China needs to prepare for US energy independence

By Lin Boqiang Source:Global Times Published: 2017/1/8 23:03:40

Illustration: Luo Xuan/GT

Illustration: Luo Xuan/GT


Even though the demand for petroleum from the world's two major consumers - China and the US - has slowed down in recent years, global demand has grown at a steady pace. The US, China, India and Japan remain the biggest oil consumers, accounting for 20.5 percent, 12.2 percent, 4.6 percent and 4.3 percent of global consumption in 2016, respectively. The US is still the No.1 oil consumer and is heavily dependent on imports of crude oil.

US President-elect Donald Trump's advocated energy independence policy hopes to increase domestic oil production and reduce reliance on imported oil and ensure the security of energy supply. More specifically, Trump expects the country to focus more on domestic gas and oil exploration, loosen relevant regulations and encourage US enterprises to drill for oil at its continental shelf. In addition, expected US retrenchment on climate change, multilateral trade and other global issues can also help the US achieve energy independence.

Trump is not the first to propose energy independence. After an Organization of Arab Petroleum Exporting Countries oil embargo sparked an energy crisis in 1973, which impacted the US, President Nixon launched "Project Independence" in an attempt to achieve energy self-sufficiency via a national commitment to energy conservation and an increase in domestic production. The idea of energy independence was supported by several administrations thereafter. The nature of it was to reduce dependence but not affect the US' energy security or economic stability. Trump's policy could be more radical, and his nomination of Rex Tillerson, chief executive of multinational oil giant ExxonMobil, for secretary of state enhances that anticipation.

Energy independence doesn't mean being self-sufficient in all energy consumption, but refers to a situation where a country's macro economy, social stability and diplomatic policies are not kidnapped by the reliance on external energy.

In light of the US' significant global position in energy production and consumption, its move toward energy independence is likely to bring significant changes to the global landscape of energy supply, energy prices, and geopolitics. Further, how can this hurt China's interests concerning stable oil imports and the safety of transporting oil into the country?

The US' pursuit of energy independence may deteriorate China's role as a gas and oil importer. US reliance on international oil markets have brought contradictions and conflicts in its energy policy and diplomatic policy, which can be seen in the gas and oil pipelines in the Middle East, Iraq and the Caspian Sea. Following the gradual realization of energy independence, the US could possibly loosen its strategy of maintaining stability in the oil-producing Middle East, which would likely make the region more unstable. Additionally, the US would likely step up sanctions against "problematic countries" like Iran and Sudan, which are significant sources for China's imports. Those two factors could negatively impact the country's energy security and lead to strategic conflicts between China and the US over certain international issues, such as Iran's nuclear program.

US energy independence might also aggravate the safety of China's energy transportation. China is heavily reliant on two of the world's six major oil transportation arteries - the Strait of Hormuz and the Strait of Malacca - and that reliance is increasing. With US military maintaining the safety of these oil routes, China's energy lifelines are heavily dependent on US political and military strength and China is given an easy ride. As such, the reliability of China's oil supply is a weak link, when factoring in the country's lack of resources to keep oil routes flowing smoothly and to safeguard shipping safety.

As the US pushes for energy independence and reduces its reliance on these oil routes, we need to stay vigilant against the reliability of the US upholding the oil arteries. To maintain hegemony, the likelihood that the US will eventually withdraw is small, however, it cannot be ruled out that the US may take advantage of China's fragile oil imports, particularly when conflicts flare up between the two countries.

US energy independence is thus likely to impact the international energy market as well as the geopolitical landscape. It would also have profound implications for China's economy and energy safety. With domestic energy consumption stable, the US may increase energy exports or reduce imports. China needs to be well-prepared for possible shockwaves and draw up concrete contingency plans.

Despite the current economic slowdown, China continues to post robust growth in oil imports. China is now the world's top oil importer, and thus oil safety lies at the heart of the country's energy safety. To avoid the impact of big swings in international oil prices and to safeguard China's energy safety, the country will not only need to increase strategic oil reserves and diversify oil imports, but also explore alternative options to reduce oil consumption. Developing electric vehicles helps curb smog and is an oil substitute, but might not be an ideal choice in the near to medium term, as numbers will be too small for some time to have a significant impact, and it does not address the increasing urban traffic congestion. The development of urban rail transit, however, is considered a significant substitute for oil in the foreseeable future, given that urban rail transit projects are mainly electric-powered.

The author is dean of China Institute for Studies in Energy Policy at Xiamen University.

Posted in: INSIDER'S EYE

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