurance industry threatened

•• Food and water supplies at riskFood and water supplies at risk

•• Human health at riskHuman health at risk

•• Consequential local, regional, and international conflictsConsequential local, regional, and international conflicts

•• Threat to societal stabilityThreat to societal stability

•• Amplifying feedbacks Amplifying feedbacks e.ge.g melting permafrost (methane=24CO2)), dying forests, receding glmelting permafrost (methane=24CO2)), dying forests, receding glaciers and aciers and icefieldsicefields

•• Possible Tipping Point of Runaway EffectPossible Tipping Point of Runaway Effect((Half Gone Half Gone –– Jeremy Leggett, 2005)Jeremy Leggett, 2005)

•• Water CrisesWater Crises•• Melting glaciers deplete sources for the Ganges, Indus, Melting glaciers deplete sources for the Ganges, Indus, BrahmaputraBrahmaputra, , SalweenSalween, , IrradwaddyIrradwaddy, Mekong, Yangtze , Mekong, Yangtze

•• Ever deeper boreholes drying up irreplaceable aquifers (some arsEver deeper boreholes drying up irreplaceable aquifers (some arsenic)enic)

•• Dams threaten ecosystems and fisheries in river basins (e.g. MekDams threaten ecosystems and fisheries in river basins (e.g. Mekong) and caused floods during extreme rainfallsong) and caused floods during extreme rainfalls

•• Rotten vegetation in reservoirs Rotten vegetation in reservoirs -- 1/5 man1/5 man--made methane (7% manmade methane (7% man--made greenhouse effect) > aircraft emissions made greenhouse effect) > aircraft emissions –– most most needed for electricity and irrigation for water and energyneeded for electricity and irrigation for water and energy--intensive industries e.g. textilesintensive industries e.g. textiles

•• By 2025, water demand for domestic and industrial use to increasBy 2025, water demand for domestic and industrial use to increase by 2/3; scarcity expected to reduce global food e by 2/3; scarcity expected to reduce global food production > US grain harvestproduction > US grain harvest

•• Water at heart of regional conflicts inc the West Bank and GolanWater at heart of regional conflicts inc the West Bank and Golan heights, and Kashmirheights, and Kashmir

•• WaterWater--related catastrophes wiped out ancient civilizations of Angkor related catastrophes wiped out ancient civilizations of Angkor WatWat and the Mayans?and the Mayans?

((When the Rivers Run Dry When the Rivers Run Dry –– Fred Pearce,2006)Fred Pearce,2006)

•• Balance between Balance between Industry and AgricultureIndustry and Agriculture? ? –– Also China’s 11Also China’s 11thth FYPFYP

•• New global lifestyle needed?New global lifestyle needed? 11stst 1988 Conference, 75 Nobel Prize Laureates concluded ‘If mankind1988 Conference, 75 Nobel Prize Laureates concluded ‘If mankind is to survive 21is to survive 21ststCentury, the ancient wisdom of Confucianism (harmony with NatureCentury, the ancient wisdom of Confucianism (harmony with Nature) must be revisited.’ ) must be revisited.’ cfcf Environmentalism, Renewable Environmentalism, Renewable Energies, rain, fog and dew harvesting (

1010

A Green Bonanza?A Green Bonanza?•• Surge in Surge in green investmentsgreen investments worldwide (worldwide (EconomistEconomist, , 18 November 200618 November 2006): ):

Aggregate US 63 b (2006) >US 49 b (2005), US 30 b (2004), growinAggregate US 63 b (2006) >US 49 b (2005), US 30 b (2004), growing 20g 20--30% 30% p.a. (biggest job and wealth creation opportunity in 21p.a. (biggest job and wealth creation opportunity in 21stst C?)C?)

•• UN set up UN set up carbon tradingcarbon trading exchange in Beijing (exchange in Beijing (FT, 5 Feb, 2007FT, 5 Feb, 2007))

•• Intergovernmental Panel on Climate Change (Intergovernmental Panel on Climate Change (IPCCIPCC) 2007 Report echoed by ) 2007 Report echoed by Bush (State of Union Address), UK and rest of worldBush (State of Union Address), UK and rest of world

•• Toyota developing new generation of Toyota developing new generation of PriusPrius: BMW pioneering with : BMW pioneering with hydrogen hydrogen fuel carsfuel cars; GM announced plan to sell hydrogen; GM announced plan to sell hydrogen--cell vehicles by 2010; Japan cell vehicles by 2010; Japan plans 50,000 fuelplans 50,000 fuel--cell vehicles by 2010; China R & D at US 200 m p.a. for cell vehicles by 2010; China R & D at US 200 m p.a. for past few years to be world leader in hydrogenpast few years to be world leader in hydrogen--fuelfuel--cell cars; 172 prototypes cell cars; 172 prototypes and 87 hydrogen filling stations already created worldwideand 87 hydrogen filling stations already created worldwide

•• New urban New urban planning and transportplanning and transport systemssystems

•• Possible new Possible new 2121stst C lifestyleC lifestyle to drive Ecoto drive Eco--Industrial Revolution (Industrial Revolution (2121stst C C Management, Matthew Kiernan, 1996Management, Matthew Kiernan, 1996) or Ecological Civilisation () or Ecological Civilisation (Pan Pan YueYue, , Vice Minister, China’s State Environmental Protection AdministraVice Minister, China’s State Environmental Protection Administration, tion, February 2007February 2007))

•• China sets up new China sets up new State Foreign Exchange Investment CorporationState Foreign Exchange Investment Corporation to invest to invest growth (US 210 b p.a.) of China’s huge foreign currency reserve growth (US 210 b p.a.) of China’s huge foreign currency reserve –– an an opportunity to kill many birds with one stone?opportunity to kill many birds with one stone?

•• Partnership with Partnership with PetrodollarsPetrodollars??

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Thank youThank you

Andrew Andrew K.P.LeungK.P.Leung, SBS, FRSA, SBS, FRSA

www.andrewleunginternationalconsultants.comwww.andrewleunginternationalconsultants.com

Founder and Chairman, Andrew Leung International Consultants LimFounder and Chairman, Andrew Leung International Consultants Limitedited

Chairman, China Group, Institute of Directors City Branch, LondoChairman, China Group, Institute of Directors City Branch, Londonn

Chairman, China Group, Royal Society of Arts, London RegionChairman, China Group, Royal Society of Arts, London Region

Senior Consultant, MEC InternationalSenior Consultant, MEC International

Member, Executive Committee, 48 Group ClubMember, Executive Committee, 48 Group Club

Member, Governing Council, King’s College LondonMember, Governing Council, King’s College London

Member, Advisory Board, China Policy Institute, Nottingham UnivMember, Advisory Board, China Policy Institute, Nottingham Universityersity

Invited Member, ATCA (Asymmetric Threats Contingency Alliance) Invited Member, ATCA (Asymmetric Threats Contingency Alliance) -- elite elite global thinkglobal think--tanktank

Visiting Professor, NIMBAS Graduate School of Management, HollanVisiting Professor, NIMBAS Graduate School of Management, Hollandd

Visiting Professor, Business School, Sun Visiting Professor, Business School, Sun YatYat--sensen University, ChinaUniversity, China

Visiting Professor, Business School, Visiting Professor, Business School, LingnanLingnan University, ChinaUniversity, China

Global Business Agent, Global Business Agent, ChangshaChangsha City, ChinaCity, China