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Lubricating a squeaky relationship

Energy

China's interests in securing supplies of oil and natural gas in the Middle East, Africa and Latin America are emerging as a new source of tension with the United States. These energy interests increasingly conflict with US security and human-rights concerns in countries like Iran, Sudan and Venezuela.

Is there a way of resolving, or at least managing, these conflicts of interest? Some US officials believe that intensified energy co-operation with China could help keep competition within tolerable limits. The two countries agreed to launch an energy policy dialogue last year to build on 25 years of bilateral energy-science and technology exchanges, designed to reduce reliance on imported oil and gas. This may be wrapped into the plan, announced in Washington last week, to hold regular high-level talks with China on a range of political, security and other issues. This includes flashpoints such as Sudan, where China - to protect its major oil investments - has blocked US moves to get the UN Security Council to impose sanctions on the government in Khartoum for alleged abuses in the western province of Darfur.

China also appears ready to use its veto as one of the five permanent members of the council to prevent the imposition of sanctions if Iran fails to satisfy US and European worries that it is secretly developing nuclear weapons. State-owned Chinese oil companies have made big investment commitments in Iranian oil and natural gas.

Together, the US and Chinese economies consume about one-third of the world's commercial energy supplies. The US accounts for 21 per cent and China 8.5 per cent. But Chinese demand is growing much faster than America's. The US is projected to increase its share of world energy consumption only marginally, to 22 per cent by 2025. However, China's share is forecast to almost double, to 15 per cent, in the same period. Coal mined in China accounts for about 65 per cent of the energy it consumes. Much of it is burned in plants that generate electricity. Coal-fired plants also produce most of America's electricity.

Until 1993, China was a net exporter of oil. But it now imports nearly 40 per cent, compared with 56 per cent for the US. In 2003, China passed Japan to become the world's second-largest petroleum consumer. As more vehicles crowd China's roads, demand is expected to more than double for oil by 2025. Demand for gas - for electricity generation and home use - is expected to quadruple.

Both the US and China are likely to become more dependent on imported oil and gas. By 2025, each is forecast to import about two-thirds of its oil and up to one-third of its gas. Most US oil will continue to come from the western hemisphere, Africa (mainly west Africa), and the Persian Gulf. Most Chinese oil will probably continue to come from the Persian Gulf and Africa, although the western hemisphere (including Venezuela and Canada) may also become more prominent.

Preventing a clash of strategic interests is for the good of both Washington and Beijing. By minimising their demand for imported oil and gas, they can help keep global prices at affordable levels. How can this be done? Among other things, by collaborating to improve energy efficiency; make wider use of clean-coal technology to prevent air pollution; develop coal liquefaction and other new fuels; expand nuclear-power generation using safer systems; exploit renewable energy sources like wind and solar power; and co-ordinate plans for stockpiling oil in case of emergencies.

This would put the economies of both the US and China on a more sustainable path of development. It would also strengthen their common interests while reducing potentially destabilising differences.

Michael Richardson is a visiting senior research fellow at the Institute of Southeast Asian Studies in Singapore. This is a personal comment

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