By James Bowen
When Australian foreign policy types talk about energy and security in the same breath, it can lead to talk of real military threats, not just the need to provide for the nation’s economic growth whilst maintaining the living standards of its population.
Energy—mainly natural gas and coal—is the backbone of Australia’s foreign trade based economy. Australia is indeed one of only three net-energy exporters in the rich country club of the OECD, contributing to its concurrent status as the only developed nation to avoid recession following the 2008 financial crisis.
Its sectors focus strongly on China, which accounts for a massive 32% of Australia’s terms of trade. China is the motivation and intended final recipient for many of the existing coal mines being expanded in areas such as the Bowen Basin in the state of Queensland in addition to the export liquefied natural gas (LNG) projects being constructed off its west coast. While China is also a strong customer for Australian minerals such as iron ore and nickel, there has been far more volatility in these sectors rendering the prospects for the future weaker
The energy ledger would seem a wholly beneficial situation if it were not for the fact that Australia has also been a staunch military ally of the United States in Asia-Pacific— China’s major rival for power—since the end of World War II, and remains bound by treaty to respond to any direct threats to it or its regional allies. While Australia’s leaders routinely ignore the potential ramifications of this, many commentators, most notably prominent academic Hugh White , see it as an inevitable source of conflict, particularly given increasing bellicosity in the South China Sea.
What then are we to make of the recent developments in the Chinese energy sector that point to greater diversification of its supplier base and Beijing’s divestment from some of the commodities that underpin the Australian relationship? Surely this will again complicate some of the foreign policy choices as well as the allegiances and alliances that shape this region?
The most notable recent development in this respect was the massive US$400 billion natural gas deal that China struck with Russia in May 2014. While the world at large showed some concern about an increasingly cozy relationship between an emerging superpower and a wannabe revanchist regime, Australia perhaps has relatively more to fear . This stems from a tendency of its energy industry leaders and policymakers to promote the nation’s reliability of supply, low sovereign risk and geographic proximity to Asia as a guarantee of its continuing preference over more volatile energy powers.
At this point in time the case may be that China is simply too commodity-starved and needs to ink deals with as many big suppliers as possible. There are certainly concerns for the future that accompany this need, particularly as Australia continues to have among the costliest environments in which to develop big projects such as LNG operations. A report came out following the China-Russia deal, warning that unless industry could rein in some of its inputs, it would miss out on $180 billion in future work.
In the shorter term, there should perhaps be more concern in the coal sector, given a recent study from the Institute for Energy Economics and Financial Analysis that warns of Australia’s coal mining sector facing a “structural decline” as a result of predicted future reductions in demand from both China and India. The immediacy of this risk is admittedly slim, with Chinese imports of Australian coal still up 19.7% for the present year despite its government’s efforts to improve air quality. The current government of Prime Minister Tony Abbott has been particularly unwilling to increase adoption of renewable energy and other climate change-fighting measures either in the Australian domestic market or in the types of energy it supplies to its region. Abbott has recently gone to great lengths to scrap some legislation of the previous government, including a tax on carbon and bodies such as the Clean Energy Finance Corporation (CEFC), which seeks to level the financial playing field for new renewable developments.
These actions come at a time when China has shown impressive patterns of investment in clean energy, which accounts for more than the combined spending on renewables from Europe in 2013. It also coincides with the Asia Development Bank and United Nations’ establishment of a sustainable energy hub that will seek to mobilize investors, technology developers and policy makers to pursue a less carbon-intensive version of achieving the more than US$200 billion energy investment the International Energy Agency estimates needs by 2030.
Again, the transformation to a new global energy reality will be long-term, but many argue that if its major trading partners are beginning the journey now, Australia should too. For now, as a staffer inside Australia’s Federal Department of Industry confirmed, policymakers and industry do not even seem to be seriously considering China’s decision to get its fossil fuels from cheaper, sources like Russia as a threat.
Given the previously mentioned nexus between economic interdependence and security in the Asia-Pacific, this lack of foresight could have some serious ramifications for the relationship between Australia and China and ultimately taint Australia’s relationship with the US. For its part, China has already shown a forceful approach towards its relationship with its southern partner. In 2010 Beijing imprisoned a senior executive of the Australian arm of mining giant Rio Tinto on what were widely suspected to be fabricated charges of accepting bribes and stealing business secrets. Rather than being content to simply act as a customer, China has also shown a fairly strong pursuit of direct foreign investment in new energy and resource projects, despite the lack of popularity of such moves among the Australian public.
With these actions coming at the very height of this energy-fuelled relationship, one wonders how China might be able to force Australia’s hand if the latter starts to fail to respond to its needs and can no longer dictate any of its own terms. More importantly, it is necessary to consider the ultimate implications be for Australia’s own security and those of other nations if China’s rise continues to result in conflict.