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2012-02-17 China to Saudi Arabia – the nuclear silk road?

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Friday, 17 February 2012 10:02

Key words: China, Saudi Arabia, nuclear fuel element, resesarch reactor

Sino-Saudi relations are set to get stronger as both nations have a preference for government-to-government trade alliances. Both are widening their political nets, which calls on the US and European nuclear supply chains to build better Sino and Saudi business relationships.

January's signing of an agreement between China and Saudi Arabia excited much attention in the Chinese media, though this was just the latest in a series of similar such legal framework deals that the Middle Eastern Kingdom had signed with a variety of nuclear technology supplier nations including France, Argentina and South Korea.

Like the other deals, the Riyadh-Beijing agreement is for peaceful use nuclear technology and covers the maintenance and development of nuclear power plants and research reactors as well as the manufacturing and supply of nuclear fuel elements.

The deal coincided with outgoing Chinese Premier Wen Jiabao's trip to Saudi Arabia, a country that is already a major supplier of oil to China as well as a significant buyer of imported Chinese manufactured goods.

Chinese cross border deals, Saudi’s deep pockets

Similar framework agreements are expected with the UK, Russia and the Czech Republic this year as well as, possibly, the USA. In this sense the Beijing media’s boosting of the story elevated it above its likely impact on China's nuclear technology and parts industry, which is seriously looking to start actively expanding and selling overseas. 

Despite the Kingdom's obvious supplies of oil (21% of global reserves), Saudi Arabia has been keen to build a nuclear energy reactor for some time. In 2010 the King Abdullah Atomic and Renewable Energy City was built dedicated to nuclear R&D.

Saudi government sources have said that they plan to spend more in excess of US$100bn on 16 nuclear reactors that they hope to have operational by 2030. The aim is that the reactors would meet growing domestic energy needs.

China will certainly be hoping that its newly developed reactor, the Chinese version of the Westinghouse Electric AP1000, the CAP1400, will appeal to the Saudis. Some analysts, such as Bill Dodson at China-based energy consultancy Strategic Analysis, sees Saudi Arabia as a unlikely location for the re-engineered Chinese AP1000.

The reactor is still in a testing phase, a process some consider rushed even with the delays caused by the Fukushima issue in Japan last year.

It was assumed that the CAP1400 and Chinese nuclear technology would be more suited to either countries with less financial clout, but nuclear ambitions (such as perhaps Vietnam or Malaysia) or those with political issues that would make it more problematic for European or American firms to deal with - primarily Pakistan, where China is active in Islamabad's nuclear programme. 

By contrast Saudi Arabia is extremely rich and not a pariah state. The Kingdom is the world’s largest oil producer with a sovereign wealth fund of approximately US$300bn for a population of just 28 million people.

Even in these straightened times money should not be an object for Saudi Arabia's nuclear programme. Traditionally, the Kingdom has bought the best regardless of price and that has usually meant Western.

Widening the political net

However, another school of thought contends that the Kingdom and its rulers have shown themselves keen to diversify away from an over-reliance (both in terms of oil sales and importing technology) on the Western nations, particularly the USA.

Riyadh is aware of the problems of having all its eggs in one basket, whether it be sales of oil or importing of technology. As Ben Simpfendorfer, the Chief China Economist for the Royal Bank of Scotland in Hong Kong and an expert on China-Middle East Relations (and the author of the recent book, The New Silk Road: How a Rising Arab World is Turning Away from the West and Rediscovering China) says, ‘China offers [the Middle East] an alternative strategic partner.

It offers a way for the Arab world to hedge its relationship with the West. The resurrection of the Silk Road is a timely reminder that the world’s centre of gravity may not always lie with the West.’

Sino-Saudi co-dependence

Indeed the co-dependence is growing - China still sources in excess of 40% of its fast growing total oil needs from the Middle East, with nearly 22% coming from Saudi Arabian suppliers. A nuclear reactor or two could be one way to seal even closer Sino-Saudi relations and limit American/Western influence in the Kingdom. 

Additionally, China has historically been a major client for Iranian oil though analysts have noted that Beijing is buying up additional oil from Saudi to reduce the amount it depends on Tehran.

This is partially to allow Beijing to negotiate better oil prices with Iranian suppliers during the current nuclear stand-off with the increasingly isolated country, but also so some analysts have said, to improve Beijing's standing with Riyadh to encourage more commercial deals in a number of spheres including potentially nuclear technology.

Gov-to-gov deal preference

It should not be forgotten, as Sam Chambers, the Editor of the authoritative SinoShip newsletter, puts out that any decisions in Saudi Arabia ultimately come from the government rather than a nuclear power company.

Beijing's fondness for dealing government-to-government rather than with businesses is well known and has always been a cornerstone of its various energy dealing, according Chambers.  

Source: http://analysis.nuclearenergyinsider.com

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