Dependence on Middle Eastern Oil: Now It's China's Problem, Too

As America imports less energy from the region and China imports more, it risks becoming the "new U.S." in the Middle East.

chinese gas station.jpg
(Retuers)

Energy security is a big concern for both the United States and China, though the latter typically sees it as a supply side issue: secure as much as possible to fill what it sees as endless future demand. For the U.S., having tied much of its energy fate to the Middle East for the last several decades, energy security meant building robust military capabilities to defend its interests and maintain open sea lanes for trade. The Chinese, of course, also depended on the U.S. provision of security as its energy imports from the Arab world expanded dramatically.

But the prevailing dynamic is changing rapidly, and it seems to be unnerving Beijing. Here is why (h/t to Alexis Madrigal's post):


Ma ANNUAL SHARE OF FOSSIL-FIRED.png

This graphic, from the latest Energy Information Administration (EIA) report, shows the tremendous growth of natural gas in U.S. electricity generation. This has come at the expense of coal and oil-fired power. Natural gas consumption has increased since about 2005, as petroleum declined from a historic high of over 20 percent to nearly zero percent of generating electricity. Oil is being written out of power generation. The EIA provides this explanation:

Beginning in 2005, natural gas production from domestic shale gas formations began to rapidly increase, which has led to a relatively sustained period of low natural gas prices. Natural gas spot prices at the Henry Hub averaged $7.70 per million Btu during the first quarter of 2006. After a brief spike in 2008, natural gas prices quickly tumbled to a low of about $3.20 per million Btu by the third quarter of 2009. In 2010, prices averaged a little more than $4.00 per million Btu. A continued decline in natural gas prices during 2011 and the early part of 2012 has further encouraged power plant operators to use combined‐cycle units to fulfill baseload power demand, displacing some coal generation. Between 2005 and 2010, the average capacity factor for natural gas combined‐cycle units running during off‐peak hours (between 10 p.m. and 6 a.m.) rose from 26 percent to 32 percent (EIA, 2011). 

In other words, the U.S. shale gas boom is one, though not only, major factor in reducing the country's use of oil and gradually weaning the country from relying on the Persian Gulf. Another chart from EIA corroborates the recent downward trend in U.S. oil imports, now primarily originating within the Americas, with Canada leading the way.  


Ma SOURCES OF US NET PETROLEUM.png

China, on the other hand, is heading in the opposite direction. Its oil import dependence now stands at about 55 percent, or importing about 5.3 million barrels per day (BPD) out of total demand of 9.9 million BPD, according to PetroChina estimates. This is roughly equivalent to the peak of U.S. import dependence, and much of China's oil comes from the same places that had been such a big part of the American supply. As of 2010, nearly half of China's imported oil arrived from the Gulf, including Libya and Iraq. In short, China risks becoming the "new U.S." in the Middle East, a direct result of its energy-intensive growth model and the rapid expansion of the transport sector.          

Ma CHINA'S CRUDE OIL IMPORTS.png

But the difference is that China does not have an adequate foreign policy or the capabilities to accommodate the unavoidable economic realities. Moreover, some in China fear that increasing U.S. energy independence, particularly its enormous shale output, will make the Middle East is strategically dispensable for the U.S., providing Washington with more flexibility to "disrupt" the region in a way that would indirectly damage Chinese interests. In other words, if Middle Eastern oil no longer matters quite so much to the U.S., then it would have more freedom to do things that would risk disrupting Middle Eastern oil output, such as forcing "regime change" in unfriendly countries.

Presented by

Damien Ma is a fellow at the Paulson Institute, where he focuses on investment and policy programs, and on the Institute's research and think-tank activities. Previously, he was a lead China analyst at Eurasia Group, a political risk research and advisory firm.

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