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Prepared by the
Institute for the Analysis of Global Security

January 19, 2006
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Energy Security Current Issue

Dragon at Detroitís gate
The Chinese debut at the Detroit Auto Show with Geely, a mid-sized sedan planned for sale to budget-conscious American families for less than $10,000 by 2008, should be viewed as the opening shot in what is likely to be a clash of titans between the American and Chinese auto industries, one that could send Detroit to the ropes. IAGS Co-director Gal Luft analyzes the implications.

Wrestling the Russian Bear
Russia's curtailing deliveries of natural gas to Ukraine goes far beyond the bounds of a common commercial dispute between an energy supplying and an energy consuming nation. It is indicative of Russia's foreign policy vis-ŗ-vis the Soviet Union's former allies spread across Central and Eastern Europe not to mention a warning shot across the bow of Central Asian energy exporters. IAGS Senior Fellow Dr. Kevin Rosner outlines necessary steps to neutralizing Russia's energy weapon.

Sino-Japanese competition for Russia's far east oil pipeline project
There are two significant energy trends underlying the competition between China and Japan for Russia's Far East oil pipeline project: the need to seek additional energy supplies and to pursue greater energy diversification. And for both China and Japan, Russian energy offers a significant additional supply source and contributes to greater diversification. But these trends in energy interests are matched by an equally dynamic and intense geopolitical rivalry, defined by a complex and contradictory set of converging and diverging national interests. Within this context, the competition between China and Japan, as well as the Russian role in exploiting this rivalry, is driven by the distinct energy interests of each country. IAGS Associate Fellow Richard Giragosian analyzes.

China deals a blow to India's aspirations in Kazakhstan
The "unconditional" final ruling of October 26 2005 by the Alberta Court of Queen's Bench, Canada, in favour of China's China National Petroleum Corporation (CNPC) dealt a severe blow to the last Indian hope of acquiring PetroKazakhstan. The defeat in securing an important energy deal does not bode well for India's energy security concerns considering its growing energy needs and illustrates India's vulnerability in competing and securing depleting international energy sources. At the same time it opens up for greater debate the Indian energy minister's fervent argument that Asia's two emerging economic giants should co-operate rather than compete in securing international energy deals.

Oil puts Iran out of reach
As diplomatic rumbles regarding sanctions against Iran fill the airwaves, IAGS' Gal Luft notes that given Iran's key position as an oil supplier and the tightness of the oil market, Iran's influence on the world's economy makes it virtually untouchable.
No doubt, Iran is heavily dependent on petrodollars and denying it oil revenues would no doubt hurt its economy and might even spark social discontent. Oil revenues constitute over 80 percent of its total export earnings and 50 percent of its gross domestic product.
But the Iranians know that oil is their insurance policy and that the best way to forestall U.S. efforts in the United Nations is by getting into bed with energy hungry powers such as Japan and the two fastest growing energy consumers, China and India.
Threatening Iran with sanctions may well force it to flex its muscles by cutting its oil production and driving oil prices to new highs in order to remind the world how harmful such a policy could be.

On the technology front How utilities can save America from its oil addiction
Utility companies which have traditionally viewed themselves as providers of "power" for lighting homes or powering computers, can now break the dominance of Big Oil in the transportation energy sector and introduce much needed competition in the transportation fuel market. Gal Luft explains how.

Comparing Hydrogen and Electricity for Transmission, Storage and Transportation

Study: Coal based methanol is cheapest fuel for fuel cells
A recently completed study by University of Florida researchers for the Georgetown University fuel cell program assessed the the future overall costs of various fuel options for fuel cell vehicles. The primary fuel options analyzed by the study were hydrogen from natural gas, hydrogen from coal, and methanol from coal. The study concluded that methanol from coal was the cheapest option, by a factor of almost 50%.

Major improvement in fuel economy and range of Honda's fuel cell vehicles
The 2005 model Honda fuel cell vehicle achieves a nearly 20 percent improvement in its EPA fuel economy rating and a 33 percent gain in peak power (107 hp vs. 80 hp) compared to the 2004 model, and feature a number of important technological achievements on the road to commercialization of fuel cell vehicles.

Biodiesel fueled ships to cruise in Canada
A Canadian project will test the use of pure biodiesel (B100) as a fuel supply on a fleet of 12 boats of various types and sizes, 11 boats on pure biodiesel (B100) and one on a 5-percent blend (B5).

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Back Issues

Sino-Japanese oil rivalry spills into Africa

China and Japan - the two giants of East Asia - are competing for energy resources around the globe. Their rivalry in the East China Sea, Russia, Central Asia and Southeast Asia has been well documented. Yet little has been written in Washington about the impact of Sino-Japanese rivalry in Africa.

With one-third of its top 15 oil suppliers in Africa, the United States ignores the challenges of this geopolitical dynamic at its peril. As the world's largest consumer of energy and protector of the sea lanes, the United States plays a critical role in ensuring the free flow of this important commodity.

Currently the United States' top two foreign policy objectives are combating global terrorism and promoting democracy around the world. In Africa and Asia, the number of democracies has increased dramatically over the last 25 years. While some policy experts, such as Francis Fukuyama, argue that strong Chinese economic growth has underpinned democratic transformation in Asia, other experts have identified potential problems emerging from Beijing's search for energy resources in Africa.

A former US ambassador to Nigeria and South Africa, Princeton Lyman, recently asked, "Does China want to be seen in Africa as the defender of rogue states, the more aggressive seeker of Africa's natural resources, without regard to transparency, development and stability there?"

Last year, China displaced Japan as the second-largest importer of African oil after the US, according to The Economist. Despite falling total petroleum imports, Japan's African supplies grew by nearly 20% in 2004. Over the same period, Chinese imports grew by more than 35%.

Tokyo's approach to its relationships in Africa includes an emphasis on democratic reform and human rights. In 2002, Japan's task force on foreign relations for the prime minister argued, "Bringing about democracy and good governance in Africa is essential for world stability and prosperity." Japan has also supported elections in Nigeria and in the Democratic Republic of Congo and funds African rule of law and human rights initiatives. For instance, last month through the United Nations' Trust Fund for Human Security, Japan donated more than $2 million to provide training on international humanitarian and human rights law to African Union Mission troops in Sudan.

Japan and African nations have not always agreed at the UN, however. A bone of contention has been UN Security Council reform. Japan is part of the G-4 that includes Germany, Brazil and India. Differing G-4 and African proposals have been a source of disagreement for Japanese and African interlocutors. For its part, China supports Africa's position on Security Council reform and opposes Japan's membership.

In order to secure supplies, Beijing seeks to gain control of African oil at its source. As a result, China's strategy is heavily dependent on bilateral ties to oil-producing states. Beijing's cultivation of relationships with African elites facilitates its state-owned oil companies exploring, securing, extracting, processing and shipping African crude.

African nations including Sudan, Chad, Libya, Nigeria, Algeria, Gabon and Angola supply China with about 30% of its oil imports. Although individually these countries make up a modest share of Chinese imports, Beijing's purchases are a significant share of African oil producers' exports. Beijing imports a quarter of Angola's oil, 60% of Sudan's and an increasing percent from Equatorial Guinea, Nigeria and Gabon. These are poor countries and petroleum exports account for a sizable part of gross domestic product in each. As such, the effect of China's approach on these countries domestic political and social development is significant.

In Sudan, Beijing's financial and military support for the Khartoum government during its civil war and genocide in Darfur coupled with Chinese attempts to water down UN resolutions targeting Sudan have been roundly criticized in Western capitals.

In Angola, Chinese loans and aid packages have undermined attempts to improve government transparency and corporate governance in the oil sector. The majority of Angola's roughly 13 million people live in poverty, and elites have siphoned off much of the nation's oil wealth. As part of a larger package in March 2004, China provided Luanda with more than $2 billion in loans in accordance with its principle of non-interference in countries internal affairs. In November 2005 Jose Pedro de Morais, Angola's finance minister, said he expected future Chinese loans would exceed $2 billion, adding "when we ask our Chinese counterparts if they are willing to provide more loans, they say yes."

Beijing's loans are oil-backed and many are targeted at infrastructure projects that facilitate development of the petroleum industry. Chinese capital has encouraged Angola to refuse International Monetary Fund (IMF) loans that would require the country to open its books to independent scrutiny and reveal and reform the poor African nation's corrupt leadership. Given growing US dependence on African oil imports and the importance Washington places on democracy promotion, policymakers must consider the effects of China's strategy on African suppliers.

China's methods in Africa are not lost on the Japanese media. In February, the Yomiuri Shimbun reported that China is accelerating its search for oil in Africa, and in an August editorial, the Sankei Shimbun warned that China chooses to do business with supporters of terrorism and anti-democratic African states.

But for Washington, the challenge of energy security goes beyond Africa. If disputes over energy resources disrupt trade and investment, Asian economic growth would be undermined and the ripple effect would be felt all over the world. Tensions, such as those in the East China Sea, could escalate into real conflict, putting the United States in an awkward position between its closest strategic ally and the region's rising economic power. Washington would be well served to seek collaboration with Beijing and Tokyo in an effort to ensure energy supplies for importers while encouraging exporters' accountability and good governance.

This collaboration would seek to achieve a standardization of procedures designed to avoid disruption in the supply of oil, further develop alternative energy and energy-saving measures, minimize the cost of extraction and risk of conflict, and maximize the benefits by working to improve transparency and good governance in oil-producing states. As the world's top three oil importers, the US, China and Japan have an opportunity to avoid conflict and underscore the importance of accountability in energy suppliers in Africa and throughout the developing world.

Joshua Eisenman is the co-editor of China and the Developing World: Beijing's Strategy for the 21st Century and author of the book's chapter on China's strategy towards Africa (M E Sharpe 2006). Devin Stewart is Fellow, Office of the Japan Chair, Center for Strategic and International Studies (CSIS) in Washington, DC.