The US “shale gas revolution,” as it has been termed, has offered Washington new leverage in Sino-US relations. This comes both in the ability to export LNG but also in the form of exporting know-how for extraction and production abroad. Energy is a powerful political tool that Washington has a renewed hold on and one that can aid in building “strategic trust” in Sino-US relations.
The June Summit between Barack Obama and Xi Jinping will likely include a discussion on energy in Asia and the current geopolitical shift. Indeed, energy may well be Obama’s strongest hand in the trust building discussions that will include the sensitive topics of North Korea, cyber security, environmental issues, stability in Asia, as well as economic and trade issues.
In a timely announcement in May, the US Department of Energy announced that it would begin exporting domestically produced Liquefied Natural Gas (LNG) to countries that do not have a Free Trade Agreement with the US. One of those countries that could benefit is China. The 132-page report approves the export of up to 1.4 billion cubic feet of natural gas per day for a period of 20 years. Put in context that is the same amount that China imported from the Central Asian Gas Pipeline in 2011 or roughly the equivalent of filling capacity at China’s two biggest LNG import terminals, Shanghai and Guangdong.
While few analysts would suggest that this entire capacity will be exported to China, if any at all, the fact is that exports to Asia or Europe, will free up other markets for export. And as China builds more LNG import terminals and aims to increase its re-gasification capacity by 2015 by 2 bcf/d, US shale gas imports, or the LNG supply they free up in Asia in general, could fill much of the demand.
US shale gas, as well as a tight oil boom in North Dakota, is increasingly allowing Washington greater independence from imports and is predicted to eventually allow energy independence. In doing so, US imports from the Gulf region will decrease. It will require countries of the Persian Gulf to find new partners for their energy exports. China is expected to pick up much of the slack. The US will no doubt impart to Beijing that they should be a responsible partner in maintaining peace and security in the region – of which the new Xi Jinping leadership appears far more receptive in acknowledging mutually beneficial interests.
Indeed, there is an insatiable appetite for energy in China but also toward cleaner energy to stop the rapid pollution levels in and around its major cities. Imports of coal, which produces twice the emissions of natural gas, have increased across Asia in recent years. Shale gas offers a bridging fuel for a cleaner future, and could help China mitigate problems of an increasingly vocal public on environmental issues.
Myanmar is also likely to be on the agenda for several reasons at the Summit, one of which is energy. The country is a key energy corridor for China namely through its Sino-Burma pipelines. The Sittwe to Kunming pipelines – a 793km gas pipeline that will carry an estimated 12bn cubic feet of gas per year and a 711km oil pipeline – have been complicated by internal security issues. The pipelines are key to the development of Yunnan province and Beijing’s vision for the further development of the country’s south. The US will also be looking to cooperate in promoting greater security in Myanmar, in order to secure its own investments.
Meanwhile, US companies have much to offer China’s development of its own large deposits of shale gas. China’s National Oil Companies (NOCs), flush with state funds, have invested heavily in North American companies engaged in shale gas exploration and production. They have recently bought stakes in energy companies involved in shale gas exploration, such as Devon Energy, Chesapeake, and the significant purchase of Nexen, to name but a few. Such “buy ins” allow an absorption of expertise that may then be transferred to China’s own exploration and production.
Other energies are on the horizon too, not least renewables. China’s 2012 Energy Policy states that “vigorously developing new and renewable energy is a key strategy for promoting the multiple and clean development of energy.” Hydro, solar and wind power projects are all being fast-tracked. Beijing aims to meet 15 percent of its energy consumption from non-fossil energy by 2020. By all means, domestic energy security would take considerable pressure off the central government in its attempt to keep the motor of China’s big economy purring.
All of the above make up the new energy map of Asia, a new geopolitics that the US can and should play a role in. Firstly, because an energy-led pivot is cheaper than a naval pivot, but also because it is built on mutual interests and thus will help fill the current trust deficit between the world’s two economic juggernaughts.
There may be a desire by some policymakers to use the US’ new energy power as a Trojan horse for other issues such as South China Sea territorial disputes, which many analysts see as a conflict over resources. Yet, in a bilateral meeting aimed at trust building between the two leaders, the issues should remain distinct, as ultimately they are seen as such by Beijing.
Cooperation in areas such as energy safety – think aging nuclear reactors – and environmental security – such as better environmental practices – would, first and foremost, be insuring the big investment that the US has already made in China. While building greater energy relations could facilitate a more peaceful Chimerica, as Niall Ferguson coined their growing interdependence. Most importantly, such a long-term energy relationship would build much needed strategic confidence. And at the end of the day, the aim of this unprecedented one-on-one, unscripted Summit is to do just that, to build trust.
Elliot Brennan, Project Coordinator at the Institute for Security and Development Policy (Sweden) and a Non-Resident WSD-Handa Fellow at the Center for Strategic and International Studies (USA)
