China's energy needs

China is planning to build a second natural gas pipeline from western China to eastern China. The pipeline is needed to meet China's ever growing appetite for energy resources.

Still in the feasibility research stage, there is no timetable yet for its construction, said Li Runsheng, spokesman of the China National Petroleum Corporation (CNPC), China's largest natural gas producer.

Whether or when it will be constructed depends on supply and demand in China's natural gas market, he said.

The unbalanced distribution of natural gas resources is outstanding in the country, said Tang Yali, vice president of the Natural Gas and Pipeline Company under PetroChina.

East and Central China are experiencing rapid economic growth but also suffering shortage of energy.

The first pipeline went into operation in 2004. Construction of a potassium nitrate facility has started to support that pipeline. It sounds like the potassium nitrate would be used in explosives to dig out an underground gas storage facility.

A vacuum potassium nitrate making facility, a supportive item for China's west-east pipeline project, on Saturday broke ground for construction in Jintan City, Jiangsu Province.

It is the largest of the kind in the country, according to information from the Jintan Salt Chemical Industry Co. Ltd of the China National Salt Group (CNSG).

With a budget of 260 million yuan (about 32.06 million U.S. dollars), the facility will be built with the key equipment imported from Germany. It will be able to produce 1 million tons of niter, or potassium nitrate, a year upon completion, and the purity of the products will reach 99.9 percent.

Such activity is emblematic of how China's growth is closely tied to how well it can secure energy resources. It is for this reason that China is in the most uncomfortable positions, diplomatically speaking, in the confrontation over Iran's nuclear program. China needs Iranian oil, but doesn't want to endanger its trade relations with the West by openly aiding Iran in its quest for nuclear weapons. According to a PINR article:

In mid-February 2006, amid controversy over Iran's nuclear research program, China and Iran announced an energy deal potentially worth US$100 billion. According to the agreement, state-owned China Petroleum & Chemical Corporation, or Sinopec, will develop Iran's Yadavaran oil field, and China agreed to buy from Iran ten million tons of liquefied natural gas per year for 25 years beginning in 2009. Sinopec would assume a 51 percent stake in the field, expected to produce 300,000 barrels per day, with 29 percent going to India's Oil and Natural Gas Corporation (O.N.G.C.) and the remaining 20 percent to either Iranian firms or another foreign company such as Royal Dutch Shell.

This deal is the latest and most significant step in economic relations between the two states. Trade between China and Iran increased from US$1.2 billion in 1998 to US$7.5 billion in 2004, and jumped to US$9.5 billion in 2005. China currently imports about 13 percent of its oil from Iran alone and, as consumption continues to rise, will be increasingly reliant on foreign oil. Additionally, Beijing has made recent significant energy investments in Indonesia, Venezuela, Sudan, and Nigeria, and plans to construct a pipeline connecting Iran to Kazakhstan, which would in turn supply China. [See: "Economic Brief: China's Energy Acquisitions"]

In Iran, China intends to become involved in everything from exploration, drilling and pipelines in order to meet its own increasing energy needs. Collaboration extends beyond energy, as there are presently more than 100 Chinese companies working in Iran in sectors such as dam and shipbuilding, steel production and development of seaports and airports. The Iranian Embassy in Beijing described this collaboration as "following the rule of mutual benefits and respect in all bilateral cooperation."

It appears that the two states wish to conclude the deal before any possible international sanctions on Iran are imposed. To do so would limit U.S. and E.U. options, and a Chinese veto, or the threat of one, at the U.N. Security Council will complicate Western aims to punish Iran. However, Beijing has stated its commitment to nuclear non-proliferation, and diplomatic resolution is "not only in the interests of China, but in the interests of all parties concerned."

As mentioned here before, China has a significant dependence on Middle Eastern oil. China has made recent moves to strengthen ties with Saudi Arabia for instance. But, China also wants to diversity its supply, and deals with Iran can do that.

What China does now as the UN Security Council picks up the Iran matter will be one of the most interesting things to watch.