Perth USAsia Centre Indo-Pacific energy security program director Andrew Pickford, a former Chamber of Commerce of WA economic advisor, analysed the energy security policies China is developing to safeguard its interests in a new report. 

 

The report, called China's grand strategy and energy, sought to demystify China's energy security policies and dispel misperceptions, and laid out the implications for Australia and WA specifically.

 

The report was based on original research as well as discussions with security analysts and industry representatives at the Perth USAsia Centre's third Energy Security Roundtable last September.

 

 

While acquisition or part ownership of WA gas fields is largely uncontroversial, Pickford said that situation could change as depressed prices lower asset valuations - and LNG spot prices are expected to be low until the early 2020s.

 

"The prospect of China seeking to buy smaller Western Australian gas related companies and gas fields is a distinct possibility," Pickford, now based in Quebec, said. 

 

"When linked to the politically sensitive issue of domestic gas supply and pricing, there is potential for such deals to become subject to greater debate."

 

While WA's LNG industry has been largely focused on East Asian export markets, the mature nature of Japanese and Korean markets are contrasted with China's insatiable demand for gas. 

 

"This is exacerbated by efforts to shift to spot pricing and a depressed price outlook to the early 2020s," Pickford said. 

 

"Decisions by China over its energy and industrial policy will be an important driver for demand of Western Australian natural gas. In the longer term, this will influence brownfield expansion and the next wave of new LNG investments."

 

Last November, Energy News correspondent Slugcatcher asked whether it was against Australia's national interest for Santos to become a Chinese-controlled company as state-owned entities were building positions in the Adelaide-based Gladstone LNG operator.

 

The Commonwealth played the national interest card when Shell attempted to acquire Woodside Petroleum.

 

 

Pickford, a director of the libertarian Mannkal Economic Education Foundation, said China's foreign policy ambitions are as aggressive as those of the US a century ago, but for completely different reasons.

 

Far from taking a missionary approach to spread an ideology or system of government, Pickford said China's actions abroad are propelled by its need to secure energy, metals and strategic minerals to support the living standards of its immense population, around one fifth of the world's total.

 

While it's tough to find a public statement of China's official energy security policy, a 2015 report published by the Chinese Academy of Social Sciences gives a glimpse of its aspirations.

 

Broadly, the World Energy China Outlook 2015-12016 Interim Report projected energy demand could plateau by 2020 and start to decouple from economic growth; electrification will improve, while "clean and intelligent coal use" will contribute to energy saving and emission reduction a "great deal".

 

It also flags lowering dependence on foreign oil and gas through systematic optimisation and that nuclear power is "indispensable and ready to grow without delay".

 

Yet Pickford, who grew up on a WA farm, said all that is easier said than done, and that despite the slowdown of energy demand growth, peak energy demand would likely occur much later than the strategy states.

 

The report assumes that electrification will continue and may help reduce demand for oil, and LNG, coal liquefaction and electric vehicles are all listed as alternatives.

 

A Wall Street Journal report last year based on data and interviews with industry executives suggested China's oil production had likely peaked at about 4.3 million barrels a day in 2015, the same year it became the world's largest oil importer.

 

China would need to import more oil, which could drive Beijing to enlarge its footprint abroad in oil producing regions. 

 

While this may be a factor driving greater contentious  activity in the South China Sea, China is also shifting from the domestic power sector away from coal which will mean greater levels of gas consumption, which means more LNG imports.

 

"This growth in demand for imported gas would imply that further efforts to secure international reserves will continue, especially in a period of relatively low global prices," Pickford said.