The US-China relationship continues to sour under the impact of Covid-19, with the Trump administration threatening to cut all ties with China in a move that would divide the world into two competing trade entities.1
It’s been a bad year for China, with accusations over the origins of the pandemic coming on top of China’s difficulties in managing the pro-democracy protests in Hong Kong.2
Under these circumstances, the energy perspective provides a fascinating set of insights into the evolving US-China relationship.
The economic havoc unleashed by the Covid-19 pandemic has been bad enough, with reports of looming industry collapse by the International Energy Agency and others.3
But its economic impact has been exacerbated by an ugly price war in the oil industry, seeing prices tumble alongside a collapse in demand. At one point in April, the oil price reached a widely publicised negative level – an unprecedented phenomenon.
Now the price is low but at present relatively stable, following a tripartite agreement between the world’s three largest oil suppliers – the US, Saudi Arabia and Russia. In the last few days, the oil price has recovered to nearly $30 per barrel, providing some modest relief.4
But the impact on the US has been severe, with the high-cost and highly debt-leveraged shale oil industry, which propelled the US to become the world’s largest oil producer, facing near collapse.
It has long been the goal of both the Saudi and Russian oil industries to damage the upstart US shale industry, which was protected by relatively high oil prices.
Now with this protection withdrawn, combined with collapsing demand, the US industry faces severe problems.
Meanwhile the clean energy transition continues apace, and looks like being strengthened in Asia by the chaos unleashed by the Covid-19 pandemic.
In China in particular, but also in Japan and Korea, clean energy promises a lower cost energy alternative to the fossil fuels – coal, oil, gas – that powered Asia’s industrialization.
The effect of the plunging oil price on everyone is decidedly mixed. The effect on China, the world’s largest oil importer, is entirely benign.
China’s state-owned oil enterprises are benefiting from the low oil price by replenishing the national oil reserves.
Meanwhile the US reliance on fossil fuels, notably shale oil where big players like Exxon-Mobil have been investing heavily, with full political support from President Trump, is about to take a severe beating.
Had the US been diversifying its energy base and building a strong renewables sector, it would have taken advantage of this crisis (self-inflicted by major producers Russia and Saudi Arabia), to enhance its technological leadership. In the US power sector, solar and wind continue to grow only modestly (as shown in Fig. 4 below) while fossil fuel suppliers are now in deep trouble.
Obvious opportunities are ignored — even pandemic-related loans for renewables to revive the economy remain untapped.
Meanwhile, China continues to ramp up its green economy sectors at a speed that could take it to a…