10.2 Problems and Challenges Facing
China’s Future
International Energy
Cooperation
International energy cooperation is an important
means to improve energy security and promote
sustainable energy development in all countries.
Energy cooperation enables a single country to
reap benefits that it cannot acquire alone. It is
therefore important that China and other countries cooperate to safeguard their energy interests
through multilateral partnerships and multi-level
international cooperation mechanisms.
China’s international energy cooperation is
faced with a series of real and potential problems
and challenges.
10.2.1 Problems
First, most of China’s international energy
cooperation is through dialogue or general
cooperation. China mainly joins organisations
that are established for coordination or dialogue,
but rarely joins alliances or organisations subject
to laws or regulations. Due to its membership in
only a few international energy cooperation
organisations, China has a low level of international cooperation. At the regional level, China
participated in more cooperation organisations
with legally binding agreements. In the
Asia-Pacific region, although China plays an
important role in international organisations
(such as APEC, Shanghai Cooperation Organisation and ASEAN), energy cooperation in this
region, especially in East Asia (including South
East Asia and North East Asia), lacks the legal
and institutional framework and relevant energy
cooperation organisations.
Second, China’s overseas energy investment
is still at an early stage. In oil, China is gradually
developing from a small- to a large-scale investor
and is broadening the scope of its investments.
These include oil field production management
and technical services, oil field development,
engineering and construction, risk exploration,
oil trade, equipment export, and oil and gas asset
acquisition.
Third, China does not have pricing power in
the international energy market. Lacking control
and influence, China has been disadvantaged in
international energy competition for a long time,
so it can only passively accept the implications of
rising international oil prices. In terms of pricing,
China has no perfect oil futures market; it has yet
to establish a pricing mechanism for imported oil
based on procurement risk and, therefore, does
not have the muscle to influence international oil
prices. If the price of oil rises, China has to pay a
premium that western countries do not. As a
result of the high cost of importing crude oil,
China’s oil products are less competitive and its
oil product companies less profitable, but
household consumption expenditure keeps
rising.
Fourth, China faces a complex political
environment in energy diplomacy (the political
risks of energy security are even greater than
commercial risks). China’s huge oil demand and
heavy dependence on imported oil put great
pressure on the international oil market. China’s
development of oil resources in the South China
Sea and the East China Sea has led to regional
conflicts over resources. China’s energy diplomacy, which is directed at strategic interests and
traditional geopolitics, will also impact the
international order led by the USA.
In addition, China needs to address several
issues related to international energy cooperation,
including long-term energy cooperation strategies, establishing high-level coordination mechanisms and risk guarantee mechanisms for
international cooperation, supportive financial
and fiscal taxation policies, and technical support
and basic research work.
10.2.2 Challenges
The challenges that China faces are either internal or external.
Internally, China’s main challenge is insufficient international energy cooperation. First,
Chinese energy companies are usually good at
managing domestic projects but lack international management experience. Unlike the
domestic market, international projects have a
Special Report 5: International Energy Cooperation and Governance
665
China’s Future
International Energy
Cooperation
International energy cooperation is an important
means to improve energy security and promote
sustainable energy development in all countries.
Energy cooperation enables a single country to
reap benefits that it cannot acquire alone. It is
therefore important that China and other countries cooperate to safeguard their energy interests
through multilateral partnerships and multi-level
international cooperation mechanisms.
China’s international energy cooperation is
faced with a series of real and potential problems
and challenges.
10.2.1 Problems
First, most of China’s international energy
cooperation is through dialogue or general
cooperation. China mainly joins organisations
that are established for coordination or dialogue,
but rarely joins alliances or organisations subject
to laws or regulations. Due to its membership in
only a few international energy cooperation
organisations, China has a low level of international cooperation. At the regional level, China
participated in more cooperation organisations
with legally binding agreements. In the
Asia-Pacific region, although China plays an
important role in international organisations
(such as APEC, Shanghai Cooperation Organisation and ASEAN), energy cooperation in this
region, especially in East Asia (including South
East Asia and North East Asia), lacks the legal
and institutional framework and relevant energy
cooperation organisations.
Second, China’s overseas energy investment
is still at an early stage. In oil, China is gradually
developing from a small- to a large-scale investor
and is broadening the scope of its investments.
These include oil field production management
and technical services, oil field development,
engineering and construction, risk exploration,
oil trade, equipment export, and oil and gas asset
acquisition.
Third, China does not have pricing power in
the international energy market. Lacking control
and influence, China has been disadvantaged in
international energy competition for a long time,
so it can only passively accept the implications of
rising international oil prices. In terms of pricing,
China has no perfect oil futures market; it has yet
to establish a pricing mechanism for imported oil
based on procurement risk and, therefore, does
not have the muscle to influence international oil
prices. If the price of oil rises, China has to pay a
premium that western countries do not. As a
result of the high cost of importing crude oil,
China’s oil products are less competitive and its
oil product companies less profitable, but
household consumption expenditure keeps
rising.
Fourth, China faces a complex political
environment in energy diplomacy (the political
risks of energy security are even greater than
commercial risks). China’s huge oil demand and
heavy dependence on imported oil put great
pressure on the international oil market. China’s
development of oil resources in the South China
Sea and the East China Sea has led to regional
conflicts over resources. China’s energy diplomacy, which is directed at strategic interests and
traditional geopolitics, will also impact the
international order led by the USA.
In addition, China needs to address several
issues related to international energy cooperation,
including long-term energy cooperation strategies, establishing high-level coordination mechanisms and risk guarantee mechanisms for
international cooperation, supportive financial
and fiscal taxation policies, and technical support
and basic research work.
10.2.2 Challenges
The challenges that China faces are either internal or external.
Internally, China’s main challenge is insufficient international energy cooperation. First,
Chinese energy companies are usually good at
managing domestic projects but lack international management experience. Unlike the
domestic market, international projects have a
Special Report 5: International Energy Cooperation and Governance
665