OPINION: Should China Buy American Gas to Support the One Belt, One Road Project?

OPINION: Should China Buy American Gas to Support the One Belt, One Road Project?
Photo Credit: AP/達志影像

What you need to know

'The U.S. will almost certainly see the benefits of collaborating with China.'

China has been experiencing a bout of industrial overcapacity. To deal with it, its government established the One Belt, One Road (OBOR) project to establish or re-establish land and maritime trade routes from Shanghai to Venice, crossing a vast expanse of land. A total of 64 countries (many of which are low-income) are involved in the Eurasian portion. Three economic corridors on land will be constructed through it. The “Twenty-First Century Maritime Silk Road” will involve oceans and bodies of water touching and separating South Asia, east Africa, the Arabian peninsula, and Mediterranean Europe. As a result of the 900 projects, 4.4 billion people will be affected, costing US$890 billion. China is committing US$4 trillion to OBOR countries.

China needs OBOR furthermore because it needs to secure natural resources, like oil, and promote the RMB as an international currency. Politically, infrastructure work will extend to neglected areas of the country. It helps to showcase to outsiders the economic achievements of the country. OBOR also sets the stage for China to exert geopolitical influence over the countries it touches.

The U.S. is indifferent to dismissive. Observers say that OBOR is “a publicity stunt meant to portray China as a benevolent power, a vanity project intended to secure [President] Xi’s legacy, or an unwieldy boondoggle” that China cannot pull off. In official meetings and conferences in Washington and at international venues, OBOR was never formally acknowledged.

But the U.S. will almost certainly see the benefits of collaborating with China. Many of the OBOR countries need development aid, less than 10 percent of which could be met with existing commitments from China and various agencies. OBOR may become “the biggest economic development project in history.” The U.S. can become a direct or indirect business partner on many fronts.

That is to say, if the U.S. remains diffident or antagonistic, it suffers when its allies in Europe fail to grow economically to their potential and join OBOR if they have not. An effective collaboration, moreover, would allow U.S. defence contractors to secure OBOR projects and troops to bolster presence in militarily unstable regions of the world – furthering American power abroad.

Therefore it will become apparent that cooperating with China is a good deal for the U.S., and vice versa. Is buying energy from the U.S. to support OBOR projects one of those good deals? The U.S. is the world’s largest combined producer of oil and natural gas. China imports 75 percent of its oil and will consume 60 percent of the world’s petroleum in 2030. As a large consumer of coal (75 percent of its energy consumption is from the dirty stuff), China is definitely looking for a cleaner energy supply.

Barring nuclear and hydroelectric energy, which alongside other non-fossil fuel supplies make up less than 20 percent of energy consumption, natural gas seems to be the best alternative. By 2020, the demand for natural gas in the country is expected to double to 12.7 trillion cubic feet (tcf) per year. Current supply is 4.6 tcf per year, and – taking into account domestic production, shale gas, and imports from Russia – 2.6 tcf per year will be needed. An import of 20 percent of American production in natural gas can make up for 25 percent of the remaining demand. Adjusting the amount will yield the optimal level China should purchase.

Buying natural gas from the U.S. will give China a much needed source of diversification. Many of the countries that China currently buys energy from come from politically and economically volatile regions, from Eurasia to the Middle East. If the U.S. is a trustworthy partner, as it should be as an adherent to global market economy with no sign of meddling in OBOR, China should seriously consider American natural gas as a counter-balance to its other sources of energy to support OBOR projects.

Trading energy with the U.S. also benefits China’s relationship with the new administration. It could alleviate geopolitical tensions and avert regional crises. In sum, China will gain economically through energy diversification, with environmental and political externalities, alongside the millions of citizens of countries affected by OBOR who will gain from economic and human development.

Editor: Olivia Yang