The energy relationship between China and Saudi Arabia : the relationship's contribution to China's energy supply security between 2016 and mid-2017

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University of Amsterdam

Graduate School of Social Sciences

The energy relationship between China and Saudi Arabia

The relationship’s contribution to China’s energy supply security

between 2016 and mid-2017

MSc thesis Political Science; Political Economy

Research project: The political economy of energy

23 June 2017

Supervisor:

Author:

Dr. M.P. (Mehdi) Amineh

W.H. (William) Tuls

Second reader:

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Abstract

China is because of its energy situation able to contribute to Saudi Arabia’s need to have a steady and stable oil export to guarantee its revenue stream. Moreover, Saudi Arabia is because of its energy situation able to contribute to China’s energy needs. China and Saudi Arabia’s ability to do so is translated in diplomatic, trade and investment activities by China and Saudi Arabia related to energy. The from 2016 on intensified energy relationship between China and Saudi Arabia, which is made up of these activities, has to a limited extent contributed to China’s energy supply security between 2016 and mid-2017. The relationship has contributed to a limited extent because of China and Saudi Arabia’s inability to fully independently determine the decision-making processes related to their energy affairs abroad. Moreover, domestic risks and geopolitical factors (could) pose a risk to the stability of Saudi Arabia’s government and therewith (could) challenge China’s energy supply security in Saudi Arabia.

Keywords: China, Saudi Arabia, energy relationship, energy supply security, domestic risks, geopolitical factors.

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Acknowledgments

It would not have been possible to write this master thesis without the help of many. First of all, I would like to thank my thesis supervisor dr. Mehdi Amineh. Mehdi inspired me to deepen my knowledge on the political economy of energy when following his course ‘Energy and geopolitical economy in

Eurasia’. Because of his unconditional support, I have been able to structure my research ideas, data

and overall thesis. I reckon Mehdi’s commitment to make this study a success and his council at any moment to make me deliver my thesis on time. Secondly, I would like to thank my family. I am more than grateful for my father Hermanus Tuls, my mother Wilhelmina Tuls-Zuidam and my sister Willemijn Tuls’ everlasting support. Without them I would not have been able to continuously push my boundaries. Their love, attention and advice always have and hopefully will continue to enable me to accomplish my goals and ambitions. Thirdly, I would like to thank my friends. All the hours spend together studying in the many beautiful libraries of Amsterdam, the battery charging coffee breaks, lunches, dinners and drinks and peer-review moments we had together during this intensive period of thesis writing enabled me to deliver this product. Moreover, I would like to thank all the professors and lectures that have taught me during my bachelor, exchange program, minor and master. Without their inspiring way of teaching, introduction to many topics and critical supervision I would not have been able to grow into the political scientist that I have become. Last but not least would I like to thank my former employers and colleagues. The opportunities and trust they have given me to explore and further develop my knowledge, skills and qualities have been of great value to this study. Specifically, would I like to thank the Deputy Head of Mission of the Royal Embassy of the Kingdom of the Netherlands in Riyadh, Saudi Arabia who has given me the opportunity to gain valuable work experience about (economic) diplomacy and acquire in-depth knowledge on Saudi Arabia’s energy sector.

William H. Tuls

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Maps

Figure I: People’s Republic of China

Source: Central Intelligence Agency, The World Factbook (a).

Figure II: Kingdom of Saudi Arabia

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List of tables and figures

Maps

Figure I: People’s Republic of China ………. 9

Figure II: Kingdom of Saudi Arabia ……….. 9

Chapter 2 – The energy situation of China and Saudi Arabia Figure 2.1. Electricity consumption China 2000-2014 ……… 38

Figure 2.2. Energy consumption for heating China 2000-2014 ………..………. 39

Figure 2.3. GDP growth China 2000-2016 ……….. 40

Figure 2.4. Population China 2000-2016 ………. 41

Figure 2.5. Per capita income China 2000-2016 ……….. 41

Figure 2.6. Energy consumption Saudi Arabia 2000-2014 ……….. 45

Figure 2.7. GDP growth Saudi Arabia 2000-2016 ………... 46

Figure 2.8. Population Saudi Arabia 2000-2016 ……….. 47

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List of abbreviations

AIIB Asian Infrastructure Investment Bank Bbl/d Barrels per day

Bcf Billion cubic feet

CBM Coalbed methane

CNOOC China National Oil Offshore Company CNOC Chinese National Oil Company

CPC The Communist Party of China

CNPC China National Petroleum Corporation

CTG Coal-to-gas

EIA United States Energy Information Agency EOR Enhanced oil recovery

FDI Foreign Direct Investment

FTA Free Trade Agreement

GCC Gulf Cooperation Council GDP Gross Domestic Product

GW Gigawatt

IMF The International Monetary Fund

KACARE King Abdullah City for Atomic and Renewable Energy LNG Liquefied natural gas

NDRC National Development and Reform Commission NOC National Oil Company

Norinco China North Industries Group Corporation NPC The National People’s Congress

NTP National Transformation Plan 2020 OBOR One Belt One Road

OPEC The Organization of Petroleum Exporting Countries PRC The People’s Republic of China

Saudi Aramco Saudi Arabian Oil Company

Sinopec China Petroleum & Chemical Corporation SNG Synthetic natural gas

SPA Saudi Press Agency

SPR program Strategic petroleum reserve program Tcf Trillion cubic feet

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UNDP The United Nations Development Program Xinhua Xinhua News Agency

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CHAPTER 1 Introduction

1.1. Introduction

China wants to expand its energy relations with other countries to meet the country’s increasing energy demand and therewith expand its energy supply security. The diplomatic, trade and investment activities by China and Saudi Arabia in light of their renewed relationship seem to lead to an increase in China’s energy supply security. However, Saudi Arabia’s hydrocarbon sector is dynamic and potentially challenged by domestic risks and geopolitical factors. This raises the question to what extent China and Saudi Arabia’s energy relationship is stressed by these domestic risks and geopolitical factors. China and Saudi Arabia officially established diplomatic ties in 1990 (Calabrese, 1992). A new phase in the China-Saudi relationship commenced on January 19, 2016 when Chinese President Xi Jinping started visited Saudi Arabia. The official press agency of China reported that during the two-day state visit China-Saudi bilateral relations witnessed an upgrade and that as part of this relationship the energy cooperation between the two countries was stepped up (Xinhua News Agency (Xinhua), 2016c). The relationship further evolved when President Xi’s visit was reciprocated with a four-day state visit by Saudi King Salman bin Abdulaziz al Saud, that commenced on March 15, 2017. The official press agencies of Saudi Arabia and China stated that both countries aim to further expand energy cooperation (Saudi Press Agency (SPA, 2017a; Xinhua 2017a).

1.1.1. Objectives

The research objective of this study is to analyze to what extent the Chinese-Saudi energy relationship has contributed to China’s energy supply security between 2016 and mid-2017. This will be done by examining the diplomatic, trade and investment activities by China and Saudi Arabia. Moreover, this will be done by studying the domestic risks and geopolitical challenges that pose a threat to the stability of Saudi Arabia’s government and therewith challenge China’s energy supply security in Saudi Arabia.

1.1.2. Research questions Main Research Question

The main research question of this study is: “To what extent has the energy relationship between China

and Saudi Arabia contributed to China’s energy supply security between 2016 and mid-2017?”. Sub Research Questions

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- “What does China and Saudi Arabia’s energy situation look like and what are their policy

responses to it?”;

- “To what extent do the diplomatic, trade and investment activities by China and Saudi Arabia

contribute to China’s energy supply security?” and

- “To what extent do domestic risks and geopolitical factors that pose a risk to the stability of

Saudi Arabia’s government challenge China’s energy supply security in Saudi Arabia?”. 1.1.3. Academic and social relevance

Academic Relevance

This study closes the knowledge gap on the developments in the energy relationship between China and Saudi Arabia up to and including May 2017. The China-Saudi Arabia relationship is not a new subject of study (Calabrese, 1992; Rynhold, 1996; Rubin, 1999; Jin, 2004 and 2005; Yetiv and Lu, 2007; Ghafouri, 2009 and Al-Tamimi, 2012). However, it is of importance to continue to study the relationship because the last two years, major political, economic and security developments have occurred in China and Saudi Arabia that could have changed the character of the energy relationship. This implies that the current knowledge on the relationship is outdated and needs to be renewed. Furthermore, understanding the energy relationship between China and Saudi Arabia will be helpful to better understand the energy relationship between China and other resource rich countries in the Middle East in general and the Gulf specifically.

Social Relevance

An evolved China-Saudi Arabia energy relationship has implications for the position of China on the world stage. First of all, this will have implications for the set-up of the political, economic and security strategy of other states that cooperate with China (e.g. Iran). Those states need to consider that their approach towards China might have to be adjusted. Secondly, an evolved energy relationship between China and Saudi Arabia might affect the export of energy from Saudi Arabia to other importing countries. Taking into account that oil is scarce and China’s energy demand continues to increase, in the future less oil might be available for export. To be able to anticipate on these changes, it is relevant for other countries that import oil coming from Saudi Arabia to closely monitor the developments in China and Saudi Arabia’s energy relationship.

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1.1.4. Delineation of research 1.1.4.1. Time Frame

The time frame of this study is January 2016 until May 2017. There is chosen for the start of this time frame because it is the moment from where on the energy relationship between China and Saudi Arabia took a new direction. This new direction commenced with the state visit of China’s President Xi Jinping to Saudi Arabia in January 2016 (Xinhua 2016c). The end of the time frame is chosen because in May 2017 it was announced that the China North Industries Group Corporation (Norinco) has signed a framework agreement of 10 billon USD with the Saudi Arabian Oil Company (Saudi Aramco) to build a refinery and chemicals complex in China (Reuters, 2017). The agreement shows what the renewed energy relationship between China and Saudi Arabia means in practice. A short overview of the most important developments in China, Saudi Arabia and the oil market related to this study follows below. Apart from the state visit by Chinese President Xi Jinping to Saudi Arabia in January 2016 and the state visit by Saudi King Salman to China in March 2017 other important developments took place that characterized the context in which the China-Saudi energy relationship evolved. China intensified its activities related to its One Belt One Road (OBOR) initiative. OBOR is a foreign policy initiative by China which will lead to billions of dollars of infrastructure investment in countries along the old silk road linking China to Europe (the Economist, 2017). Saudi Arabia launched Vision 2030 and related transformation programs that aim to diversify the country’s economy (Vision 2030). Furthermore, Saudi Arabia’s rivalry with Iran intensified as did its related involvement in different civil wars in the Middle East (Der Spiegel, 2016). The oil market continued to be characterized by oil price volatility. The oil market saw a record low oil price in 2016, worsening global economic conditions caused the decline in oil price. This led to a decline in Saudi Arabia’s oil revenue and affected the country’s economy hard (The Financial Times, 2016).

1.4.1.2. Social Entities and Actors China

The social entities that make decisions related to China’s energy activities are the Politburo Standing Committee and the Chinese National Oil Companies (CNOCs) themselves. The Politburo Standing Committee is leading in formulating and transmitting policy throughout the whole Chinese state apparatus. It is the most influential actor involved in securing China’s energy supply security. The most senior member of the Standing Committee is the Party General Secretary, who simultaneously is the President. Xi Jinping does not exercise supreme leadership over the activities to secure China’s energy supply security (Lawrence, 2016). The China National Petroleum Corporation (CNPC) and the China Petroleum and Chemical Corporation (Sinopec) are two CNOCs that also make decisions related to

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energy and specifically to the China-Saudi Arabia energy relationship (Jiang, 2012; Kong and Gallager, 2016).

The social entities that influence the domestic agenda on energy activities are the, National People’s Congress (NPC), the Communist Party of China (CPC) and the Politburo. The NPC is China’s supreme organ of state power. The NPC is of influence on China’s energy policy because it elects and impeaches top officials, approves the plans for economic development and supervises the State Council’s work. The CPC is the primary governing and political force in China. The Central Committee of the CPC is the party’s leading organ of authority. The Politburo consists of the Politburo Standing Committee plus eighteen regular members. The Politburo oversees the overall formulation and implementation of a wide range of topics (Lawrence, 2013).

The social entities and actors that undertake energy activities are the President, members of the State Council and CNOCs themselves. The State Council is the highest organ of state administration. The State Council’s real power is concentrated in the State Council Executive Committee. The State Council is responsible for the implementation of energy policies. Premier Li Keqiang (responsible for economy), Vice Premier Zhang Gaoli (responsible for resources), Vice Premier Ma Kai (responsible for industry), State Councilor Chang Wanquan (responsible for defense and foreign affairs) and State Councilor Wang Yong (responsible for state-owned enterprises) are the actors of the Executive Committee with most influence on the activities to secure China’s energy supply security. (Lawrence, 2016). By 2012, CNPC spent $16 billion on overseas purchases and holds 52 million ton of the annual equity in oil and gas production. By 2012, The Sinopec Group spent $41 on overseas purchases and hold 29 million ton of the annual equity in oil and gas production (Jiang, 2012; Kong and Gallager, 2016).

Saudi Arabia

The actors that make decisions related to Saudi’s energy activities are the Office of the King and the Office of the Crown Prince. Salman bin Abdulaziz Al Saud is the King of Saudi Arabia, Custodian of the Two Holy Mosques, Head of the House of Saud and Prime Minister. These positions make him formally the most powerful person in the Saudi Arabia and therewith the most decisive person in any decision-making process, so as well the decision-making process related to Saudi Arabia’s energy policy. Mohammad bin Salman Al Saud is the Crown Prince of Saudi Arabia, Deputy Prime Minister, Minister of Defense and Chairman of the Council for Economic and Development Affairs. These positions make him formally the second most powerful person in the Kingdom of Saudi Arabia.1

1_{Up to mid-June 2017, the second most powerful person in Saudi Arabia’s government was Prince Mohammed}

bin Nayef bin Abudlaziz Al Saud. He is succeeded by Crown Prince Muhammed bin Salman (the New York Times, 2017). However, his office was not directly involved in the decision-making process related to Saudi Arabia’s energy policy. However, on a daily basis Muhammed bin Nayef was involved in domestic political and

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Mohammed bin Salman is on a daily basis leading in economic and development affairs, which makes him one of the most decisive persons in the decision-making process related to Saudi Arabia’s energy policy (Patrick, 2016b).

The social entities that influence the domestic agenda on energy activities are the Ministry of Energy, Industry and Mineral Resources and the Ministry of Foreign Affairs. Khalid A. Al-Falih is the Minister of Energy, Industry and Mineral Resources. The Ministry of Energy is the leading entity in energy related affairs. Al-Falih is because of its ministerial position formally one of the most influential people in the decision-making process of Saudi Arabia’s energy policy. Furthermore, Al-Falih is the Chairman of the Board of Directors of Saudi Aramco. This chairmanship strengthens his influence on the decision-making process related to Saudi Arabia’s energy policy. Abdel bin Ahmed Al-Jubeir is the Minister of Foreign Affairs. The Ministry of Foreign Affairs is the leading entity in foreign affairs. Since Saudi Arabia’s foreign affairs often intertwine with the country’s energy affairs, Al-Jubeir sometimes influences the decision-making process related to Saudi Arabia’s energy policy (Patrick, 2016b; Quilliam, 2016; website Aramco).

The social entities and actors that undertake energy activities are the King, Crown Prince, the Minister of Energy, Industry, and Mineral Resources, the Minister of Foreign Affairs and the Saudi Arabian Oil Company (Saudi Aramco). Saudi Aramco is Saudi Arabia’s national oil company and therewith the leading entity in the exploitation of the country’s oil reserves and the production of oil and export of oil products. The President and CEO of Saudi Aramco is Amin H. Nasser (website Aramco). These positions make him formally one of the most powerful persons in undertaking energy activities.

1.1.5. Literature review

First, in short existing literature related to the energy supply security of China will be examined. Second, in brief scholars’ writings on the energy policy of Saudi Arabia will be studied. Third, existing knowledge on the economic and energy relationship between the Gulf states (specifically Saudi Arabia) and East Asia (specifically China) is analyzed. Finally, it will be concluded that the literature reviewed raises the question to what extent the energy relationship between China and Saudi Arabia contributes to China’s energy supply security. It will be shown that current academia does not provide a satisfying answer to this question.

security related government practices. The stability of the Saudi regime is of influence on Saudi Arabia’s energy policy. This implies that Prince Muhammed decisions related to Saudi Arabia’s domestic political and security affairs indirectly influenced the decision-making process related to Saudi Arabia’s energy policy (Patrick, 2016b).

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China’s energy supply security

According to Amineh and Guang (2017) the International Energy Agency projects in its World Energy Outlook 2012 that the global primary energy demand will have increased by a third by 2035. Sixty percent of this growth is expected to come from rising living standards in among others China. China already is the world’s biggest energy user; its total share of world energy consumption was 22 percent in 2012. Amineh and Guang moreover show that China’s primary energy mix is still dominated by fossil fuels. One of China’s most important challenges is its increasing dependency on imports of fuel. It exposes the state’s energy security to geopolitical risks. It is predicted that it only is a matter of time before China will become the world’s largest coal importer. The external dependency rate of oil reached a new high of 55 percent. As a result of misalignment between locations of supply and demand, the development of China’s natural gas consumption cannot be sustained without massive imports. Given China’s dependency on fossil fuels, it is clear that National Oil Companies (NOCs) play and will continue to play a key role in the process of energy supply security. Al-Tamimi (2012) argues that given Saudi Arabia’s massive proven oil reserves and its role as a major oil exporter, China’s oil dependency will lead to increasing interdependence between China and Saudi Arabia.

Saudi Arabia’s energy policy objectives

Saudi Arabia’s energy policy consists of short-term policy objectives and long-term policy objectives. Saudi Arabia’s ultimate short-term policy objective is maximization of its oil export market. It has three main justifications for this. First of all, from the perspective of profitable exploitation of the country’s enormous oil reserves, it needs to secure a large demand. Secondly, Saudi Arabia wants to be able to influence the behavior of its fellow OPEC members. The country is able to do this when it maintains a high level of production capacity and spare capacity. It can discipline OPEC members by expanding its market share and therewith influence the other members’ oil revenue. Thirdly, having a large market share enables Saudi Arabia to set up a deterrent strategy for the elimination of emerging competitors (Alkhathlan et al. 2014, Fattouh et al. 2015 and Fattouh and Sen 2015). Saudi Arabia’s ultimate short-term policy objective enables the country to realize its long-short-term oil policy objectives: maintaining its spare capacity, diversifying its oil economy, dealing with climate change policies and executing oil diplomacy. Firstly, Saudi Arabia wants to maintain its spare capacity so it doesn’t lose its market share when higher levels of output are demanded. (Fattouh and Sen 2015, Gately et al. 2012). Secondly, Saudi Arabia wants to increase its refinery and petrochemical presence to satisfy its growing domestic demand, to further diversify its economy and to create more jobs. Thirdly, climate change mitigation measures might aim to reduce the world’s dependence on fossil fuels like oil. Saudi Arabia has an interest in a prosperous oil industry at the expense of the environment. Analyzed from a fiscal perspective, Saudi Arabia will try to make the best of its position in the traditional energy order while it lasts (e.g. fully utilizing its oil reserves) (Fattouh and Sen 2015). Lastly, Saudi Arabia has been able to shape the oil market because of its capacity to produce and export large quantities of crude oil. Apart

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from shaping the oil market, the country’s oil policy enables Saudi Arabia to influence foreign politics by using its oil policy as a foreign policy tool (Alkhathlan et al. 2014; Akhonbay 2012; Fattouh and Sen 2016). China’s increasing oil dependency and need for energy supply security provides an opportunity for Saudi Arabia to maximize its oil exports. This situation raises the question to what extent knowledge has been produced on if the energy relationship between China and Saudi Arabia has contributed to the energy supply security of China.

China and Saudi Arabia’s Economic and Energy Relationship

Many scholars have analyzed the structure of the China-GCC countries relationship in general and the structure of the China-Saudi Arabia relationship specifically (Calabrese 1992; Rynhold 1996; Rubin, 1999; Jin, 2004 and 2005; Yetiv and Lu, 2007; Ghafouri 2009; Al-Tamimi 2012). Calabrese (1992) states that cooperation between China and the GCC states already took place before China established diplomatic ties with the GCC countries. He shows that relations started in the 1980s, when China started to emphasize building foreign economic relations, but took off after the Gulf War ended. According to Calabrese (1992) did cooperation between China and the GCC states mainly focus on economic cooperation. Specifically, relations focused on arms trade due to military modernization and further militarization of the Gulf region. Rynhold (1996), Rubin (1999) and Yetiv and Lu (2007) support Calabrese’s argument. They show that economic cooperation between China and the GCC countries throughout the 1990s has increased, still with a continued focus on arms deals. Rynhold (1996) and Rubin (1999) show that during the 1980s and 1990s China’s focus on arms deals was related to China’s late entry of the GCC market and its inability to compete with the technological advanced products from the West. However, Rubin (1999) and Ghafouri (2009) show that from 1993 on China’s economic cooperation with the GCC states intensified.

Rapid economic growth resulted in that China becoming an oil importer in 1993 and subsequently a major buyer of GCC oil. Liangxiang (2004) and Ghafouri (2009) counter argue that China has been deepening its relations with the GCC countries during the 1980s and 1990s. Liangxiang (2004) argues that because the relationship was based on unilateral arms trade, there is no deepened relationship between China and the GCC states. As a result of the unilateral relation, political as well economic investment in the GCC countries during the 80s and 90s were limited. Ghafouri (2009) states that the China-GCC relationship did not take off until 2004, when China and the GCC started negotiations on a Free Trade Agreement (FTA). Liangxiang and Ghafouri’s claim is refuted by Yetiv and Lu’s (2007) study which shows that in 1981, two days after the GCC was formed, China established a regular consultative mechanism with the GCC states that supported increased economic and trade cooperation. In 1992 the China-GCC Trade Conference was established. In relation to Saudi Arabia, Yetiv and Lu (2007) stress that the first China-Saudi official meeting took place in 1985, following several years of intensifying contact that led to China allowing Saudi Arabia to participate in its

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downstream refining business and Saudi Arabia opening up its market for Chinese investment. Moreover, in 1999 China and Saudi Arabia signed a strategic oil partnership.

Liangxiang (2005), Yetiv and Lu (2007) and Gharoufi (2009) show that from the mid-2000s on economic relations between China and the GCC countries truly deepened. Liangxiang (2005) supports his argument with examining high-level diplomatic interaction between China and the GCC states. Like the visit of the finance ministers of the GCC countries in 2004 to China. During this visit, the minsters signed a framework agreement on economic, trade, investment and technological cooperation between the PRC and the GCC states. Moreover, during the finance minsters’ visit the two sides agreed to launch negotiations on a China-GCC FTA. Liangxiang (2005) states that cooperation between China and Saudi Arabia especially deepened in the field of energy. Regular meetings between Chinese and Saudi officials have taken place on enhancing energy cooperation (e.g. between the director of the Energy Bureau of the Chinese National Development and Reform Commission and the chairman of the Saudi Basic Industrial Corp (SABIC)). At the time of writing, Liangxiang (2005) argued that the core of cooperation between China and the GCC countries would be energy cooperation. He supports his claim with IEA data on China’s future energy deficit and the GCC’s proven energy reserves. He elaborates by stating that Chinese passivity in the Middle East is over because China will play an increasingly active role in the region to secure its energy supply. He elaborates his argument on that by 2001, China had signed almost 3.000 contracts in the GCC states for labor services worth $2.7 billion. Moreover, Liangxiang (2005) and Gharoufi (2009) argue that Chinese passivity in Saudi Arabia is over. They show that in 2001 the Chinese government has approved a joint Sino-Saudi petroleum and chemical project in China’s eastern Fujian province and approved the partners involved to manage 600 gas stations in the area. Moreover, the Chinese government included plans for a joint Qingdao refinery in China’s eastern Shandong province in its 10th five-year plan. In return China received a 30-year supply contract for 30.000 barrels per day (bbl/d) of Saudi crude oil. In 2004 Sinopec also signed a partnership with Saudi Aramco for natural gas exploration and development in Saudi’s Empty Quarter. According to Liangxiang (2005) and Gharoufi (2009) China gains long-term contracts for crude oil, greater economic interdependence, greater supply security and a flow of investment dollars from this deepened energy cooperation. Saudi Arabia gains a market for its sour crude oil, access to China’s refinery and petrochemical industry and a reduced reliance on the United States. In addition, Yetiv and Lu (2007), Gharoufi (2009) and Al-Tamimi (2012) show that China and Saudi Arabia increased their energy cooperation when Saudi King Abdullah visited Chinese President Hu Jintao in 2006. It was the first visit by a Saudi monarch since the two countries established diplomatic ties. The two state leaders signed five major agreements on energy cooperation. The agreements ranged from Saudi providing investment and expertise in refineries and energy infrastructure to China, to Saudi diverting some of its oil exports to China. Gharoufi (2009) examines the FTA between China and the GCC countries. He stresses that the agreement for a FTA represented an important advance on economic, trade, investment and technological cooperation between the China and the GCC states. It led to a joint economic and

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trade commission and the official launch of bilateral consultative mechanism. In 2006, the third round of negotiations have been held. Al-Tamimi (2012) examines the diplomatic interaction between China and Saudi Arabia after King Abdullah’s visit to China in 2006. He stresses that President Jintao Hu visited Saudi Arabia only three months after King Abdullah visited him. This visit was followed by a visit of then Vice President Xi Jinping in July 2008 and another visit of President Jintao Hu in February 2009. Al-Tamimi argues that three head-of-state exchanges and additional high-level visits in three years is really rare. He stresses that this shows the China’s and Saudi Arabia’s aim to develop closer energy relations. Moreover, a visit in 2012 by Chinese Prime Minister Wen Jiabao led to an agreement between Saudi Aramco and Sinopec to build an oil refinery in Yanbu, Saudi Arabia. Al-Tamimi argues that the energy relationship between China and Saudi Arabia will continue to be based on energy. Energy resources are China’s primary motivation to deepen relations with Saudi Arabia. However, it is China’s aim to keep its oil imports diversified and its Saudi Arabia’s aim to keep its importers diversified. Saudi Arabia’s tight restrictions on inward investment in the oil sector and the high degree of competence of Saudi Aramco are likely to limit the engagement of China’s NOCs in the Kingdom. Saudi Arabia has recognized the economic and political benefits of increased diversity of oil exports. The growth of Saudi’s investment in China’s refining industry is likely to be constrained by China’s domestic pricing policy for oil products.

Recently an increased number of studies have been undertaken by scholars on to what extent the changing economic relationship between the West and the GCC countries influenced the relationship between East Asia and the GCC states. Scholars like Niblock (2014), Guang (2014) and Mo (2014) argue that the balance of economic interests in the GCC countries is shifting from the West towards the East. Niblock (2014) argues that there is a change in the balance of economic interests in the GCC countries. He states that the balance is shifting from West to East. His statement is founded on a declining demand from the West for hydrocarbons as result of the development of alternative sources of energy and greater energy efficiency. He also founds his statement on the growth in demand for hydrocarbons coming from East Asia due to economic growth and rising standards of living. Guang (2014) supports Niblock’s argument by showing structural changes in the energy relationship between Western countries and GCC states on the one hand and East Asian countries and GCC countries on the other hand. He shows that as a result of the regionalization of the international oil markets and the division of the international gas markets, Western countries and specifically the United States, are becoming increasingly energy independent. However, Guang argues that East Asian countries and GCC states, have developed a long term mutual dependence in their energy relations. East Asian countries are more and more dependent for their energy on oil and gas imports coming from the GCC countries. GCC states are increasingly dependent for their export on East Asian export markets. Moreover, Niblock (2014) states that East Asia, and specifically China, have developed substantial oil and gas import relations with the GCC countries. China is even emerging close as the GCC states’ main trade partner. He shows that as a result, the economic wellbeing of the GCC countries is nowadays closely

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intertwined with that of East Asia. Furthermore, Mo (2014) argues that as well in the coming years increased cooperation between China and the GCC states is likely as a result of the shift in the balance of economic interests in the GCC countries. He concludes that the 18th CPC National Congress guidelines on energy policy should have a positive impact on the development of China-GCC relations. He especially sees possibilities for cooperation between the GCC states and China in the upstream and downstream sectors of the oil industry.

Gap in literature

As this literature review has showed, has China’s oil import dependency and Saudi Arabia’s energy policy objective to maximize its oil export led to the development of an energy relationship between China and Saudi Arabia. Above it has been shown that scholars have concluded that this energy relationship has sustainably deepened since cooperation between the two countries started in the 1980s. Furthermore, it has also been shown that the energy relationship really took off from the mid-2000s. Based on their analyses, scholars stress that they expect the relationship to deepen even further. However, there is no current analysis available if this is the case. Moreover, much of the information available is generalized into conclusions about an energy relationship between East Asia or China with the GCC countries and not between China and Saudi Arabia. This study will therefore explore the gap in the literature on to what extent the current energy relationship between China and Saudi Arabia has led to an increased energy supply security of China.

1.2. Theory and conceptual framework

In this study, the guiding principles of the geopolitical economy approach will be used to analyze the energy relationship between China and Saudi Arabia. This will be done with the help of different to the theory related concepts. They will be outlined below.

1.2.1. Theory

Critical tradition in international political economy

This study will follow the guiding principles of critical geopolitics. Critical geopolitics originates in the study of the global political economy, also known as international political economy. The analysis of the international political economy combines the fields of economics, political science, political economy and international relations2 (O’Brien and Williams, 2010).

2_{To locate international political economy in the field of social sciences and to get acquainted with the}

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Critical geopolitics is one of three theoretical traditions of international political economy. The other two are based on the economic nationalist3_{or the liberal perspective}4_{. The critical perspective}

moves away from the states and the individual so it can consider other units of analyses. It is a sum of theories. The theories challenge the way the world is organized and question established forms of organization. The three most common variants of critical thought in International Political Economy are Marxist, feminist and environmentalist theories. Recently post-structuralism approaches also started to emerge5. In sum, there are a variety of key actors to the theories. However, the core difference with other theories is that they contend prevailing social arrangements. Key dynamics of the theories are that through dominance and exploitation within and between societies actors realize their goals. This implies that market relations are exploitive, as are international relations. The international system is hierarchical and conflictual. One can speak of a zero-sum game. International institutions serve the interest of the wealthy (O’Brien and Williams, 2010). A newer theory that can be grouped under the critical theory perspective is the geopolitical economy approach. This theory breaks with the realist linkage in common analyses on how China is closing the wealth-power gap and is dealing with militarized interstate conflict. It is known as socialism with Chinese characteristics. First, it implies that there is a role for the state in governing the market with the aim to create and distribute wealth. Secondly, it implies that interstate relations between contenting major powers can be built peacefully (Amineh and Guang, 2014). In this study, China functions as the contending actor against prevailing social arrangements. Following the theory outlined above, this implies that China is no longer dominated and exploited by the first industrialized countries. Subsequently, it implies that China is changing the hierarchy and the set of interests served by international institutions.

Geopolitical economy approach

Amineh and Guang (2014 and 2017) describe that within the geopolitical economy theory two types of units of analysis are studied. The first are the to the state connected society-market complexes of self-identifying, state organized groups. These groups continuously interact with each other at the inter-state and inter-societal level. Second, the system level outcomes of actions and interactions of agents who operate in these networks.

3_{To get acquainted with the economic nationalist tradition’s main guiding principles, the to the tradition central}

zero-sum game, key actors, assumptions and dynamics and its viewpoint on the global political economy see O’Brien and Williams (2010), pages 17-21.

4_{To get acquainted with the liberal perspective tradition’s main guiding principles, the to the tradition central}

positive-sum game, key actors, assumptions and dynamics and its viewpoint on global political economy see O’Brien and Williams (2010), pages 21-24.

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The guiding principles of the geopolitical economy approach are that in the industrial age, society complexes are made institutions that connect markets at home and abroad. Domestic state-market relations are part of growth promoting or growth restraining institutions. They interact within natural and mineral resource systems in their reach. State-made international institutions reflect the order-building and rule-setting capacity of hegemonic states. Today, major powers push for changing the rules set by these international institutions that interfere with their own interest. As a result, changes in the world’s wealth-power structure and conflicts regarding those rules can be observed (Amineh and Guang, 2014). In this study, the two types of units of analysis described above will be used to analyze the diplomacy, trade, investment and security activities related to the China-Saudi Arabia energy relationship. Policy recommendations will be based on how to respond to changes in the world’s wealth-power structure and conflicts regarding international rules that may arise due to the energy relationship between China and Saudi Arabia.

The key actors in the geopolitical economy approach can be categorized differently. The two to the state connected society-market complexes that can be observed are the liberal to the state connected society-market complex and the authoritarian, centralized or contender to the state connected society-market complex. The key assumptions about these complexes are that liberal to the state connected society-market complexes know in theory separation between those governing and those ruling. In liberal states, business interests are dominant in the policy-making process. Privately owned corporations can operate independently of the state. Authoritarian states know less differentiation between the political/state class and the executive, legislative and judicial branches. In authoritarian states, civil society and a business class based on social classes and forces is non-existent. Within such states, energy companies are often state-owned enterprises. Moreover, when these companies move beyond borders, the state to some extent loses its monopoly on the governance of the organization. Even the most authoritarian states know a certain degree of infighting between rival fractions and their interest in the political economy. However, the sovereign state determines the long-term strategic orientation of society. State-led planning impacts a whole range of economic factors (Amineh and Guang, 2014 and 2017). In this study, the key characteristics of authoritarian state-society complexes as described above will be used to examine China’s and Saudi Arabia’s to the state connected society-market complexes.

Other key assumptions and dynamics about the geopolitical economy approach are that liberal to the state connected society-market complexes have created dependency patterns in authoritarian states. Major powers forced these authoritarian states in dependent positions through trade and investment policies. However, some authoritarian states have been able to counter this legacy of dependency by sequential industrialization. Sequential industrialization as introduced by Amineh and Guang (ibid) refers to a period in which to the state connected society-market complexes enabled the transition to industrial-based politics, society and economics. In other words, it is a series of interrelated and comprehensive social processes of change and shake up of the state, economy and global system. The first round of sequential industrialization took place from the 1870s on, in which Great Britain took

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the lead. The second round took place in the late twentieth century, in which China took the lead. Authoritarian states appear to be capable of transforming economic backwardness by catch-up development strategies. Such a strategy implies that states articulate a development strategy from above, a revolutionary ideology to mobilize forces directed towards catch-up industrialization and a foreign policy that claims or reclaims territorial sovereignty or defends against foreign intrusion. Authoritarian states tried to close the wealth-power gap by steering effective foreign direct investment in their modern industrial economy and in their national champions. Successful efforts to cut dependency links, realize catch-up industrialization and close the wealth-power gap from above are rare in the history of sequential industrialization. The Chinese industrialization is characterized by strong political control at home and opening the country’s domestic economy. Industrialization enables the country to successfully ascend in the global wealth-power hierarchy. Contender state-led society complexes also try to introduce alternative social orders at the global level. They do this by participating in global level transactions and by trying to bring global-level arrangements in line with their own domestic wealth-power structures. Chinese led transnational state capitalism opened up a new era of non-US dominated globalization. In other words, the United States order-making capacity is limited by contender states like China. It is important to note that the Chinese economy is growing within the global economy which is led by the United States and the European Union. Not by fighting against them. However, China is losing domestic control due to the integration of its economy in the global political economy (ibid). In this study, the diplomatic, trade, investment and security activities related to the China-Saudi energy relationship will be studied in light of China’s successful efforts to cut dependency links, realize catch-up industrialization and close the wealth-power gap as described her above. It will be analyzed to what extent the China-Saudi Arabia energy relationship led to effective foreign direct investment in China’s modern industrial economy and in its national champions. Moreover, it will be examined if transactions and arrangements that have taken place within the context of the China-Saudi energy relationship have led to the introduction of alternative social orders at the global level.

1.2.2. Concepts Lateral pressure

Lateral pressure is the build-up of socio-economic forces to get access to resources beyond borders. Lateral pressure is released by market actors involved in the economic development due to sequential industrialization. In other words, lateral pressure increases when states are confronted with the effects of sequential industrialization: population growth, rising incomes, technological change, domestic resource scarcity and the social pressure of unfulfilled demands (Amineh and Guang, 2014 and 2017). In this study, the concept lateral pressure will be used to analyze the context in which diplomatic, trade, investment and security activities related to the China-Saudi energy relationship arise.

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Power projection, geoeconomic and geopolitical logic

The governing and ruling elite have a desire to meet the by lateral pressure influenced energy demand, to maintain order and to protect the state in the international system. They do this by projecting power, for example by investing state resources abroad. The elite is able to do so because of their expanding capability in absolute and relative terms. Power projection serves two objectives: it needs to protect the domestic wealth-power structure and it needs to establish control over trade flows, strategic investment and transport routes related to available energy resources. Several power projections by different states occurs simultaneously. This implies that in the international system there is a competition for power. Power projectors respond to spatial representations of the external world and on their own position in it. These projections are mediated by the timing and spacing of the activity, the actors involved, situations that are trying to be brought under control and resources allocated to it. In relation to energy security, power projection implies a competition to guarantee access to recourses abroad and to protect them by force or peacefully (Amineh and Guang, 2014 and 2017).

In their power projections, major powers follow two logics: the geoeconomic and the geopolitical logic. The geoeconomic logic is characterized by a tendency towards capital to expand geographically. The objective of a state is to shape its geopolitical horizons and its geostrategic interests. They do this by following the geopolitical logic. Underlying forces of capitalism shape the politics that determine cross-border activities for the access to critical recourses and markets and regulate the access and denial of rival powers to it. The aim of these activities is to protect domestic power-wealth structures. Energy is a main source of wealth and power, since it is a prerequisite of the economy. Energy therefore attracts special attention of the capitalist and/or state class. This causes energy security dilemmas. Within these dilemmas the geopolitical logic of resource scarcity is enclosed (Amineh and Guang, 2014 and 2017). In this study, the concepts power projection, geoeconomic and geopolitical logic will be used to study the diplomatic, trade, investment and security activities related to the China-Saudi energy relationship.

Energy supply security and energy scarcity

Energy is not just a commodity. It is different because of its limited reserves, the impossibility to be duplicated at will, and its power to paralyze and the reliance of modern conditions on producing it (Amineh and Guang, 2014 and 2017). Taking this into account, energy supply security can be defined as the continuous availability of energy in various forms, in sufficient quantity and at reasonable and/or affordable prices. The supply of energy should not have an unacceptable or irreversible impact on the environment (Yergin 1988; UNDP 2004). The energy security of states is threatened because of increasing energy consumption, diminishing reserves and geopolitical rivalry. The geopolitical logic of resource scarcity knows three dynamics that influence on the energy supply security of a state. These dynamics can be defined as demand-induced, supply-induced and structural scarcity (Amineh and Guang, 2014 and 2017). These are discussed below.

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Energy scarcity of supply depends on technology of extraction of reserves, the discovery of new reserves and on the transformation of minerals in the ground into reserves. It is part and parcel of the capitalist system. The first dynamic, demand-induced scarcity is scarcity caused by three factors: population growth in consuming countries, the rise of per capita income in industrialized and late industrializing countries and the price of substitutes. The second dynamic, supply-induced scarcity is determined by the depletion of exploitable reserves. The exploitability of reserves is the result of interaction between the demand and supply logic. Import-dependent states like China provoke a process of power projections through trade, investment and finance with the aim to guarantee access to exploitable reserves. The third dynamic, structural scarcity is supply-induced by the deliberate action of a major industrialized power, producer cartels and/or national oil companies of resource-rich countries. Structural scarcity can be induced for selected outsiders (Amineh and Guang, 2014 and 2017). In this study, the concepts of energy supply security and the three dynamics of energy scarcity will be used to analyze the energy situation of China and Saudi Arabia and how this influences the energy relationship between China and Saudi Arabia.

National oil companies

Resources can be secured by states through establishing affiliates of their national oil companies abroad. NOCs are state-owned enterprises that mainly operate within its country’s borders in line with national interests. In contrast to international oil companies (IOCs), do NOCs serve a comprehensive set of objectives. They are a hybrid of corporate governance, public administration and social regulation. NOCs are not fully governmental institutions and they do not operate under the explicit control of a political strategy. Throughout the years NOCs have developed themselves in organizations with transnational characteristics and engage with IOCs. The cross-border activities of NOCs are mainly financed with government surpluses and acquired foreign capital through investment and trade. In the 1970s several countries in the Middle East started nationalizing oil companies. This transition implied that IOCs lost large parts of their access to oil reserves. They responded by shifting their investment to advanced technologies. Simultaneously NOCs gained larger shares in the total supply chain. There are several reasons why NOCs see reason to nationalize their NOCs: it gives governments more control over economic development, redistributing income and advancing national pride. Secondly, NOCs are great tools to generate revenue and jobs. Finally, internalizing the value-added chains of NOCs into the domestic economy can have positive effects on economic development (Amineh and Guang, 2014; Victor et al., 2012). In this study, the concept of NOC will be used to examine the diplomatic, trade, investment and security activities related to the China-Saudi energy relationship.

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1.3. Brief argumentation and hypotheses

1.3.1. Brief argumentation

China is because of its energy situation able to contribute to Saudi Arabia’s need to have a steady and stable oil export to guarantee its revenue stream. Moreover, Saudi Arabia is because of its energy situation able to contribute to China’s energy needs. China and Saudi Arabia’s ability to do so is translated in diplomatic, trade and investment activities by China and Saudi Arabia related to energy. The from 2016 on intensified energy relationship between China and Saudi Arabia, which is made up of these activities, has to a limited extent contributed to China’s energy supply security between 2016 and mid-2017. The relationship has contributed to a limited extent because of China and Saudi Arabia’s inability to fully independently determine the decision-making processes related to their energy affairs abroad. Moreover, domestic risks and geopolitical factors (could) pose a risk to the stability of Saudi Arabia’s government and therewith (could) challenge China’s energy supply security in Saudi Arabia.

1.3.2. Hypotheses

The literature review, theoretical and conceptual framework have led to the formulation of the following two expectations about the China-Saudi Arabia energy relationship.

1. Saudi Arabia’s energy situation, China’s and Saudi Arabia’s governance structure and their diplomatic, trade and investment activities enable Saudi Arabia to contribute to China’s energy supply security.

2. Saudi Arabia is due to the domestic risks and geopolitical challenges that pose a risk to the stability of Saudi Arabia’s government not able to contribute to China’s energy supply security through diplomatic, trade and investment activities.

1.3.3. Operationalization

To be able to analyze to what extent the energy relationship between China and Saudi Arabia between January 2016 and May 2017 has contributed to the energy supply security of China, the variables below have to be operationalized.

1.3.3.1. Energy situation China and Saudi Arabia

The energy situation of China and Saudi Arabia can be examined by analyzing the energy landscape of China and Saudi Arabia. This is done by linking the indicators China and Saudi Arabia’s domestic energy resources, domestic energy production, domestic energy consumption and generated electricity with China and Saudi Arabia’s economic development, population and per capita income. Linking these indicators will lead to conclusions on the respective country’s (possible) energy scarcity. In addition, to

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come to an analysis of China and Saudi Arabia’s energy situation, the policy reflection on their energy landscape also has to be taken into account.

1.3.3.2. Energy governance structure China

To be able to study the energy governance structure of China, the relevant decisive state, society and market forces have to be analyzed. Moreover, it will be needed to examine what role Chinese NOCs play in securing the Chinese energy needs.

1.3.3.3. Energy governance structure Saudi Arabia

To be able to study the energy governance structure of Saudi Arabia, the relevant state system, hydrocarbon industry and key external relations have to be analyzed.

1.3.3.4. Diplomatic, trade and investment activities by China and Saudi Arabia

To be able to examine the diplomatic, trade and investment activities by China and Saudi Arabia related to the energy relationship, the head-of-state and high-level visits, the memoranda of understanding and other cooperation agreements, steering committees and cooperation mechanisms and business participations have to be studied.

1.3.3.5. Challenges to China’s energy supply security in Saudi Arabia

To be able to examine the challenges to China’s energy supply security in Saudi Arabia the domestic risks and geopolitical factors that pose a risk to the stability of Saudi Arabia’s government are analyzed. To be able to examine the domestic risks that challenge China’s energy supply security in Saudi Arabia, the power structure of the regime, the social-economic conditions and the developments in the hydrocarbon sector have to be studied. To be able to analyze the geopolitical factors that challenge China’s energy supply security in Saudi Arabia, the lack of order in the Arab region, Saudi Arabia’s involvement in the wars in Yemen, Iraq and Syria, the Saudi Iran rivalry and the Saudi Arabia-United States security relationship have to be examined.

1.4. Research method

Qualitative single case study

This study will make use of a qualitative single case study. According to Odell (2001), a case is a single instance of an event or phenomenon. Within a single case study multiple variables can be observed relevant to one’s theory, research questions and hypothesis. Using a qualitative single case study design helps to better understand social phenomena. The understanding of a single case study is based upon pragmatic positivism. A study can fit more than one category of single case study designs. In this study, a combination of the descriptive case study design, the preliminary illustration of a theory design and

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the disciplined interpretive case study design6 will be used to analyze to what extent the energy relationship between China and Saudi Arabia has contributed to China’s energy supply security between 2016 and mid-2017. The descriptive case study design entails to document an important event. The aim of doing so is to transfer the event for the possible use of later scholars and policy makers. Little effort is made to engage scholarship already published and to generalize to other cases. A descriptive case study may lead to new analytical ideas, to identify pitfalls and formulate strategies that work. In this study, the purpose is to document the China-Saudi Arabia energy relationship with the purpose to close the knowledge gap on the recent developments in the relationship and help policy-makers to better understand China’s position on the world stage. The preliminary illustration of a theory design aims to illustrate a theoretical idea. It is supposed to help readers to understand the meaning of a theory more clearly. In this study, the purpose is as well to understand the meaning of the geopolitical economy approach. The disciplined interpretive case study interprets or explains an event by applying a known theory. Theoretical concepts are used to interpret or explain the event. This method does not test a theory, it just shows a theory can be applied. The risk of such a design is a selective reconstruction of the event to support the theory. Adding counter-factual arguments balances selectivity. In this study, the purpose is moreover to show that the geopolitical economy approach can be applied to a qualitative single case study like the China-Saudi Arabia energy relationship (Bryman, 2008; Odell, 2001).

A qualitative case study is better able than a quantitative case study to document the development of processes. Moreover, a thorough case study delivers more detailed information about the case than a qualitative study covering the case. In this study, it is the aim to document how the energy relationship between China and Saudi Arabia developed over time. It is of importance to look into detailed information on the energy relationship between China and Saudi Arabia because any event occurring in light of the relationship can have the slightest influence on China’s energy supply security. Therefore, a qualitative case study is a more logical choice to study the energy relationship between China and Saudi Arabia than a quantitative case study would be because it enhances the internal validity. A disadvantage of choosing for a qualitative single case study is that the conclusions of this study cannot easily be generalized because the findings possibly are atypical. A qualitative case study also makes it more difficult to test a theory. Moreover, a qualitative single case study lacks the precision to claim causal effects. It can therefore be expected that the external validity of this study is low. However, it is not the purpose of this study to generalize, test a theory or claim causal effects. It is the aim of this study to document and explain the China-Saudi energy relationship. Furthermore, it is the aim of this study to do this by applying the geopolitical economy approach and simultaneously to better understand this

6_{According to Odell (2001) the single case study is a family of research designs. There are an additional four}

dominating types of case studies: the hypothesis-generating case study, the least-likely (theory-confirming) case study, the most-likely (theory-infirming) case study and the deviant case study. See for a better understanding of these four cases studies pages 165-167.

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theory. It is therefore of importance that the internal validity is high, that the external validity is low will not affect the objective of this study (Odell, 2001).

Data collection

To be able to analyze the energy relationship between China and Saudi Arabia data is collected in different ways. When using a single qualitative case study design, apart from making use of articles published in peer-reviewed journals or academic publications it is common to make use of personal documents (e.g. autobiographies), official documents deriving from the state (e.g. policy documents and statistics), deriving from private sources (e.g. annual reports), mass-media outputs (e.g. news articles and analyzes), virtual outputs (e.g. internet sources) (Bryman, 2008). In this study, the energy situation in China and Saudi Arabia will be researched by making use of official documents and data derived from government organizations like ministries and the United States Energy Information Administration (EIA), and international organizations like the International Monetary Fund (IMF) and World Bank. The energy governance structure of China and Saudi Arabia will be researched by making use of academic publications. The diplomatic, trade and investment activities by China and Saudi Arabia will be researched by making use of academic publications, official government communication (e.g. press releases) and news articles. The domestic risks and geopolitical challenges posed to China’s energy supply security in Saudi Arabia will be researched by making use of academic publications and policy documents and data derived from international organizations like the United Nations Development Program (UNDP).

The data used will be analyzed by making use of the discourse analysis and the qualitative content analysis. The focus of the discourse analysis is talk and text. Discourse analysis emphasizes the way versions of events are produced in discourse. In this study, this implies that the context in which documents are written will be taken into account when interpreting the meaning of texts. The interpretation of texts is subjective, which decreases the reliability of this study. However, following the guidelines of the discourse analysis will increase the reliability. The focus of a qualitative content analysis is to look for relevant information in the materials examined. The extracted information is most of the time used by quoting or paraphrasing. In this study, this implies that the data used will be researched by looking for relevant information to the China-Saudi Arabia energy relationship and subsequently quoting or paraphrasing this information. Looking for relevant information is as well subjective, which also decreases the reliability of this study. However, following the guidelines of the qualitative content analysis will increase the reliability (Bryman, 2008).

1.5. The structure of the thesis

In the second chapter of this thesis an analysis of China and Saudi Arabia’s energy situation, domestic energy scarcity and its policy responses to it will be given. In chapter three, the China-Saudi Arabia energy relationship will be studied. This is done by examining the diplomatic, trade and investment

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activities between China and Saudi Arabia. In chapter four the risks and challenges to China’s energy supply security in Saudi Arabia are examined. In chapter five, the findings of this study will be discussed and ideas for further research will be given.

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CHAPTER 2 The energy situation of China and Saudi Arabia

2.1. Introduction

Before the China-Saudi energy relationship can be analyzed, first a clear study of the energy situation of China and Saudi Arabia is needed. The leading question in this chapter is “What does China and

Saudi Arabia’s energy situation look like and what are their policy responses to it?”. It will be shown

that China energy situation is characterized by demand induced energy scarcity and energy import dependency. It will be shown that Saudi Arabia’s energy situation is characterized by the possibility to export oil.

The leading question is answered with the help of three subquestions. To be able to analyze China and Saudi Arabia’s energy situation, first China and Saudi Arabia’s energy landscape needs to be examined. This is done by answering the question ‘What is the structure of China and Saudi Arabia’s

energy landscape?’. To be able to study the effects of China and Saudi Arabia’s energy landscape the

question ‘To what extent does the energy landscape of China and Saudi Arabia lead to energy scarcity?’ will be answered. To be able to analyze how China and Saudi Arabia respond to their energy landscape and their (possible) energy scarcity the question ‘What are the policy responses of China and Saudi

Arabia to their domestic energy situation?’ needs to be answered.

This chapter is organized as follows. First, the energy landscape of China will be examined, followed by an analysis of the country’s level of energy scarcity, and concluded by a study on the government’s policy reflection to its energy landscape. Second, the energy landscape of Saudi Arabia will be analyzed, followed by an examination of the country’s increasing possibility of energy scarcity, and concluded by a study on the policy reflections to its energy landscape. The chapter will be concluded by answering the leading question of this chapter and by reflecting on this study’s first hypothesis.

2.2. China

2.2.1. Indicators on the energy landscape 2.2.1.1. Domestic energy resources

According to the EIA (2015), China holds 24.6 billion barrels of proved oil reserves. However, China’s reserves are maturing. The country had in 2014 between 141 and 180 million barrels of strategic crude oil storage capacity. In addition to its strategic crude oil reserve capacity, China held in 2014 around 350 million barrels of commercial crude oil storage capacity. China held 164 trillion cubic feet (Tcf) of proved natural gas reserves in 2015. Which are the largest in the Asia-Pacific region. China´s technically recoverable shale gas reserves are 1.115 Tcf. The largest proven shale gas reserves in the world. China

The energy relationship between China and Saudi Arabia : the relationship's contribution to China's energy supply security between 2016 and mid-2017

University of Amsterdam

Graduate School of Social Sciences