China's Belt and Road Initiative: Risk Outlook China's Belt and Road Risk Outlook | Page 8

ENERGY
SECURITY
INVESTMENTS
China’s general approach of hedging against over-dependence on maritime routes via the Straits of
Malacca or else on any one supplier of oil and gas has not shifted. The two should be assessed
separately, given that oil volumes are fungible and natural gas volumes have not reached that point.
NATURAL GAS
China faces a growing diversity of options in
coming years. Some observers have expressed
concerns over a decision to cancel Line D of the
Central Asia-China gas pipeline network. The pipeline
would carry 30 billion cubic meters (bcm) of natural
gas from Turkmenistan were it completed, adding to
the current 55 bcm of capacity that have been built.
But that 55 bcm is not fully utilized and China is now
negotiating for greater exports via Lines A, B, and C to
cover winter shortages. China is also set to import 10
Source: EIA
bcm from Kazakhstan. 
The Power of Siberia pipeline being built by Russia’s Gazprom will come onstream some time in late
2019, built to a capacity of 38 bcm. Once it does, China will have successfully gained access to piped gas
volumes from competing overland suppliers. However, the country’s pricing schema for consumers and
geographic concentration of industry make LNG a better bet to maintain diversity of supply and keep
prices lower. The concentration of capacity is borne out by the fact that China’s LNG imports hit record
highs last November since they can more flexibly meet fluctuations in demand.
Production from Russian Novatek’s Yamal LNG – a China-invested project that has weathered sanctions
– has finally come to market. Australia’s Gladstone port is now providing record volumes to China and
Beijing’s interest in investment into Australia’s LNG production will most likely only grow despite back
and forth between businesses over projects. A recent deal to jointly build a LNG plant in Alaska was
reached in broad strokes, though the project is questionable economically. It’s likelier that China was
trying to send a message to Gazprom to push it lower prices or else speed up construction. By and large,
LNG is more flexible and affords many opportunities for competition as the market is facing a glut for
the foreseeable future.
More broadly, LNG prices in Asia have hit three-year highs on spot markets due to winter demand.
China is looking into projects in Mozambique and Tanzania as it expands its ownership over
international production. Given that only Japan imports more LNG than China now, the geographic
location of LNG investments will be largely irrelevant for major investments. The most important goal
for Chinese policymakers will be making markets more liquid and interconnected, which entails
increasing production anywhere possible and applying various levers to end destination clauses or oil-
indexation for contracts. 
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