U.S.-China Cooperation Could Advance Mutual, Global Energy Goals
Nations have more to gain as collaborators than rivals, U.S. officials say
04 April 2005
By Andrzej Zwaniecki
Washington File Staff Writer
This is one in a series of articles on U.S.-China economic relations.
Washington -- Working together, China and the United States can more effectively meet their own energy challenges and make the world energy situation more stable in the process, U.S. officials say. The two countries should cooperate because “our goals are similar and our interests converge with theirs,” said an official, who asked not to be identified, in a March 8 interview.
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Both countries want to reduce their reliance on oil and natural gas imports by embracing new fuels and technologies for enhancing energy efficiency, the official said. Both also want to limit environmental problems related to the use of fossil fuels by moving toward cleaner technologies, the official said (See related article, “U.S. Encourages China to Become Responsible Energy Consumer.”)
The United States is a leader in many fields of energy research and technology and China has achievements of its own, for example, in high-energy physics, coal sequestration and next-generation nuclear reactors. So both sides have something to gain from cooperation, U.S. Energy Department officials have said.
However, Jane Nakano, China desk officer from that department, says that the more the United States and China understand each other’s objectives and policies, the greater benefits the two countries would be able to draw from bilateral cooperation.
That is one of the main goals of the U.S.-China Energy Policy Dialogue, she said. Agreed to in 2004, the dialogue aims to build upon 25 years of bilateral energy science and technology cooperation, she said in a March 1 interview.
The dialogue will encourage both sides to view demand and other energy problems as common challenges rather than as sources of a competition in which one side's interests are advanced at the other's expense, Nakano said.
“It is a framework that will help us diminish potential for misunderstanding.”
The specific topics of the U.S.-China dialogue have not been publicized, but discussions are to include energy security and regulatory issues, according to a 2004 Energy Department news release.
As for energy security, Robert Ebel said in a March 11 interview that one of the most important things the Bush administration could do to make world energy markets more predictable would be to encourage China to enhance its plan for strategic oil stockpiling.
Ebel directs energy research at the Washington-based Center for Strategic and International Studies (CSIS), a private, nonpartisan policy group.
Government-controlled petroleum reserves have been established by developed countries and some other major countries for emergencies such as supply disruptions. China has started building such reserves at one of four locations designated for that purpose. Its strategic stockpiles are expected to reach full capacity by 2008 or 2009.
The unidentified U.S. official said that, indeed, it is important for China and other Asia-Pacific countries to establish or boost their strategic petroleum reserves. What the Bush administration also would like to see is a clear message regarding how and under what circumstances China would use those reserves, the official said.
Jeffrey Logan, a researcher at the International Energy Agency, says that the use of strategic petroleum reserves must be coordinated internationally to make the biggest impact on the energy markets. Hence, the need for continued international dialogue with China on the issue, he said at a March CSIS symposium.
According to U.S. officials, because the United States and China consume so much of the world's oil, the degree of cooperation between them could have a big effect on the global energy market.
The U.S. economy, the most dynamic in the industrialized world, and the Chinese economy, the world's fastest growing, together account for one-third of global energy consumption. The two countries will need more energy to fuel their economic growth in the future.
However, the United States is projected to increase its share of world energy consumption only marginally to 22 percent in 2025 while China’s portion is forecast to almost double to 15 percent in the same period, according to the United States' Energy Information Administration (EIA).
A large upsurge in the demand for oil worldwide, particularly in China and other developing countries, is seen as the main force behind the sharp petroleum price increases in the past three years. By 2025, China’s demand is expected to more than double for oil and quadruple for natural gas.
The two countries’ supplies of petroleum, and to smaller extent supplies of natural gas, are projected to rely more and more on imports. By 2025, each is forecast to import roughly two-thirds of its oil and one-third or less of its gas supplies. Most oil imported by China is expected to come from the Middle East.
By working with the United States on the development and broader application of new, clean technologies and higher standards of energy efficiency, China can move toward a more sustainable path of development, thus becoming a force for energy-use moderation in the global energy arena, the unidentified official said.
Private U.S. energy experts say that, considering the sheer size of the Chinese economy and its energy needs, any significant reduction in its near-term and mid-term demand for petroleum and gas would take a lot of pressure off world energy markets.
In recent years, in a drive to secure future supplies of those two fuels, China’s government has signed energy deals or prospective deals worth billions of dollars with a number of countries, including Saudi Arabia, Russia, Venezuela, Iran and Sudan.
Some private U.S. energy experts contend that China’s intensified quest for oil and gas can ultimately strain global energy resources, change the geopolitical balance in the world, make the United States and China strategic rivals and, at worst, create potential for regional and international conflicts.
U.S. officials dismiss such scenarios as political fiction, however. First, they say, world resources are sufficient to satisfy global demand for energy for the foreseeable future. As to strategic rivalry, there is none on the horizon, another U.S. official, who did not want to be identified, said in a March interview. Available oil and gas supplies will go to those who are willing to pay the price set by markets, the official said.
“The energy game is not really a political game,” the official said.
Ebel of CSIS agrees.
“I don’t see China competing with us for oil any more than we compete with Europe, Japan or other oil-importing countries,” he said.
Nevertheless, Ebel said, to the extent that China tries to diversify its oil supplies away from the Persian Gulf region, its global contracts and acquisitions work to the advantage of all oil-importing countries.
“That makes the Chinese less vulnerable" to disruptions in supply from the Middle East, he said, "and if they are less vulnerable we all are less vulnerable.”
But the energy projects that China has initiated so far, including concessions to explore for and develop oil fields outside China, are relatively small, Ebel said.
Even with continued investment for years to come, said Logan, China’s potential to control oil resources is likely to be limited and may not exceed 1 to 2 percent of the global petroleum output by 2020.
Officials and experts point to the experience of Japan as a warning sign for China. In the past four decades, Japan invested tens of billions of dollars in equity stakes in oil fields in other countries. That investment has increased its supply security only marginally, experts say.
A U.S. official said that eventually China is likely to rely more on the global market than on government-to-government deals. As Chinese energy companies gain more international experience, China’s international energy activities are likely to evolve away from government-secured contracts toward more economically oriented deals made by individual companies, the official said.
“We believe that the energy market is a better guarantor of energy security than a long-term deal, say, with Sudan,” the official said.
(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: usinfo.state.gov)
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