China's oil strategy not conflicting with US interest


As oil price hiked recently, there has been an obvious increase of reports on oil strategy in the US media, some of which held that China's strategy on oil security ran contradictory to the US oil strategy. Fiona Hill, senior researcher with US Brookings Institute and expert in international energy accepted an interview by Tang Yong, People's Daily correspondent stationed in Washington, US.
(1) China has become the second largest oil consuming country in the world. (USA is the Number One). How do American scholars and the media view China's rapidly rising oil demand? How do they think of China's tremendous insufficient oil supply?
There has been some coverage in the US press of China's increasing demand for energy as well as its rising demand for a whole range of raw materials and commodities (steel, scrap metal, timber etc.) to keep pace with the rapid growth of its economy and the boom in its manufacturing industry and construction sector. Some of these articles have highlighted the current shortages in electricity production, as well as China's search for new oil and gas supplies in Russia, Kazakhstan and other regions. One of the central issues in these articles, as well as discussions in analytical and scholarly circles in the US, has been the concern that energy shortages will constrain China's economic growth, and also that soaring oil prices will negatively affect the Chinese economy.
There is a growing recognition in the United States that China's growth has been a major factor in reinvigorating the global economy, including the US economy. Chinese economic development is increasingly seen as a positive factor for the US - especially as there is a good deal of Chinese investment in US debt as well as increasing orders for US commodities from China. So, in short, there is some fear here that problems with energy supplies in China may lead to an economic slow-down that will in turn dampen the US and global economies.
(2) Does Americans fear that China's oil strategy shift may danger American national interest? What has the American government done to deal with this critical issue?
At this juncture China's oil strategy shift is not seen as a threat to American national interests - especially given the increasing consensus that Chinese economic growth should continue. However, there is great concern in the US about increased international dependency on Middle East oil and about the security of global oil supplies as a result of instability and the potential for terrorist attacks on production and export facilities in the Middle East - especially in Saudi Arabia. The major fear is that a major rupture in the supply chain from Saudi Arabia in particular would lead to prohibitive oil prices that would stifle the global economy, and also encourage increased competition and even conflict over oil and energy supplies in energy-poor regions like East Asia.
American policy is now focused on trying to minimize the potential for another catastrophic oil shock if there is a supply disruption in the Middle East. This has meant promoting increased supply to the global oil market from other sources outside the Middle East, like Russia, the Caspian Basin, West Africa etc.; as well as increasing the size of the US strategic oil reserve to protect the US domestic supply in the event of a crisis. In recent policy statements, the American government has also begun to emphasize more strongly the need to move away from oil dependency and toward other fuel sources, like LNG and renewables.
(3) Can you name a few major competitors in the world oil market? Has the competition among the major oil consuming countries entered into a critical stage?
The major oil consumers at this juncture are the United States, the European Union countries, China, India, Japan, and South Korea etc., with most of the future growth in demand anticipated to be in the developing economies of Asia - especially China and India.
The transportation sector is the main driver for oil demand - especially given the continued growth in car ownership, with only the tip of the iceberg of potential demand currently satisfied in China and India. Transportation is the largest consumer of oil in the US at 68% of current consumption. It accounts for 48% of world oil consumption and if automobile usage follows current trends, this is expected to increase to around 56% in the next two decades. Only a leap to new hybrid/fuel cell technologies in the developing economies, or government strictures on automobile ownership, will buck this trend.
We have not reached a critical stage in competition between major oil consuming countries. Although a major oil shock in the Middle East could change that, and this is something that the US and other primary consumers very much want to avoid.
(4) Some experts predict that once Mainland China declared a war with Taiwan, Americans would try to cut off China's oil supply chain. How do you think of this possibility?
Blockades and sanctions on strategic supplies have been a traditional tool of governments during conflicts, but they are also difficult to impose and very difficult to maintain even with broad international support. The US government very much wants to avoid any conflict between Mainland China and Taiwan - and especially a declaration of war, which would be ruinous for everyone. American policy is currently focused on this issue of trying to avert conflict.
(5) What role does the oil play in the relations between China and its neighbors? Do you think the oil may trigger disputes between China and its neighboring countries? The disputes that have been unfolding at the moment between China and its neighbors on South China Sea are in fact a fight for oil.
Clearly oil and energy security issues play a role in relations between China and its neighbors, in the current international environment, especially when China, Japan and other neighbors are all looking for supply options closer to home within the region to lessen dependency on imports from the Middle East. Each country in the Asia-Pacific region also wants to increase its own domestic reserves and production options. The disputes in the South China Sea are mirrored in other regions globally - including in Africa, and in the Caspian Basin, where there have been disputes among Azerbaijan, Turkmenistan, and Iran, for example, over ownership of sub-sea oil resources.
(6) According to Chinese oil strategy, China supports the Middle East, Africa, Central Asia and even Russia to build oil pipelines. Does this collide with American oil strategy?
This does not collide with American oil strategy at all. US energy security policy is focused on increasing global supply options and bringing more oil to world markets to ensure that there is enough supply for all major consumers to mitigate competition and avoid conflicts over oil resources.
(7) How do you predict a possible clash and even war between China and America in the field of oil?
At this stage I don't predict a clash between China and America, especially if current policies continue and the Chinese and US economies continue to draw together with increasing trade, investment and other interdependencies. Over the last 10 years, the US has also been able to move away from some of its former dependency on Saudi Arabia and the Persian Gulf and has achieved considerable geographic diversity in its oil supply options. The Persian Gulf now accounts for only about one quarter of US crude oil imports (54% of US oil is imported). And fully 60 countries have increased their oil production and now supply the United States with oil. Half of US crude oil imports come from the Americas. Although Saudi Arabia remains the largest single US supplier, it is very closely followed by America's neighbors - Mexico, Canada, and Venezuela (in that order). And Africa as a region now supplies more than 15% of US crude imports. Europe (Norway, UK etc.) supplies just under 7%.
Russia has been a focal point of American energy security discussions over the last two years, but the US still purchases very little crude oil from Russia - just over 1% of total imports. The bulk of Russian crude oil exports, well over 80%, go to Europe - including the EU member countries and the central and eastern European countries of the former Soviet bloc.
(8) Can you offer a solution for China to solve its overwhelming oil demand problem?
China, like the US, needs to increase the geographic diversity of its oil supply, and increased use of other alternative fuel sources like LNG and natural gas. The current focus on developing long-term projects for both oil and gas with Russia, Kazakhstan and other regional suppliers is very sensible. But China also needs policies to try to stem the growth in its oil demand - especially in the transportation sector where most of the growth can be expected. This could be done through the tighter regulation of the automobile industry (as in Europe), encouraging conservation, and aggressively promoting research in new hybrid/fuel cell technologies etc. In the static power and other industrial sectors, moving toward gas, clean-coal technologies (given China's huge coal reserves), and experimenting with renewable energy (not just hydro-power, but solar, wind and biomass etc.) would be a sensible approach.
Finally, China could take the initiative to put energy security in all its dimensions -including increasing geographic diversity of supply and increasing alternative fuel research and use - on the agenda of regional and international forums (APEC, ASEAN, SCO etc.) as well as making it a major item in its bilateral discussions with key oil-consuming countries like the US, India, and European states. All of these countries have a range of policies and research initiatives that could be productively shared and China may be able to encourage some joint initiatives with other leading countries to address this critical issue.
By People's Daily Online