Is America’s Oil Blessing Also its Curse?

Oil

The Chinese government announced it would invest more than $13 billion on oil and gas exploration this year. The World Bank said last weekend the Chinese economy should continue growing near-term and with that comes a growing appetite for energy.

Demand centers in the energy market are shifting to Asia as the United States produces more and more of its own oil and natural gas. China may be looking to duplicate some of that success but its moves in the Middle East and Asia suggest it could be something more than that.

OPEC in its market report for September said the Chinese economy would continue to grow but at a more modest pace than in recent years. World Bank President Jim Young Kim, meanwhile, said he expected the Chinese economy would hit its target growth rate of 7.5 percent for the year. With an expanding economy, Chinese power consumption could increase by more than 9 percent for the year, almost twice as much as the growth rate for 2012.

The Chinese government announced it will invest more than $13 billion on domestic exploration in an effort to cut back on the amount of oil and natural gas it gets through imports. China is on pace to become the world’s largest oil and natural gas consumer in a few short years. More than 91 trillion cubic feet of natural gas and 36 billion barrels worth of oil discoveries were made between 2008 and 2011, the government said. China National Petroleum Corp., meanwhile, said it estimated the Chinese economy in 2012 relied on imports for 30 percent of its natural gas demands 58 percent for oil.

Chinese energy production should increase by 46 percent though consumption should grow by more than 70 percent by 2030. In terms of reserves, tight oil and shale natural gas production should increase marginally in the coming years. By 2025, China should overtake the United States in terms of oil consumption and pass Russia two years later to become the second largest gas consumer in the world. Most of the company’s examining China’s unconventional reserves, meanwhile, have barely even started their surveys suggesting the country is slow out of the domestic energy gates.

Though China is expected to gain low-carbon traction with an emerging renewable energy sector, fossil fuels will continue to dominate the Chinese economy. In early September, Chinese President Xi Jinping signed a purchase agreement for more than 800 billion cubic feet of natural gas per year from Turkmenistan. That’s on top of the 700 billion cubic feet Turkmenistan sent east last year and presumably takes a considerable slice away from Washington’s darling, the Turkmenistan-Afghanistan-Pakistan-India pipeline. Though China had nothing to do with the U.S.-led invasion in Iraq, a decade later and it’s buying almost half of the 1.5 million barrels of oil Iraq produces each day.

The World Bank warned China’s economic bubble can’t expand forever, though major world banks were more upbeat on GDP potential. China’s share of global energy production, meanwhile, should increase only 1 percent during the next 20 years. That means more reserves from areas once considered U.S. turf, like Iraq. While the U.S. military has shifted its military assets to the Asia-Pacific, lawmakers at home are heralding the dawn of energy independence. With less influence in key markets, and less incentive to care, China is on target to plant its economic flag where America’s once stood.

Originally written for OilPrice.com, a website that focuses on news and analysis on topics of alternative energy, geopolitics, and oil and gas. OilPrice.com is written for an educated audience that includes investors, fund managers, resource bankers, traders, and energy market professionals around the world.

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