Guess Hu came to Washington?

Font Size:

By Xina Xie and Michael J. Economides

Chinese President Hu Jintao came to Washington earlier this month as part of the nuclear non-proliferation initiative and, as expected by most careful observers of China, promptly announced that his country would not support further sanctions against Iran. This visit and his announcement predictably sent pundits into overdrive, discussing the entire spectrum of U.S.-China relations and the unavoidable symbiosis between the emerging superpower and the weakened but reigning one.

Stains in the ties are obvious. In addition to China’s dealings with Iran, the two nations have clashed over the climate debacle in Copenhagen, China’s refusal to revalue the Yuan, and U.S. arms sales to Taiwan. Naiveté of many Western commentators on these topics has been stunning, trending closer to fiction than reality. The fact is China will not commit economic suicide. This is made clear by another issue often overlooked by pundits—the growing competition for energy.

While Western politicians remain consumed by climate change, carbon emissions, and the wishful thinking of wind and solar projects unlikely to play any substantial role for several decades, China is on the hunt. And they’ve been quite successful at bagging valuable oil and gas resources around the world, strengthening their energy security through a massive investment in the traditional energy reserves.

They search for good reason. From 2000 to 2009, China’s crude oil consumption increased from 4.9 to almost 8 million barrels per day, with an average yearly increase of around 7 percent. This year, for the first time, China imported over 50 percent of its need and forecasts put their annual demand at 12 million barrels per day by 2020. To put this in context, U.S. consumption has stalled just shy of 20 million barrels per day, of which about two thirds is imported.

The day of Hu’s visit to Washington, Chinese oil giant Sinopec paid ConocoPhillips $4.65 billion to acquire its share in a Canadian tar sands project. This followed by just weeks, the company’s $2.46 billion acquisition of Angola’s deep-water oil reserves, a $7.56 billion acquisition of Swiss-based Addax Petroleum. PetroChina has announced it will spend at least $60 billion over the next 10 years to acquire more oil and gas assets abroad. We can hardly keep up. While this article was written, CNOOC, China’s third largest oil company, paid $6 billion to acquire the Brazilian Peregrino field.

Chinese officials tout these acquisitions as key to the country’s national security. And indeed they are. In 2009, oil production by Chinese companies operating overseas exceeded 800 million barrels; that’s 2.2 million barrels per day, or about 57 percent of total imports. Their success stems from several structural differences with the U.S..

First, consider the positive persona of the industry in China, where working for an oil company is highly valued. The work is indispensable to the country’s continued rise to international prominence. With roots in 30 countries, selected purposely for economic and geopolitical reasons, Chinese embassies act as virtual headquarters for the oil companies, providing the support, connections, and protection necessary for long-term success.

Second, Chinese oil companies are aggressive. Government support enables them to work in politically sensitive and even dangerous places in Africa, Asia and the Middle East. Sudan, Myanmar and Iran come to mind despite their status as rogue nations in the West.

Third, the Chinese have usurped, internationally, American “can-do” exceptionalism. The once revered U.S. oil industry has been emasculated by unreasonable environmentalism, stifling regulations, and ideologically driven misinformation on the importance of energy and what sources of energy are feasible on an economy wide scale. Now, Chinese companies produce oil and build thousands of miles of pipeline in the most inhospitable environments, while U.S. companies fight for permits and testify before Congress.

Soon, reality will alter America’s energy posture. Once drilling off both U.S. coasts becomes commonplace, competition between China and the U.S. for the same world oil resources will evolve into the defining geopolitical challenge of at least the next two decades. For the last few years the Chinese have acted largely unchallenged from a handicapped Bush administration and a disengaged Obama administration held hostage by its alternatives rhetoric. This will not last long.

Economides and Xie are authors of Energy: China’s Choke Point.