US could find unlikely energy ally in China
Posted by: Shane Thielges in International, Opinion June 20, 2014
Shane Thielges | Shale Plays Media
This week BP released the 63rd Statistical Review of World Energy, the latest offering in the long-running and highly respected annual global energy report. It measures changes in production, consumption, price and storage of major power sources worldwide for 2013.
The data illuminates big changes in how we are collecting and using energy in response to economic and environmental concerns. The US shale boom in particular has created an influx of energy sources that redefine previously understood supply limitations. As the top natural gas producer in the world, and the third highest oil producer, America has benefited economically and enjoys a powerful advantage in the international market thanks to vast energy stores.
By contrast, the Review highlights big problems facing China’s energy market in the near future. As both the world’s leading producer and consumer of coal, it endures extremely dense and toxic air pollution that is considered an ongoing public health hazard. At the same time demand for energy is rising faster than production, leaving the country unable to rely even on what resources it has. President Xi Jinping called for a Chinese “energy revolution” this week, saying he will seek to adopt power sources such as solar, wind, nuclear and natural gas to combat the worsening problem.
China has run afoul of espoused US foreign policy in their attempts to address the energy crisis. Xi signed a 30 year energy agreement for natural gas with Russia, which had faced threats and sanctions from the US and EU following violent action in Ukraine. The move essentially ensures Russia will have a committed buyer to replace the ones lost by sanctions, and defangs US attempts to put pressure on Russian president Vladimir Putin.
The UN has also heard numerous complaints from Vietnam recently concerning a Chinese oil rig operating in contested waters in the South China Sea. China has reportedly attacked Vietnamese fishing boats for getting too close to the rig.
Clearly the two superpowers are not in lockstep on such issues. The US wants to help its allies without taking all responsibility for their problems, and China has to address its energy crisis without the luxury of being too particular how it does it (Sino-Russian relations don’t have the sunniest track record, either).
For all that America and China butt heads and position themselves as rivals in the global energy game, however, the truth is that our ongoing energy markets will be inextricably linked moving forward.
Ongoing talk says the US is all but certain to loosen restrictions on natural gas exports soon, and oil may not be far behind. When that happens, we will have a huge monetary incentive to sell as much of our massive energy stockpile as we can. There’s more natural gas in America than we can use, leading to rock bottom utility prices but also an almost total lull in natural gas shale drilling, such as is found in Louisiana’s Haynesville and New York’s Marcellus shales. Demand and production are also growing at almost the same rate, meaning that if we want this gas to be profitable we have to find more prospective buyers.
American companies have already made deals with China for Liquid Petroleum Gas, and it’s a safe bet that China will be willing to buy whatever we have to sell. The US is also positioning itself as a leader in the worldwide fight against climate change, and a widespread Chinese adoption of US gas would make us look like a diplomatic leader. Recent studies suggesting natural gas won’t reduce long-term ozone damage would also be silenced, with focus shifting to the fight against a public health hazard.
As hydraulic fracturing starts to catch on in the rest of the world, energy supplies and influence will continue to shift in response. Countries like the UK, Venezuela and Mexico are attempting to tap into local shale deposits in hopes of replicating US success. If supply raises accordingly, the resulting price drop could make natural gas unprofitable for the foreseeable future. If the US wants to make money for its efforts, and China wants to buy up diverse power options, the two could do worse than to form a partnership sooner rather than later.