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Analysis: China faces tanker shortage

Three Chinese workers freed in Nigeria: Chinese govt
Three Chinese construction workers kidnapped on Tuesday in southern Nigeria have been freed, China's foreign ministry said Saturday. The three employees, who were working for the China Civil Engineering Construction Corp., were abducted near the company's compound in Calabar, the state capital of Cross River state. They were released on Friday after "various efforts by the Chinese side," said the ministry in a brief press release, without giving further details. Xinhua, the Chinese state news agency, earlier said it was not known who was responsible for the kidnapping. Chinese workers, employed in construction or by oil firms, have been abducted in the past in Nigeria and later released. China, which has increased its presence in Africa in recent years, has never indicated whether it paid to secure their release. In 2007, more than 200 foreign workers were taken hostage, often being released after a ransom was paid.
by John C.K. Daly
Washington (UPI) May 9, 2008
Driving China's pipeline strategy of seeking agreement with Russia and Central Asian states for transmission of oil and natural gas is a potential shortage beyond the energy issues so prominent in the media.

And China's potential shortage is tankers. According to a recent report in PortWorld, a prominent Chinese shipping executive commented that by 2015 China will need nearly 150 Very Large Crude Carrier tankers to meet its rising energy needs. For Beijing, the news is bad, as the country's top five shipping companies currently have a combined fleet of 27 VLCCs.

VLCCs are the second-largest class of tankers, displacing 200,000-320,000 tons, and are capable of carrying 2 million barrels of oil. Tankers are second only to pipelines in terms of efficiency, and their efficiency of large volume transport means that importing oil by tanker adds only two to three U.S. cents per gallon to cost.

China's tanker fleet comes with problems that make Beijing's proposed Central Asian and Russian pipelines increasingly important as a backup policy in the event its tanker fleet is interdicted on the high seas, either by weather, terrorism or enemy navies.

The reality is that, in the short term, China relies on ever-increasing oil imports delivered by sea. In 2006 Chinese crude imports rose 14.2 percent to 2.9 million barrels per day. China's largest supplier was Saudi Arabia, shipping 0.479 million bpd, a 7.6 percent increase from the previous year. Angola came in second, with 2006 imports rising an impressive 34.6 percent from 2005 levels to 0.471 million bpd, with Iran in third place with 0.337 million bpd, up 17.4 percent from 2005 levels. The Middle East was responsible for nearly 45 percent of China's oil imports in 2006, which totaled 1.32 million bpd, while African imports totaled 920,000 bpd, 31.5 percent of China's total crude imports.

What is significant in this pattern, however, are China's rising imports from Russia, which in 2006 reached 0.321 million bpd, a 24.9 percent increase. Unlike China's top three importing nations, Russian exports move exclusively by rail and pipeline on "interior" lines. Whatever Western analysts might say about the state of Russian democracy, the reality is that Russia is a stable political entity, unlike the volatile Middle East or Africa, from where China receives more than three-fourths of its energy imports. In the interim, however, Beijing will be forced to rely on maritime transport to import its crude deliveries, a pattern that will not shift in the foreseeable future.

Further driving an emphasis on interior pipelines is the Chinese shipping executive's observation that China's tanker fleet by 2011 is estimated to increase to only 63 vessels, which will only be able to transport approximately 58 percent of China's crude imports.

Last year the CIA numbered the world tanker fleet at 4,295 vessels of 1,000 deadweight tons or greater. According to U.N. statistics, in 2005 475 new oil tankers were built, totaling 30.7 million DWT of an average capacity of 64,632 DWT.

For Beijing, with its bloated foreign exchange reserves, the cost of building 123 new VLCCs by 2015 will induce sticker shock, as over the past decade the costs of constructing a regular VLCC have varied from $70 million to $100 million. Accordingly, not even accounting for inflation, the cost of constructing 123 new VLCCs could reach an eye-popping $8.6 billion to $12.3 billion.

Nor would this be all. As the majority of new tankers being built for Chinese shipping firms will fly China's flag, China's navy would inevitably have to expand to provide force protection for its expanded merchant marine. To protect its Middle East and African imports, the Chinese navy would be forced to deploy far beyond the South China Sea south and westward into the Indian Ocean and Arabian Sea, a logistical nightmare compounded by the vulnerability of Chinese imports traversing some of the more volatile maritime choke points, from the Strait of Hormuz to the Straits of Malacca.

During the 1980-1988 Iran-Iraq War, free-floating sea mines were released in the 21-mile-wide Strait of Hormuz. The 600-mile-long Straits of Malacca, transited by 50,000 ships a year, is 1.7 miles wide at its narrowest point and suffers from a combination of traditional piracy and indigenous Muslim extremist movements that make passage of the waterway especially unsettling. Among the Islamic terrorist groups active in the area are the Free Aceh Movement, Jemmah Islamiyah Lashkar Jihad, Laskar Jundullah and Rabitatul Mujahideen.

Even worse for Chinese naval planners is the fact the U.S. Navy is active in both areas. In short, a massive Chinese tanker fleet represents a horrendously expensive and vulnerable logistical nightmarish scenario in which China will have to invest billions with no guarantee of 100 percent security.

China has already negotiated pipeline agreements with both Russia and Kazakhstan. While predicting the future is cloudy at best, in such an environment, it seems a safe bet to say that the future will see Beijing seek every conceivable and possible pipeline agreement with its energy-rich neighbors to the north and west in an attempt to secure its energy imports while minimizing their vulnerability to the vagaries of maritime threats ranging from the weather to the U.S. Navy.

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