The U.S. and China have been trading barbs over the last several months with a new round of criticism coming this week, as both countries’ trade officials met to discuss contentious issues surrounding imports and exports. As the two sides begin trying to sort out issues stemming from their massive trade deficits, some worry that the threat of a trade war between the United States and China has been averted. But, the potential for an inevitable trade war is not gone, nor will it be easily defeated, according to former U.S. ambassador to China, Jon Huntsman.
China does have an unfair advantage on the trade front. They produce more crude oil than almost all of the rest of the world combined. While many have pointed out that China’s prices are still fairly high relative to other markets, China is by far the largest importer of crude oil. Crude oil imports from other nations now represent almost half of China’s total crude oil imports.
While China is known for their production of frac sand oil and similar natural gas liquids, they do import from a few foreign nations as well. The United States is one of these nations. So, while there are some trade disputes between the United States and China, it is only because of the differences in their dependence on crude oil imports.
If crude oil were the only area of trade, and the United States was the only nation exporting natural gas liquids, this would not be such a big deal. However, even the United States of America has a problem in China. China is currently the number two producer of natural gas liquids and second largest consumer of those same gases.
China has been importing natural gas liquids from Russia, although China has increased their production over the last few years. What China is buying from Russia in many cases is actually water that is extracted using harsh chemicals. Water used in water treatment plants, in addition to cracking or surface water extraction.
Meanwhile, China is also buying frac sand oil from Canada. The United States is also a buyer of this oil, but China purchases more of this crude oil than any other nation.
With these two countries’ vast oil reserves combined, the United States is somewhat isolated when it comes to oil exports. China can literally meet their entire demand for natural gas liquids with the imports from Canada and Russia. Not only is this an issue from a marketing perspective, but this is a source of concern as well.
Of course, China’s oil import dependence does come with problems. That nation imports gasoline from many different nations and will always be dependent on other nations for their crude oil needs. With this in mind, the Chinese have bought many strategic oil assets and they have invested billions of dollars in exploration and development, as well as new technologies.
Indeed, China has become one of the world’s leaders in developing and exploring a new source of energy. That nation has a lot riding on the outcome of the emerging oil and gas sector. If oil prices remain high, so will their dependence on foreign sources.
Meanwhile, a new way of distributing energy from wind and solar power, means that China may get more benefit from its investment in a renewable energy source that meets their needs. As a result, the future of those nations in which China has made significant investments in oil and gas is more uncertain.
At the same time, there are fears that the United States will suffer a severe oil shortage if oil prices continue to rise. These fears are nothing new. Indeed, they have been brewing for quite some time now, especially following the Arab Spring, and have finally culminated in the recent “Long March” of the Iranians, who are using economic pressure tactics to try to impose their will on the international community.
In short, the oil market scenario will impact the United States, and ultimately the rest of the world. Not all of that will be good. however, there is a silver lining in that there will be less imported oil, and a more domestic source of energy for domestic use.