Energy security forms the backbone of most economic and political policies of nations around the world. China is no exception and is increasingly following a multi-pronged global strategy—one where its economic priorities do not necessarily overlap with its foreign policies. This has enabled China to interface with a wide range of nations and businesses to secure its interests in energy all around the world, particularly in oil.
In 1993, China went from being a net exporter of oil to a net importer. According to the National Development and Reform Commission, China’s energy consumption increased by 5.6% annually from 1980-2006 . It is the second largest consumer of oil after the United States and is set to overtake it within a decade. Today oil remains a resource without many practical substitutes for many of its end uses. While there has been exponential growth in the consumption of oil in China, while oil production remains almost stagnant. This has left a big supply gap which is addressed through increased imports–emphasising the need for the country to ensure secure and efficient supply channels.

In 2008, China established the National Energy Administration within the National Development and Reform Commission to strengthen its ability to manage the energy sector and handle energy issues both at home and abroad. China’s oil production capabilities are extensive. The China National Petroleum Corporation (CNPC) is the fourth largest national oil corporation in the world in terms of oil reserves and the largest in the country. The China Petrochemical Corporation (Sinopec) is the second largest in China and the China National Offshore Oil Corporation (CNOOC) is the third largest. These three state-owned corporations account for 95% of the crude oil produced in China. They have also become increasingly active in oil trade and investment all over the world, particularly in Africa and Central Asia.

China depends on oil imports to meet over half of its domestic demand. Over 80% of these imports are transported by oil tankers. Approximately half of China’s oil imports come from the Persian Gulf via the sea, and the bulk of these imports pass through the Hormuz Strait, lying in the waters between the Arabian Peninsula and Iran. The Hormuz Strait and the Malacca Strait are two narrow sea lanes that are used by the majority of the tankers (since this is the shortest navigable route), carrying oil from the oil rich Persian Gulf to the eastern ports of China.

In this paper, we will focus on China’s hedging strategies along the ‘chokepoints’ on the aforementioned route . We also look at the alternative means of transport (pipelines) and alternative routes, and present a quantitative assessment of the costs and benefits involved for the country in reverting to the different options in case of supply disruptions at sea. In the process, we evaluate whether the alternatives are financially and strategically feasible and assess the viability of a truly diversified import supply.

China is indeed over-dependent on its oil supply routes through the seas. The diversification strategies carried out so far have been far from cost effective, compared to the usual routes. Perhaps some of the present day rhetoric generated in Chinese policy making circles about supply security imperatives in the Asia Pacific is deliberately distorted.