Editorial Comment
War with Iraq would seriously affect China. Countries worldwide are anxiously watching the potential attack on Iraq by the U.S. But none is likely more concerned than China, because a war and resulting Middle East upheaval would boost the country’s cost of oil imports and overall energy supply. In the meantime, University of Houston professor Michael J. Economides, who just returned from an extended trip to China, thinks the country will be a hotbed of energy work over the next 20 years, with its new activities far surpassing that of any other nation, including the U.S. He also sees the U.S. energy industry standing to gain greatly in technology sales and services. As a result, he cautions that foreign policy ventures by the U.S. government cannot ignore Chinese interests. “Nothing is more likely to cause future global friction than actions by the current lone superpower affecting the energy future of the superpower-in-the-making,” he said. In a reversal of recent history, Russia has become a major exporter of oil and a balancing factor for OPEC. The country may actually benefit from an attack on Iraq and the certain increase in oil prices, public posture notwithstanding. China is now the world's third largest oil consuming nation, using about 5 MMbpd. It has already surpassed Russia and could do the same with Japan within three years. The country's oil consumption has accelerated by more than 110% during the last decade, with almost all growth met by imports, much from the Middle East. This creates a significant geopolitical role and vulnerability for China. Economides and Xiuli Wang, a petroleum engineer with a major multinational oil company, see China emerging as a world-class economy. The only obstacle dampening China's prospects is the almost assured energy crunch the nation will experience, because of the intimate connection between any further growth and energy consumption increase. Aggravating the situation is that China lacks domestic resources of the magnitude and type that will be needed; hence, the country's serious vulnerability, as the Middle East situation develops. The U.S., with an adjusted per capita income of $34,000, uses 355 MMBtu per capita. China, with a per capita income of about $4,000 uses only 25 MMBtu per capita. Total Chinese energy consumption is 40 quadrillion Btu per year. This translates to about 6,500 Btu per dollar of GDP, significantly below the current level of developed nations. Even more significant is the amount of energy provided by coal (about 75%). Such a share by coal, which is far less refined, dirtier and inefficient, compared to oil and certainly natural gas, has not been experienced in developed countries for a century. Economides and Wang predict that the future oil consumption increase in China will have to be imported or will have to be produced from frontier areas such as deepwater fields. The Bohai prospects, although quite attractive, do not appear to be able to provide the volumes of petroleum the country will need. The two largest onshore oil-producing areas at Daqing and Liaohe will likely experience production decline soon and that worries the Chinese enormously. Future oil imports will feature Russia prominently, a far more stable source for China. Natural gas will likely dominate China's future, not only as a provider of new energy, but also as a facilitator of its technological transformation, currently well on its way in the U.S. and Europe. Natural gas will be the dominant fuel of choice in the foreseeable future of the world economy. Because of its far more diverse sources, natural gas will also ease the precarious oil situation. Gas provides a meager 2% of China's energy mix, and will need to pick up pace dramatically when compared with a worldwide market share of about 23%. The recently announced West-to-East massive pipelines, with participation by ExxonMobil, BP and Shell, will establish Xinjiang province as a domestic superpower in energy. Even so, Economides says China will need far more gas than can possibly be produced domestically. A gas pipeline from the Irkutsk area of Siberia is compelling. However, imports of LNG and a recent variant, CNG, are an obvious means to meet the nation's future needs. Just two weeks ago, the Chinese National Offshore Oil Company, CNOOC, announced a very large LNG project to receive Australian natural gas. “China's energy future is likely to emerge as the most serious geopolitical and economic event of the decade,” says Economides. Stay tuned. More on view vs. windmills. The Competitive Enterprise Institute (CEI) is challenging 12 U.S. senators from New England to take a public position on a controversial new wind power development proposed for Cape Cod (see this page last month). The senators voted to mandate greater renewable energy production. Now, the question is whether they believe the generally wealthy residents of fashionable locales like Cape Cod should be expected to make the same sacrifices for that goal as the rest of the country. The renewable energy mandate will be costly and inefficient, thus CEI hopes its proponents will at least exhibit the consistency to also support opportunities to comply with it, even when they are proposed for posh locales. In an open letter, CEI said, “On March 14, 2002, you voted (to) . . . establish a first-ever national electricity Renewable Portfolio Standard (RPS). This version of the RPS would have required privately owned electric utilities to generate 20% of their power from renewable sources by 2020. The amendment was defeated despite your support, but the Senate-passed bill still contains a 10% RPS by 2020.” “Although much more costly than conventional sources, renewable power may look attractive in the northeastern states. Your states are against coal-fired power plants, want to shut down nuclear plants, have blocked new natural gas pipelines and strongly oppose offshore drilling. The question arises, how is increasing demand for energy in the Northeast going to be met?” CEI's letter and challenge was addressed to the following senators: John Kerry (D-MA), Joseph Lieberman (D-CT), Hillary Clinton (D-NY), Edward Kennedy (D-MA), Christopher Dodd (D-CT), James Jeffords (I-VT), Charles Schumer (D-NY), Lincoln Chafee (R-RI), Jack Reed (D-RI), Patrick Leahy (D-VT), Olympia Snowe (R-ME), and Susan Collins (R-ME).
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