China keeping an eye on surging U.S. oil and gas production

In this Nov. 7, 2012 photo, U.S. and Chinese national flags are hung outside a hotel during the U.S. Presidential election event, organized by the U.S. embassy in Beijing. (AP Photo/Andy Wong)
In this Nov. 7, 2012 photo, U.S. and Chinese national flags are hung outside a hotel during the U.S. Presidential election event, organized by the U.S. embassy in Beijing. (AP Photo/Andy Wong)

WASHINGTON — The United States’ energy renaissance is catching attention in Beijing, where Chinese leaders view the phenomenon as “a double-edged sword,” according to a white paper from the free-market group American Council for Capital Formation.

“China trusted the United States more when U.S. oil import dependency was higher and Washington actively sought increases in global oil production, a mutually shared objective,” writes George David Banks, executive vice president of the group. “In Beijing’s view, the U.S. shale revolution has increased U.S. immunity to a reduction in global supply resulting from military conflict, political instability, or international sanctions, thereby making Washington a less reliable partner in managing the world’s energy markets.”

But the recent surge in U.S. oil and gas production offers an opportunity for the two countries to work together, Banks writes, arguing that the collaboration (along with U.S. energy exports) could ease tensions in the South China Sea and spur stability in the Asia Pacific.

As the United States extracts more of the oil and gas it needs inside the country, it is importing fewer of those supplies, with crude imports now required to satisfy just 14 percent of the nation’s demand — down from about 60 percent in 2005.

At the same time, China’s growing hunger for energy is increasingly forcing it to find oil from foreign suppliers. Chinese leaders have worked to pare the country’s dependence on Middle East oil and its reliance on crude carried through the Strait of Malacca, partly by investing in new pipelines that bypass that water route. Energy development in the South China Sea — including areas off the coasts of Vietnam and Malaysia — also could help diversity the country’s oil and gas supply.

Banks notes that competition over energy resources in the South China Sea could exacerbate existing tensions. But unfettered trade of U.S. energy could ease some of the friction and help encourage a multilateral, regional commitment to jointly develop oil and gas resources in the South China Sea, Banks argues.

The American Council for Capital Formation, which has received funding from Exxon Mobil and a charitable foundation tied to Charles Koch, has pushed the federal government to move more swiftly in approving proposals to export liquefied natural gas and argued against longstanding trade restrictions blocking most U.S. crude from being sold to foreign buyers.

China has already been invoked in the congressional debate over crude exports — generally by lawmakers critical that the policy change would allow U.S. oil to flow directly to China.

“It doesn’t make a whole lot of sense to me to export crude to the People’s Republic of China while increasing costs to American consumers and refiners,” said Rep. Kathy Castor, D-Fl., during a July House hearing on the issue.

Related: Congressional Democrats question oil exports

Advertisements launched by Allied Progress this summer said oil exports would “raise gas prices, cost U.S. jobs and help grow China’s economy while putting our energy future at greater risk.”

It is not clear how much U.S. oil would flow outside the nation — or where it might go — if the export ban were lifted. But the energy consulting firm IHS has suggested that if the export ban is spiked, China would be the largest single recipient of U.S. oil from 2017 to 2020.

ACCF’s Banks warns against the rhetoric around China.

“China-bashing in the context of U.S. energy policymaking will only cause Beijing to become more stubborn in the South China Sea and more aggressive in locking up energy supplies around the globe,” he writes.