China Secures Oil and Gas Resources: U.S. Fiddles with ‘Green’ Energy

By Mary Hutzler -- December 21, 2009

Around the world, China is investing in oil and gas resources to fuel its booming manufacturing industries and transportation sector to continue its sky-rocketing economic growth. China is not endowed with very much oil and gas resources of its own. Thus, it needs to partner with countries around the world to ensure availability of future supplies of oil and natural gas that it will need to keep up its current pace of economic growth.

The U.S., which does have oil and gas resources, is not following China’s lead in investing in these resources. Instead, the U.S. is looking toward wind and solar technologies to fuel its economy. However, wind and solar power are generating technologies and will not help where oil is needed in the transportation and industrial sectors.

Further, wind and solar power have capacity factors that cannot compete with those of fossil fuel generating technologies, and they can create instability issues with the electrical grid. They are also more expensive technologies and must have government support through tax credits to compete at all with fossil-fuel generating technologies.

China’s Investment in Oil and Gas

China has seized on the global recession to gain access to oil and gas resources and supplies. The atmosphere is ripe for Chinese firms to invest in these resources because:[i]

• Acquisitions are now more favorable than they were in early 2008, due to lower oil prices and, hence, lower asset prices.
• China is less constrained than many of its international counterparts in terms of where they can invest (e.g. Iran).
• Financing is not a problem, because Chinese banks are willing and able to provide needed funds.
• Competition for these assets in some areas has lessened.

Not only is China investing in places like Iran, Iraq, Kazakhstan, Nigeria, Venezuela, and Argentina, but it is in the U.S.’s backyard, looking towards usurping the U.S. supply of Canadian oil sands.  China is a good customer for Canada, as Canada fears that the U.S. may introduce a low carbon fuel standard[ii] or other legislation that would restrict our purchases of oil sands from Canada[iii].  China is also looking at a possible purchase of leases in the Gulf of Mexico where Devon Energy is looking to sell its U.S. leases.[iv] The sale of these offshore leases requires the approval of the Mineral Management Service in the U.S. Department of Interior. China is willing and able to be at the forefront of any misstep other countries make to gain a foothold and secure oil and gas supplies, and the U.S. seems to be giving it elbow room.

China is also investing in oil and natural gas pipelines to ensure access to its investments and to divert some of its oil imports from the Middle East away from the Straits of Malacca. Oil pipelines are being built from Russia, Kazakhstan, and the coast of Myanmar. [v] A natural gas pipeline from Turkmenistan should be operating in the near future, and several liquefied natural gas terminals are either operating or are expected to be operating shortly.[vi]

While the total amount of “investment” loans made by China to oil and gas producing countries for guaranteed future supplies of oil and gas are unknown, China has clearly invested billions of dollars in their ‘loans for energy’ program. [vii] The main provider of the loans is the China Development Bank, and thus they are essentially Government loans. Just on Tuesday, December 8^th, for example, Nigeria’s presidential advisor for energy announced that Chinese companies have proposed investing $50 billion to buy 6 billion barrels of oil reserves in Nigeria.[viii]

China’s Oil and Gas Reserves

China is not endowed with many reserves of oil and natural gas.[ix] According to the Oil and Gas Journal, as of January 1, 2009, China had 16 billion barrels of oil reserves, 1.2 percent of the world total,[x] and its natural gas reserves totaled 80 trillion cubic feet, 1.3 percent of the world total.[xi] China gets 70 percent of its energy from coal, the hydrocarbon with the highest level of greenhouse gas emissions, and 20 percent from oil, the hydrocarbon with the second highest level of greenhouse gas emissions.[xii] China is third in rank to the U.S. and Russia in recoverable reserves of coal, with 13.6 percent of the world total.[xiii] Because of its massive use of hydrocarbons and its growing economy, China surpassed the U.S. in carbon dioxide emissions, the largest component of greenhouse gas emissions, in 2006.[xiv]

The U.S. Oil and Gas Strategy

While the Bush Administration initiated steps to bring on new leases of oil and gas, both offshore in the Gulf of Mexico and on public lands that are endowed with billions of barrels of shale oil, the Obama Administration has slowed the progress by extending the comment periods and providing other obstacles.  Examples include:

• On February 4^th, shortly after his Senate confirmation, Interior Secretary Salazar rescinded 77 oil and gas leases in Utah that could cost American taxpayers millions in lost lease bids, production royalties, new jobs, and the energy needed to offset rising imports of oil and gas.[xv]
• On February 10th, Secretary Salazar delayed for 6 months the development of the new 5-year leasing program for offshore drilling that would have set the framework for accessing newly available areas.[xvi]
• On February 25^th, Secretary Salazar canceled a new round of commercial-scale oil shale research, demonstration, and development leases in Colorado, Wyoming and Utah.[xvii]
• On February 26^th, President Obama introduced a budget that contains page after page of taxes on oil and gas totaling more than $31 billion that will reduce our domestic energy production.[xviii]
• On March 30^th, President Obama signed the Omnibus Public Lands Management Act into law, prohibiting energy production on over 3 million acres of federal land.[xix]
• On October 8^th, after rescinding 77 Utah oil and gas leases in February, Salazar announces he will lease 17 of them.[xx]
• On October 20^th, after canceling a new round of commercial-scale oil shale research, demonstration, and development leases last February, Salazar issued a new oil shale leasing program that decreases lease acreage by 87 percent, demands unrealistic timelines for investment into cutting edge research, and leaves royalty rates at the whim of the Secretary or in new regulations. [xxi]

U.S. Renewable Strategy Problems

The Obama Administration prefers that priority be given to offshore wind farms and wind and solar installations onshore.[xxii] They tout that these sources of “green energy” will provide needed jobs in the U.S. However, studies[xxiii] have shown that highly-subsidized renewable energy cost consumers and taxpayers more than the alternative fossil technologies[xxiv], that their component parts are largely made in foreign countries, that the jobs are mainly for the actual site construction and thus are temporary, and that the economy would be spurred more by investments made elsewhere.

Further, most green technologies are dependent on the wind blowing or the sun shining, and thus provide a lower amount of usable energy than their fossil or nuclear counterparts. Hence, many more wind farms or solar installations will be needed to provide the same amount of energy as their fossil and nuclear counterparts. And, they will also require more land area.[xxv]

What China Knows and the U.S. Doesn’t Know

All sources are needed to ensure energy will be available for future economic growth and to reduce dependence on foreign imports. Trading foreign imports of oil for component parts of wind and solar technologies does not reach any goals to which the U.S. is aspiring. To reach reductions of greenhouse gas emissions required by H.R. 2454, or other similar legislation, either nuclear power or biomass generating technologies will be needed[xxvi], which provide greater amounts of energy than wind or solar power.  That’s precisely the reason that China is investing in oil and gas resources abroad and in building power plants from hydrocarbon, nuclear, and renewable sources of energy without legal and government delays.[xxvii]

---

[i] Centre for Global Energy Studies, China’s Search for Energy Security, December 3, 2009, www.cges.co.uk

[ii] A Low Carbon Fuel Standard reduces the carbon intensity of transportation fuels by requiring that the mix of fuels sold reaches pre-specified targets of carbon reduction. Since oil sands yield heavier crude, more energy is required for producing and refining it, thus giving that crude a  higher carbon intensity than conventional crude.

[iii] China National Petroleum Corp. received a $30 billion low-interest loan from a state-run bank to finance overseas acquisitions, Beijing’s latest bid to secure mineral resources to fuel the country’s burgeoning economy.http://www.eenews.net/Greenwire/2009/09/09/

[iv] David Pierson, “China’s push for oil in the Gulf of Mexico puts U.S. in awkward spot,” Los Angeles Times,http://www.latimes.com/business/la-fi-china-oil22-2009oct22,0,2776603.story?track=rss.

[v] Centre for Global Energy Studies, China’s Search for Energy Security, December 3, 2009, www.cges.co.uk

[vi] Energy Information Administration, International Energy Outlook 2009, www.eia.doe/oiaf/ieo/index.html

[vii] China National Petroleum Corp. received a $30 billion low-interest loan from a state-run bank to finance overseas acquisitions, Beijing’s latest bid to secure mineral resources to fuel the country’s burgeoning economy.http://www.eenews.net/Greenwire/2009/09/09/

viii] The Wall Street Journal, Chinese Firms Propose $50 Billion Oil Buy in Nigeria, http://online.wsj.com/Chinese Firms Propose $50 Billion Oil Buy in Nigeria

[ix] Proved reserves of crude oil are the estimated quantities that geological and engineering data indicate can be recovered from known reservoirs with existing technology and current economic and operating conditions.

[x] “Worldwide Look at Reserves and Production,” Oil and Gas Journal, Vol. 106, No. 48 (December 22, 2008), pp. 23-24.

[xi] “Worldwide Look at Reserves and Production,” Oil and Gas Journal, Vol. 106, No. 48 (December 22, 2008), pp. 22-23.

[xii]Energy Information Administration, Country Analysis Brief on China,www.eia.doe.gov/emeu/cabs/China/Background.html

[xiii] Energy Information Administration, International Energy Outlook 2009, Table 9, page 59,www.eia.doe/oiaf/ieo/index.html

[xiv] Energy Information Administration, Annual Energy Review 2008, Table 11.19,http://www.eia.doe.gov/emeu/aer/pdf/pages/sec11_39.pdf

[xv] E&E News, Oil and Gas: Salazar scraps contested Utah leases, February 4, 2009,http://www.eenews.net/eenewspm/2009/02/04/archive/1?terms=Salazar

[xvi] The Washington Times, Obama Blocks Offshore Drilling, February 11, 2009, http://www.washingtontimes.com/news/2009/feb/11/drilling-ban-revisited/

[xvii] Climate Wire, Interior: Research needed before “headlong” oil shale rush, February 26, 2009, http://www.eenews.net/climatewire/2009/02/26/archive/6?terms=Salazar

[xviii] The Hill, Oil, Gas Industry Aims to Nip Tax Hikes In the Bud, March 23, 2009, http://thehill.com/business-a-lobbying/3976-oil-gas-industry-aims-to-nip-tax-hikes-in-the-bud and Obama’s Budget: Almost $1 Trillion in New Taxes Over Next 10 yrs, Starting 2011, http://blogs.abcnews.com/politicalpunch/2009/02/obamas-budget-a.html

[xix] E&E News, Public Lands: Obama signs natural resources omnibus into law, March 30, 2009, http://www.eenews.net/eenewspm/2009/03/30/archive/2?terms=Salazar

[xx] The Wall Street Journal, 2^nd UPDATE: US Govt Proposes Delay On Controversial Utah Leases, October 8, 2009, http://online.wsj.com/article/BT-CO-20091008-715463.html

[xxi] U.S. Department of Interior News Release, Salazar Reforms U.S. Oil Shale Program, October 20, 2009, http://www.doi.gov/news/09_News_Releases/102009.html

[xxii] http://www.instituteforenergyresearch.org/2009/08/06/interior-secretary-limits-domestic-energy-production-but-fast-tracks-solar-development/

[xxiii] Wind Energy: The Case of Denmark, http://www.cepos.dk/fileadmin/user_upload/Arkiv/PDF/Wind_energy_-_the_case_of_Denmark.pdf ,and Study of the effects on employment of public aid to renewable energy sources, Universidad Rey Juan Carlos, March 2009, http://www.juandemariana.org/pdf/090327-employment-public-aid-renewable.pdf, and Economic impacts from the promotion of renewable energies: The German experience,www.instituteforenergyresearch.org/germany/Germany_Study_-_FINAL.pdf

[xxiv] Germans miss out on cheaper electricity, www.reuters.com/article/idUSTRE5B02YS20091201/

[xxv] www.instituteforenergyresearch.org/2009/06/11/facts-on-energy-solar/ andwww.instituteforenergyresearch.org/2008/09/26/facts-on-energy-wind/

[xxvi] Energy information Administration, Energy Market and Economic Impacts of H.R. 2454, the American Clean Energy and Security Act of 2009, www.eia.doe.gov/oiaf/servicerpt/hr2454/index.html

[xxvii] www.instituteforenergyresearch.org/2009/11/20/what-president-obama-should-have-learned-about-energy-policy-during-his-visit-to-china/

Note: This analysis was originally published by the Institute for Energy Research on December 14th.