China’s growing energy needs call for further integration into the global energy market. As the United States exits the Middle East and develops its domestic capacity, China is moving in the other direction, increasing its dependence on the oil-rich but politically unstable Middle East.
The Carnegie-Tsinghua Center for Global Policy and the American Chamber of Commerce in Beijing co-hosted Edward Cunningham, a professor at the University of Boston and the director of the Asia Energy and Sustainability Initiative at the Harvard Kennedy School. Cunningham explained the energy trends and changing energy landscape in China and the United States. Carnegie-Tsinghua’s Paul Haenle moderated the event.
Shifts in U.S. and Chinese Production and Consumption
One of the core questions Cunningham addressed was whether the United States and China were “trading places” in terms of energy supply and demand.
- Aggregate Shifts: Cunningham explained that throughout its 115 years as the world’s top energy consumer, the United States has witnessed several large shifts in energy consumption patterns. One was the U.S. transition from self-sufficiency to the world’s largest importer of oil. Another was the present trend to increase domestic production as consumption levels off. Conversely, Cunningham stated that in just the last twenty months, China has moved from being the world’s largest exporter of coal to its largest importer.
- Future Trends: According to the International Energy Agency’s projections, the United States will undergo significant reductions in oil and gas imports by 2035. The EU and China, however, will experience sharp increases in demand. U.S. energy demand, he explained, has stagnated while China’s net import of fossil fuels has grown and the IEA predicts that it will continue to do so over coming years.
- The Middle East Factor: The U.S. withdrawal from the Middle East and move toward energy autonomy has long been depicted in a strategic light. While political instability in the Middle East is a strong factor influencing U.S. withdrawal, Cunningham explained that the most important factor for this withdrawal is the geographical difficulty of transporting fossil fuel from the Middle East. The IEA projected that nearly 90 percent of Middle Eastern oil will flow to Asian ports by 2035.
China’s New Energy Landscape
China’s growing energy needs are having a number of impacts on global supply and demand of fossil fuels, as well as energy security.
- Redefinition of Energy Security: Cunningham explained that energy self-sufficiency has been replaced by market exposure as China’s definition of energy security. China has taken measures to promote energy security, like temporary coal export bans in 2008 and oil import diversification. However, as China’s energy needs grow, China should consider whether it should take on a security role in the Middle East to provide a stable environment for its Middle East supply, Cunningham added.
- Implications for Energy Prices: Cunningham stated that China’s integration into the global market has significantly impacted the prices of natural resources and that China’s rising coal imports will make the global energy market deeper and gain liquidity. As a result, price stabilization will be possible. But subsidies from the developing world, he added, will remain and will inevitably distort energy markets and keep fossil fuel prices high.
- Needed Reforms: Cunningham predicted that these energy trends will push policy-makers toward initiatives focused on developing renewable energy sources and increasing energy efficiency. He stated that investment models need to be altered to accommodate the rise of majority ownership and acquisition, while joint ventures will reenter the picture. He also questioned whether shale gas investments were financially sustainable, and how the energy sector will address the challenges from the environmental community.