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Lin Boqiang: Energy Cooperation, China and the US Can Win

Lin Boqiang: Energy Cooperation, China and the US Can Win

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China and the United States will strengthen their cooperation in energy and other fields. What can they bring in addition to energy for China? This is a problem that many Chinese people are currently concerned about. The author believes that answering this question also needs to be considered from many perspectives such as China's energy security, green ecology, and technological upgrading.
China’s energy prices represented by oil and natural gas at the beginning of this year experienced a short-term downward adjustment and quickly recovered. From January to April of this year, compared with the same period of last year, the import volume of crude oil and natural gas increased by 8.9% and 36.4% respectively, but the import prices increased by 32.3% and 66.6% respectively over the same period. The price impact of oil and gas imports in 2018 is not optimistic. In the medium to long term, China should focus on oil and gas safety and lay out in an all-round manner, striving to control the degree of dependence on oil and gas. However, in the short term, it will require multiple channels to increase energy imports and diversify energy sources.
China's oil and gas demand is increasing year by year. Taking oil as an example, China sold 28.87 million cars in 2017, an increase of 3% year-on-year, of which new energy vehicles accounted for only 770,000 sales. On the other hand, the Chinese government is committed to environmental governance and vigorously promotes the use of natural gas as a substitute for coal. In 2017, natural gas consumption increased by 17%. Therefore, the demand for oil and natural gas will continue to rise in the short term. On the supply side, China’s oil production has declined in recent years, and the increase in natural gas production is far below the increase in demand, making the dependence on oil and gas more rapid. In previous years, some analysts believed that the degree of foreign dependence of China's oil will reach 70% by 2030. The reality is that China’s oil dependence on foreign investment has approached 70% last year.
The impact of fast-rising oil and gas external dependence on China is not only in terms of prices, but the current oil and gas import structure has magnified the issue of energy security. Crude oil imports have relied too much on the turbulent Middle East. As a major energy-consuming country, China needs to increase domestic production, carry out energy substitution, and reduce foreign dependence on oil and gas, but it will take quite a long time to realize. China may have wanted to change its dependence on Middle East oil ten years ago. During this period, it also did a lot of work, but the Middle East is still the main source of crude oil imports. In 2016, China’s crude oil imports from Middle Eastern countries accounted for 48% of total imports, and in 2017 it increased to 58%. Russia is another important choice for China. In 2017, it has become China’s largest oil exporter, accounting for 14%.
In the past, China did not import energy from the United States for a number of reasons: First, the United States did not allow oil exports. Second, compared with other countries, the United States lacked price competitiveness for oil and gas. In recent years, the competitiveness of oil and gas in the United States has continued to increase, and the cost of shale oil and gas has been declining. Compared with other countries, basic price competitiveness has been achieved.
The author believes that in the future the United States can become a choice for China’s energy imports, and China-US energy cooperation can be a win-win situation.
First of all, besides satisfying the growth of China's energy demand, it will also benefit China's energy security. The U.S. shale oil and gas revolution has resulted in ample U.S. oil and gas production. Under the same price situation, China can appropriately increase the proportion of oil and gas resources imported from the United States and diversify its energy imports. Especially recently, under the background of the sharp increase in international crude oil prices, the prices of oil and gas imported from the United States and the international market have become closer.
Second, cooperation can also promote the Chinese economy to turn to high-quality development. China is currently undergoing environmental governance. Cleaner transformation needs to increase the proportion of natural gas in primary energy consumption. In addition to the significant increase in natural gas imports, China also needs to consider the development and utilization of shale gas in the country, and more Sino-US energy cooperation will also benefit the development of China's shale gas industry. The shale gas reserves in China are huge. If the Sino-U.S. energy cooperation can make the experience of shale gas in the United States replicated in China, it will be beneficial to China to reduce the energy cost of clean transition and reduce China's external dependence on oil and gas.
Finally, the United States needs to cooperate with China in order to enhance its oil and gas export competitiveness. Large-scale US oil and gas exports are also limited by the lack of access-related infrastructure. Due to the limited oil exports before, its current hardware conditions and export capacity are constrained. China's imports can accelerate the construction of relevant infrastructure for oil and gas exports in the United States and enhance the competitiveness of the United States in the international oil and gas market.