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Prepared by the
Institute for the Analysis of Global Security

January 18, 2005
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Energy Security Current Issue

Iran-Pakistan-India pipeline: the Baloch wildcard
A few days after Iranís Oil Minister Bijan Namdar Zanganeh arrived in New Delhi to discuss the future of the pipeline, terrorists in Pakistan blew up two gas pipelines sending a message to all parties involved that the "pipeline of peace" might be anything but peaceful.

Terrorism Goes to Sea
New evidence suggests that piracy is becoming a key tactic of terrorist groups. In light of al Qaeda's professed aim of targeting weak links in the global economy, this new nexus is a serious threat: most of the world's oil and gas is shipped through pirate-infested waters. In a recent Foreign Affairs article, IAGS' Gal Luft and Anne Korin analyze the situation and recommend policies to mitigate the risk.

Radical Islam and LNG in Trinidad and Tobago
Trinidad and Tobago alone account for 80% of all U.S. LNG imports. Security analyst Candyce Kelshall warns that Islamist terrorist groups are active on the island and might find LNG shipping an attractive target.

Chinese Quest for Crude Increases Focus on Africa
Leading oil sector analysts have warned of growing conflict between Western and Asian countries as they seek to outbid each other for key hydrocarbon assets in Africa. These forecasts have been largely based on the expectation that China will become the major player in nontraditional oil and gas producing regions on the continent. IAGS Associate Fellow Cyril Widdershoven discusses.

Terror's Big Prize
Since September 11, pipelines, tankers, refineries and oil terminals have been attacked frequently. Except for a sharp increase in maritime insurance premiums in these regions these attacks had marginal strategic consequences. But in at least two cases oil terrorism could have rattled the world.

Needed: Three 1-billion-barrel oil banks
The lesson from the recent oil price jump is that the oil market has too little wiggle room to deal with supply disruptions. It's time for consuming nations to think about providing their own liquidity mechanisms.

On the technology front

Fuel Cell power plant installed at NJ College
The fuel cell will provide 250 kilowatts of electric power as well as heat, to several buildings on the campus.

Biomass-to-Ethanol Progress
The enzyme costs of converting cellulosic biomass into sugars for fuel ethanol production have been reduced approximately twenty-fold with technology developed by the National Renewable Energy Laboratory (NREL) and Denmark based Novozymes, biotech-based leader in enzymes and microorganisms.

EU study: Methanol from biomass - competitive with gasoline
A study of a new patented Swedish technology concluded that the alchohol fuel methanol can be produced from biomass via black liquor gasification at a cost competitive with that of gasoline and diesel.

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Back Issues

In search of crude China goes to the Americas

Since it became a net oil importer in 1993, China has traversed the globe in a frantic quest for oil to fuel its booming economy. In some cases, its pursuit of oil has caused considerable irritation in Washington especially due to China's decision to support rogue regimes, such as Iran and Sudan, just because it depends on their oil. Now, China might be on the verge of causing even greater vexation by setting its sights on a new oil domain: the Western Hemisphere.

In recent months, Chinese state-owned oil companies have begun seeking ambitious oil deals in Canada - the top petroleum supplier to the U.S. - including the acquisition of Canadian energy companies. Sinopec, one of China's largest state-owned energy companies, is interested in buying stakes in the vast reserves of the Alberta oilsands. The Canadian giant Enbridge is pushing ahead with a plan to build a $2.5-billion pipeline to transport oil from Alberta to the coast of British Colombia from where it will be shipped across the Pacific to China. Though it is not clear which of these deals will come to fruition, the possibility of Chinese acquisition of portions of Canada's energy industry - which could lead to a loss of up to a third of Canada's potential exports to the U.S. - should be a source of concern in Washington.

This is especially true after another blow to U.S. energy security was delivered last month by Venezuela, America's fourth largest oil supplier. In his recent visit in Beijing, Venezuela's president Hugo Chavez signed new agreements allowing Chinese companies to explore for oil and gas and set up refineries in Venezuela. He said his country seeks to reduce its dependence on selling oil to the U.S. and would therefore like to give China greater access to Venezuelan natural resources: "We have been producing and exporting oil for more than 100 years but they have been years of dependence on the United States. Now we are free and we make our resources available to the great country of China."

As U.S. oil imports are projected to surge 70 percent during the next two decades due to demand growth and a decline in domestic crude production, the U.S. cannot afford to lose chunks of the crude produced by the two countries that together supply a third of its oil imports. But Chinese competition for this oil might cause just that. Furthermore, in its thirst for oil China is even weighing bidding for U.S. companies. According to the Financial Times China National Offshore Oil Corp, the country's third-largest oil and gas group is considering a $13 billion bid on Unocal, America's ninth-largest oil company.

Investments in the Western Hemisphere may be good for China's energy security but for the U.S. they are trouble in the making. Every barrel of oil China buys in the Americas means one less barrel available for the U.S. This means that the U.S. will have to be more reliant on oil from more remote and less stable regions, primarily West Africa, the Caspian and, above all, the tumultuous Middle East. This is contrary to President Bush's pledge to make the U.S. less dependent on "countries that don't particularly like us."

Further, the implications of China's stepping into the Western Hemisphere are political no less than economic. Many in Canada and Venezuela feel that the U.S. has taken their oil for granted and therefore they see China as a provider of market competition which could give them political leverage over Washington when it comes to contentious issues: trade disputes over lumber and beef in the case of Canada and economic sanctions for human trafficking in the case of Venezuela.

This is a shortsighted view. Control of major companies by a Communist government could weaken U.S.-Canada relations exposing Canada to Chinese pressure to part ways from the U.S. on issues which both countries have historically agreed upon regarding China, like human rights abuses, arms sales to the Middle East and China's relations with Taiwan. In the same vein, Chinese penetration into Venezuela could strengthen the voices of Marxism and anti-Americanism in Latin America to the detriment of both the U.S. and Venezuela.

For both U.S. neighbors the temptation of an influx of Chinese investment may be difficult to resist. But both countries must remember that selling strategic assets to the Chinese is not risk free. It is not only China's energy companies that they are inviting to their countries but also the non-democratic Chinese government to which these companies belong. Selling assets to a national oil company, as opposed to a free market company, may in some circumstances be tantamount to nationalizing these assets under a foreign flag.

Last March, China's deputy foreign minister, Wang Yi, admitted in a lecture at Beijing University that Chinese foreign polices are "at the service of China's economic development." Ottawa and Caracas will do themselves a disservice if they too put their foreign policies in the service of China's economic development.

Gal Luft is Executive Director of the Institute for the Analysis of Global Security.