Time is ripe for US-China energy links

[Ulhas Joglekar <joglekarulhas@xxxxxxxx>]

Reuters.com

Time is ripe for US-China energy links
http://today.reuters.com/news/articlenews.aspx?type=reutersEdge&storyid=2006-04-18T214536Z_01_N17385140_RTRUKOC_0_US-ENERGY-USA-CHINA.xml

Tue Apr 18, 2006

By Chris Baltimore - ANALYSIS

WASHINGTON (Reuters) - Record high crude oil prices above $70 a barrel could
drive the United States and China -- the world's two biggest oil users -- to
seek common ground on thorny energy issues when Chinese President Hu Jintao
visits Washington this week.

The United States is the world's biggest oil consumer but China's demand is
growing the fastest, leaving both vulnerable to supply shocks, experts say.
"If you actually look at the United States' and China's interests as major
consumers in the system, there's an awful lot that we should be working
together on," U.S. Deputy Secretary of State Robert Zoellick told the
Institute for International Economics on Monday.

The United States will use 21.4 million barrels per day of crude oil in
2007, versus 7.9 million bpd in China, according to the U.S. Energy
Information Administration.

U.S. crude oil futures hit a record $71.60 a barrel on Tuesday on fears that
a diplomatic face-off over Iran's nuclear program might crimp exports.
Front-month U.S. oil futures on the New York Mercantile Exchange settled up
95 cents at $71.35 a barrel.

Rising demand in China could add as much as $14 a barrel to world crude oil
prices over the next five years, according to the Congressional Budget
Office.

Zoellick said U.S. officials could seek stronger cooperation with China on
energy efficiency, maintaining stability in Latin America, and crude oil
stockpiles.

U.S. Energy Secretary Sam Bodman has no plans to meet one-on-one with China
officials this week, a department spokesman said. The department has opened
an office in Beijing to consult on energy issues, and U.S. officials will
travel to China in June to discuss energy cooperation.

Hu's visit with President Bush will likely be dominated by discussions of
Iran's nuclear ambitions, trade and currency issues.

ROGUE NATIONS

China has alarmed some U.S. lawmakers by inking deals in oil-rich rogue
nations like Sudan and Iran, and by signing aggressive supply deals in
Canada and Venezuela to lock up future supply.

But attempts to portray China as an energy-hungry nation hell-bent on
securing supplies are too alarmist, said Bates Gill, a China expert at the
Center for Strategic and International Studies in Washington.

The talks between Bush and Hu this week could lead to an expanded energy
dialogue that is "badly needed to diffuse what is sometimes an
overexaggerated sense of competition and a new cold war over energy
resources," Gill said.

A move by Chinese-owned CNOOC Ltd. last year to buy U.S.-based Unocal Corp.
set off a furor on Capitol Hill because Republicans said CNOOC's government
backing gave it an unfair advantage.

CNOOC backed off, and U.S.-based Chevron Corp. eventually bought Unocal for
$17.4 billion.

The United States should be "moving heaven and earth" to include China in
the International Energy Agency, said Fred Bergsten, director of the
Institute of International Economics.

Gill and Bergsten are among the co-authors of a new book, "China: The
Balance Sheet," which outlines the challenges of China's economic growth.

The IEA coordinates energy policy and emergency crude oil stocks on behalf
of 26 industrialized nations, and has positioned itself as the counterweight
to the OPEC cartel.

"It is ridiculous not to have China and India ... on our side of the table
in the energy policy debate internationally," Bergsten said.

COORDINATED STOCKPILING

Zoellick said the United States has "an interest in connecting the Chinese
... to the strategic petroleum reserves system" run by the IEA, but he gave
no details on timing.

China plans to store about 100 million barrels of crude oil by 2008, about
35 days worth of supply. That pales in comparison to the U.S. stockpile of
about 700 million barrels.

But China's stocks are not tied into 4.1 billion barrels of government and
industry stocks controlled by the IEA, which would make it hard to include
China in a coordinated release.

Tying China into the IEA would be tricky, because membership is predicated
on participation in the Organization of Economic Cooperation and
Development, a group of 30 industrialized nations.

That could change if legislation sponsored by Senate Foreign Relations
Committee Chairman Richard Lugar becomes law. Lugar's bill would require the
Energy Department to set up a system to coordinate emergency crude oil
reserve releases with China and India in the event of a global supply
emergency.

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