The Chinese are stuck with one foot in each camp of a contentious battle for control of oil in East Africa. The most recent conflict between the nascent state of South Sudan and its controversial neighbor raises real concerns that China’s controlling stake in 40 percent of Sudan’s oil industry and 60 percent of its export will be seriously disrupted.

This current conflict, which arose earlier this month after claims that Sudan is stealing oil being piped to ports from South Sudan, unfolds just a little more than six months after China put in immediate diplomatic legwork with the new South Sudanese state. They did so with good reason given that estimates suggest the new country is responsible for around 75% of the region’s crude oil output. In the below timeline, you can see how the Chinese publicly responded to the new state in July:

China's response to South Sudan's Independence in July - Click for Live View

History Between China and Sudan

From where does this interest in the stability of Sudan arise? The storyline of relations between China and Sudan includes a backdrop of sanctions imposed on the Sudanese government by the US and UN that left a trade void for the country. China was willing to fill it especially given their increasing need for energy resources, and looking back to 2008 we find a series of investments and diplomatic actions between China and Sudan:

If you look back further than the time frame of the above discussion, you also find that China has been running one of its biggest oil projects in Sudan since 2004. The relationship is ever contentious: China took heat from world leaders when it hosted Sudan’s wanted leader Omar al-Bashir in June of 2011 ahead of the South Sudan’s formal independence, and there are claims that more than $55 million worth of Chinese weapons have been sold to Sudan.

Current Diplomatic Efforts

For some time after al-Bashir visited China, relations between the countries went fairly quiet. There were few, if any, publicly highlighted diplomatic relation events from July to the middle of November (note the time slider on the bottom of the network that shows the time frame being analyzed):

Diplomatic Relation Events for Sudan - July through Mid-November

However, relations suddenly saw a flurry of activity beginning with a pledge from Chinese defense minister Liang Guanglie on November 16 saying that his government would bolster military cooperation with Sudan, and since then, you can see below that China is the second most prominent state (after the United States) for diplomatic relation events with Sudan. The density of lines between network nodes indicates the number of events connecting those entities:

Diplomatic Relation Events for Sudan - Mid-November to Present

Why the sudden action even before the most recent allegations of Sudan stealing in-transit oil from South Sudan? Well, it’s possible that there was anticipation about the United States formally announcing its lifting of sanctions on oil trade with South Sudan after drawing up guidelines for companies to avoid infringing on the sanctions still imposed on Sudan. There also may have been hints that non-Chinese companies such as French oil giant Total would suggest alternative plans to pipe oil through Uganda for export via Kenya or Tanzania; ultimately, a bad solution for China.

The circumstances are fast changing and carry ramifications for the markets, the stability of the entire region, and international relations between China and the Western countries long at odds with Sudan. Monitor further updates by creating an alert for the most recent and near future events related to oil in East Africa.

Pop over to Drew Conway’s blog Zero Intelligence Agents and check out his latest post “Who are the most central members of the China’s leadership as we enter 2012?” Drew is a PhD student in political science at New York University. Drew studies terrorism and armed conflict; using tools from mathematics and computer science to gain a deeper understanding of these phenomena. He analyzed a massive amount of Recorded Future data gathered from open source, did some math magic and came up with a pretty compelling analysis.

Smart grid technology is poised to take the power infrastructure market by storm in the coming decade. The industry in the US is expected to grow from $5.6 billion in 2010 to $9.6 billion by 2015. The US government made an initial $3.6 billion investment in 2009, and now many smart grid firms are showing signs of growth. Big companies like IBM and Lockheed Martin are scrambling to take advantage of this emerging market.

The appeal of the smart grid is its potential to greatly improve the efficiency and stability of the nation’s power infrastructure. For example, the smart grid can “self-heal,” so if a power station goes down in one region the system may be able to adapt and divert resources as needed. Another principle advantage of the smart grid is increased transparency between the customer and the utility, ideally allowing utilities to better manage peak loads and communicate with customers.

Let’s look at the progress. How has the industry fared within the past year?

Smart grid news over the past 12 months

Recorded Future’s sentiment analysis tool can provide immediate feedback on the health of an industry. In this case, we can see plenty of positive sentiment for the smart grid market, and we can also pick out favorable analyst quotations. Three analysts of note that discuss the US smart grid market:

• Paul Korzeniowski of EnergyBiz: “says the number of smart meters deployed in the United States is nearing critical mass and may in fact be leading to a fast approaching transition point in the industry”

• Lawrence Makovich: “the widespread expectation in the United States and around the world today [is that] the smart grid is the next big thing… the reality, he writes, is more sobering. Instead of a disruptive technology poised to transform the power sector, he argues, we should expect a more evolutionary change toward a “smarter” grid, with more modest results.

• Massoud Amin: “there have been an increasing amount of outages per year in the US, and a smart grid could reduce the costs of outages by about $49 billion per year.

As seen above, forecasts for the US smart grid market appear to be generally positive. Analysts like Lawrence Makovich seem more cynical than others about the smart grid’s transformative powers, but even he is cautiously optimistic.

International Outlook

The international market for smart grid technology in the future appears to be even more explosive than in the United States.

Future international market for smart grid technology

China is expected to be a major player in this area, investing around $100 billion into upgrading its power infrastructure . It also appears to have taken the lead in government spending on smart grid projects at $7.3 billion while several other nations in the region are expected to spend $28.8 billion on smart grid projects by 2017.

Security: The Achilles Heal

Although most analysts agree on the general short-term health of the industry, there are some signals that raise concern. Electric Light & Power indicates that the momentum of smart grid development declined in the first half of 2011, and the “weakest link in smart grid’s development has been the lack of attention to automating and modernizing the transmission and distribution network”, according to the smart grid blog Memoori.

However, the biggest risk and potentially limiting factor for progress toward widespread smart grid adoption is security. The smart grid market is serious business with potentially disastrous consequences if it is not implemented correctly. Rolf Adam of Cisco sums up the situation: “From an IT environment security perspective, it’s a nightmare”.

Evidence suggests that he isn’t the only one concerned as fear of an infrastructure attack is on the rise among business executives. In a survey conducted by McAfee, 40 percent of executives surveyed said that their company was not prepared for an attack.

The security of the smart grid is increasingly being brought into question

Over the past year, the security of the smart grid has increasingly been brought into question. The primary concern is that an attacker might be able to exploit vulnerabilities in the hyper-connected grid to cause mass blackouts. VentureBeat highlights why so many industry experts are concerned, “ increasing automation and communications within the electricity grid potentially has a dark side; increased vulnerability to attack.” Ironically, as the grid gets smarter it becomes less secure.

Is anything being done to combat this future threat? What is the biggest future security threat for the smart grid?

Long-term security threats facing the smart grid

The good news is that governments are aware of the problem and resources are being mobilized to combat it. A report by Pike Research, “anticipates that government and regulatory compliance will drive substantial investment in smart grid cyber security”. The group also expects the smart grid cyber security market to reach $3.7 billion by 2015.

Will billions of dollars in cyber security investment solve the problem? Perhaps not. It appears that the biggest problem facing the power grid is non-technical in nature. According to one former government official, “Ninety to 95 percent of the people working on the smart grid are not concerned about security and only see it as a last box they have to check”.

If no one cares about security, it is reasonable to conclude that the system will not be secure, and the New York Times recently highlighted this same point when it said that, “utilities are very reluctant to share information about security vulnerabilities due to liability issues”. It appears that utilities are not encouraging a culture of security around the smart grid. As a result, this could have disastrous consequences for the long-term future of the smart grid.

Conclusion

The smart grid market is a potentially lucrative space, and both the US and international markets are expected to grow substantially over the next decade. Yet, the security concerns are significant enough that they can be expected to slow down progress.

Are you following the smart grid market? Interested in the future of Advanced Metering Infrastructure (AMI) or Meter Data Management (MDM)? Take a look below and see what future projects these companies are working on.

Advanced Metering Infrastructure (AMI):

Analytics:

Demand Response:

Meter Data Management (MDM):

Personal Energy Management (PEM):

Over the past decade, China has become nearly synonymous with economic growth. The country has continually posted double digit GDP growth and the IMF predicts that China may become the largest economy by 2016. These predictions have some US economic analysts pondering: “should we be concerned about China?”

We can evaluate factors affecting the answer to this question by using Recorded Future to analyze open source information about the Chinese economy, specifically infrastructure projects. By examining China’s highly touted innovation and leadership in high-speed rail, we find that recent safety issues, government censorship, and public doubts over safety expose a likely slowdown in progress for the country’s infrastructure.

China’s Ambitious Rail Plans

There is no doubt that the high-speed railway market in China has been red hot in recent years, and one source indicates that China’s high speed railroad track mileage may exceed 16,000 kilometers by 2020. The government is also spending billions to expand into less-populated areas, “as the first long-distance high-speed rail line in west China, the second line of Lanxin Railway has a planned investment of more than 140 billion yuan ($21.91 billion).”

What else can we learn about the future of the Chinese high speed railroad network?

Discussions of future railway projects in China

But not all is well with the development of the Chinese high-speed rail system, and a deadly crash this past July exposed serious safety and regulatory shortcomings.

Public Criticism and Falling Investment

The subsequent attempt by the Chinese government to censor information about the disaster evoked tremendous public backlash that now threaten to significantly slow proposed projects. Bloomberg also reported that many projects were temporarily halted following the accident, which is likely to have an impact on the completion date, if not the long term development, of China’s expanding rail system.

What kind of impact did the train crash have on the rail industry in China?

What was said about the high-speed rail industry following the crash?

Above, we filtered results about China’s railway system to only those articles published after the crash on July 23rd. What do we find? We quickly see that China’s high-speed rail system is in big trouble.

Railway industry analyst Lu Zhou seems to have summed it up best: “A Great Leap Forward-style movement in China’s high-speed railway is changing abruptly to a period of silence, and that could last a few years”. Investment in high speed rail has already taken a substantial hit, with seven out of 28 railway firms in China reporting losses.

Two key points from the Xinhua News Agency that are particularly troubling:

• According to statistics from the Ministry of Railways (MOR), growth in the country’s railway fixed-asset investment has been on the decline, from a 25.6-percent year-on-year increase in January to a 21.8-percent year-on-year decline in July.

•  China Railway Erju Co. Ltd., a leading railway construction enterprise, reported net profits of 395.57 million yuan (61.91 million U.S. dollars) in the first half of the year, a 12.24 percent drop year-on-year.

The train crash in Wenzhou had a significant impact on the high-speed rail industry in China. For the first time since the 1990s, train speed is expected to slow down. Some train makers have halted production, and the $5 billion expected IPO of Beijing-Shanghai High-Speed Railway was suspended after the crash. One Chinese official indicated that, “upcoming safety checks on the country’s high-speed railway network are necessary to raise the government’s credibility”. These indicators suggest that a serious problem exists within the Chinese high-speed rail system.

Understanding Public Sentiment in China

Another angle to consider when using Recorded Future is the data mined from Chinese language sources. In the graph below, we conducted a search similar to the one above but using only Chinese language texts. One article on China Dialogue discusses the end of the invincibility myth of the Chinese high-speed rail system. An editorial in the Financial Times then defends the railroad system and urges for its continued development.

Chinese language discussions about the industry following the crash

We also performed a search for any future facing railway information in Chinese. One of the most useful articles was a translated version of another Financial Times article that discussed the recent accident. The article discusses potential problems that the government may now face in rail, “5 years ago, the Chinese government invested heavily in the hope that [it would] in record time…[become] the world’s largest high-speed rail network. Intention is to stimulate the construction of high-speed rail and improve the efficiency of national pride, but [the railway] has now become…embarrassing”.

Chinese language discussions about railway projects in China

Potentially even more interesting is the wealth of social media data can be found at the bottom of the article in 116 comments. These comments were made by Chinese speakers, most of whom are located within China, and some are particularly candid: “I am struggling to find confidence in the government, but it is really difficult. Too much logic lies.”

Conclusion:

Debates like these are fairly rare in China where citizens are often discouraged from criticizing the government. The railroad system is a crown jewel for the Chinese government, and it is clearly not too pleased with the criticism. However, the government faced tremendous public backlash that forced it to reduce the level of censorship.

The very nature of this debate can be seen within the above mentioned comments as nationalists and government skeptics battled it out online. Thousands of people viewed these comments and over a hundred commented, showing that this became a highly salient issue in China. The end result, based on media analysis, public sentiment, and financial data suggests that Chinese high-speed rail development is in serious trouble and may be slowed for years.

Wired’s Danger Room posted a piece yesterday on the US awarding a no-bid defense contract to Russian state-run weapons exporter Rosoboronexport. The real eyebrow raiser is the Russian company’s history of arms deals with Syria and Iran that led to sanctions imposed (since lifted) by the US. So aside from the two “bad guy” names in the Danger Room post, what other countries can the company claim as customers?

We’ll use Recorded Future to first analyze the web for mentions of Rosoboronexport and company activity taking place between 2005 and 2009:

Rosoboronexport 2005-2009 - Click for live view

Highlighted in grey are events mentioning both the company and India, and below the timeline, you can see a number of other countries associated with the company in news, blogs, and so on. Aside from those locations clearly in view, if you click through to the live visual, you’ll find links to deals with Libya, Belarus, Burma, Algeria, Sudan, and more.

And how have things looked since the US lifted it’s freeze on trade with the company? We can see lots of activity with interests ranging from Western governments to southeast Asia to Africa.

Rosoboronexport - From 2010 into the Future - Click for Live Details

Some of the juiciest points that stand out include the supply of weapons or military vehicles to both sides of serious conflicts on the horizon for China. We’re talking the simultaneous provision of arms for China and India (neighboring superpowers that seem almost certain to butt heads), and separately, selling submarines to Vietnam, which is on tense terms with China due to ongoing conflict over the South China Sea.

Presumably there is quite a bit about Rosoboronexport buried in the open source intelligence available on the web that may be useful to government and risk analysts. Click the second of the images above to keep tabs on future developments related to the Russian arms company or head over to our website and get started with your own temporal analysis of the web.

Tensions are escalating between China and neighboring countries over sovereignty of the South China Sea. Disputes over control of the sea (and more importantly its oil and gas fields) are not unfamiliar, but they’ve escalated recently as China steps up its rhetoric in advance of state-owned oil company CNOOC beginning drilling later this year.

The timeline below shows online momentum of coverage related to the South China Sea so far this year:

Momentum of Discussion on South China Sea - Click for Live View

Now, I won’t try to speculate about what the range of geopolitical chest thumping necessarily implies since there’s an awful lot of diplomatic feinting. For example, a spokesperson for the Philippine Armed Forces suggests that other countries simply change the name of the sea.

However, I do know that scanning the future of the region for any impending, contentious events will be useful in anticipating the next phase of this conflict. So, below is a view of events referencing the South China Sea and a time point over the rest of the year:

We see Taiwan plans to continue regular patrol missions. So, which countries are involved? Quite a few as it turns out since China is claiming territory that bumps up aginst Malaysia, Taiwan, Brunei, the Phillipines, and Vietnam. All are represented in discussion about the future of the region as seen in the treemap below.

Certainly an issue to watch as Taiwan and others plan to continue military exercises in the region, the CNOOC rig is set for drilling possibly as early as July, and several US allies are lined up against China. All the while, American officials are calling for China to resolve the dispute peacefully in advance of Hillary Clinton’s travel to the country later this month, while China claims it’s resolving the dispute exactly the way it is entitled.

If you bump this view of the future related to South China Sea out further, you find even more interesting power grabs from China including the expected deployment of three aircraft carriers in the region by 2017 as the possibility of another competitor (India) emerges.

Future Events Related South China Sea - Click for Live View

If you want to keep tabs on this issue click on the image above and choose the “Create Future” button to set up an alert on forward looking events related to the South China Sea. We’ll certainly track this closely to see if further signals appear tilting this in the direction of a physical, up in arms conflict or if it all turns out to be political posturing.

If you find some of this analysis interesting, check out our open source intelligence tools for government and defense research.