The events of recent months have exposed the differing approaches to energy as p ...

The events of recent months have exposed the differing approaches to energy as practiced by China and the US, notes market analyst Douglas-Westwood. China has lent Brazilian oil giant Petrobras $10bn to further its offshore exploration work in return for a flow of oil equalling 160,000 b/d. It has lent Russian oil firm Rosneft $15bn and Russian pipeline operator Transneft $10bn for agreeing to supply 300,000 b/d from new fields in East Siberia for the next 20 years. In Venezuela, China is to contribute $8bn to a strategic fund for oil development that aims primarily to increase Venezuelan oil exports to China by 650,000 b/d by 2015. China is taking the long view, paying money now to insure growth in the supply of oil and long-term access to its share. By contrast, the Obama administration announced measures intended to achieve greater payments from oil exploration and production companies operating in the core area for US oil production - the Gulf of Mexico. The administration has argued that oil companies failed to pay royalties that might otherwise have been expected. While the US government is entitled to sell its societal resources on fair and commercial terms, the net result nevertheless will be to make oil production more expensive in the US. Furthermore, the government has delayed opening other offshore areas to incremental exploration and possible production. So, while the Chinese are forging ahead to assure access to production around the globe, the US is seeking to reduce or limit its domestic productive capacity. Why the differences in approach? As a practical matter, each country is driven by its own domestic priorities. US Energy Secretary Steven Chu has acknowledged three objectives for US energy policy - energy affordability, energy security and environmental protection. But among these, he clearly values climate and energy independence most highly. The Wall Street Journal quotes Chu as saying that he would ‘do what I can to encourage stability’ in oil prices, but that his time would be better focused ‘on the issues that I have control over’, such as increasing US funding of alternative energy technologies. For Secretary Chu - and by extension, for the administration - long-term environmental risks outweigh medium-term oil supply risks. To the extent that energy supply is a concern, the prescription is disengagement from the world economy - energy independence through conservation and domestic renewable - rather than global integration. Chinese priorities are almost exactly reversed. For the Chinese, growth remains the paramount objective. The need for political legitimacy and the perceived requirements of social stability have led Beijing to believe that the country must maintain an 8% growth rate. Achieving such objectives will, however, require vast quantities of resource commodities, including oil, coal, copper, iron and other commodities used in agriculture, energy and manufacturing. While not insensible to climate issues, China remains a poor country overall, and more basic priorities, for example, the removal of particulates and noxious gases from the air, are yet to be achieved. Carbon emissions reduction remains a luxury well down the list of priorities.