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Thesis & Antithesis

A critical perspective on energy, international politics & current affairs

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greekdefaultwatch@gmail.com Natural gas consultant by day, blogger on the Greek economy by night. Trained as an economist and political scientist. I believe in common sense and in data, and my aim is to offer insight written in language that is clear and convincing.

11 February 2006

China’s energy and the US

The Department of Energy just released its report on the implications of China’s energy demand for US foreign policy. The report was prepared in conjunction the CIA, and the Departments of Defense, Treasury, State and Homeland Security; from what I hear it went through a few drafts before the Pentagon felt comfortable with the final product.

Perhaps the most significant contribution of the report is to state that China’s overseas purchases are “economically neutral,” dispelling the silliness that China is “taking oil off the market.” The report also explores the history of China’s energy policy and underlines the ambiguity about its structure and direction: as pundits talk of China’s strategic alliances and its acquisition of oil assets abroad, the report is more cautious and probes the complex dynamics which fuse to form China’s energy policy. Particularly interesting are the sections on the relationship between the Chinese Communist Party and the oil companies (showing how the two are not always in tandem), as well as the section which discusses the linkages between China’s energy and foreign policy.

It is curious, then, that such a toned-down and sensible report is welcomed by rhetoric at odds with its content. The Chairman of the House Resources Committee, Richard W. Pombo (R-CA), commented on the report: “Without question, this study shows that China is serious about energy … The Chinese have figured out that abundant and affordable supplies of energy – in all its forms - are the key to strong economic growth.  So they are implementing a goliath of a comprehensive energy policy while we take baby steps.  Their incredible growth rate is proof … China is marching forward while we argue inane debates and partisan rhetoric … And China won’t hesitate to march right over us in the upcoming decades if America does not improve its energy policy.  We must take similar and aggressive steps to increase American supplies of renewable, alternative and conventional energy to grow our economy.  I intend to do just that.”

In my mind, there are two points which should have been emphasized more. The first is the current reality in the world oil market; it is easy to accuse China of not trusting the oil market or to blame China for its aggressiveness abroad. But the truth is that the oil market is not that trustworthy: there is little spare capacity in the world and increases in demand have to be met by increases in supply through exploration and development. Much of what Chinese companies are doing is drilling for new oil; and for good reason since the global supply will need to increase to meet global demand. Why is this point important? Because our rhetoric often ascribes to China motives which are malignant; yet any sensible reader of oil statistics knows that the pace of demand growth far outpaces the rate of supply growth. China does not trust the global energy market because it does not seem capable to meet its needs. A different market could potentially reassure China: to say that the Chinese are just vociferous in their appetite for energy distracts from a more serious question of why the Chinese are not comfortable with the current market.

A second issue has to do with China’s sense of insecurity. Whatever the reality, it is a country’s perception of insecurity which motivates its policies; and perception does not have to be strictly connected to reality. In that sense, the report could have done more to analyze the perception of energy insecurity in China: what forms it takes, what motivates it, what policies are suggested to ameliorate it. After all, American diplomacy should be aimed at China’s sense of insecurity as much as on its actual insecurity. I have appended the link to a monograph by Bo Kong, a doctoral student at the Johns Hopkins School of Advanced International Studies (and, I should add as a disclaimer, a friend), which deals with China’s perceptions of energy insecurity (pp 24-29); I have added the link because it’s the best description that I read so far on the issue and because it’s an important topic that did not get discussed in the DOE report.

References:
“Energy Policy Act 2005, Section 1837: National Security Review of International Energy Requirements,” US Department of Energy, Feb 06 (link)
“China Outpacing U.S. in Energy Policy, Now #1 U.S. Competitor in Global Energy Market,” Press release, 8 Feb 06 (link)
Bo Kong, “An Anatomy of China’s Energy Insecurity and its Strategies,” Pacific Northwest National Laboratory, Dec 2005 (link)

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