The Quest for Energy
What energy policies are China and India pursuing? Why do the two countries cooperate while competing fiercely with each other? What are the implications for geopolitics and the global governance of climate change? In the third GEG seminar this term, three expert panelists addressed these and other questions. A full summary is below.
Event Summary
Energy security is of utmost strategic importance to China and India if they hope to continue to expand their economies, and both countries are increasingly forced to rely on the global oil market to meet their energy demands. By 2020, it is estimated that China and India combined will account for roughly one-third of the world’s GDP and, as such, will require vast amounts of energy to fuel their economies. The competition over energy resources is increasingly reported in the world’s media as a growing source of tension between the two countries. Empirically, however, both countries do cooperate with each other occasionally during their quest for energy at the global level. What energy policies are these countries pursuing? Why do the two countries cooperate while competing fiercely with each other? What are the implications for geopolitics and the global governance of climate change?
GEG hosted a seminar on 2 November in which three panelists tackled these questions:
Sir Chris Llewellyn-Smith, Director of Energy Research, and Visiting Professor of Physics, Oxford
John V. Mitchell, Associate Fellow, Energy, Environment, and Resources, Chatham House
Fuzuo Wu, Oxford-Princeton Global Leaders Fellow, GEG
Ngaire Woods, Dean of the Blavatnik School and Director of GEG, chaired the seminar
Professor Sir Chris Llewellyn-Smith began by framing the challenges that India and China face. The two countries have rapidly rising demand for oil, which gives rise to four challenges: outdoor air pollution, the need to diversify energy sources for geopolitical reasons, climate change, and in the long run fossil fuel scarcity. He then gave a sense of the scale of China and India’s rising demand. The energy demand in China and India is growing much more quickly than energy demand in the rest of the world. Even now, China uses 19% of global energy, making China the largest energy user in the world, although still only average in per capita terms. Both India and China are also very dependent on coal; 79% of electricity in China and 69% of the electricity in India is generated from coal.
Llewellyn-Smith outlined four big issues for both countries. The most serious of these issues for both countries is access. Currently China is importing more than half its oil. Reserves of shale gas may answer China’s supply needs, but there are difficulties with extracting and transporting it. China has historically had very energy-efficient economic growth, which they would like to continue in the future. China is working on a pilot emissions trading scheme similar to the one in the EU, and is making a large investment in solar PV. In India, energy scarcity appears to be an even more serious issue than in China, as they have fewer reserves and their economy is expected to industrialize, which is very energy intensive. Finally, energy subsidies often no longer work as originally intended; yet removing them is politically challenging.
Dr Fuzuo Wu noted the growing energy insecurity faced by both China and India due to their limited reserves and rapidly growing demand. In particular problem is they have relatively high dependence on the Middle East, a historically unstable region. At the domestic level, both these nations are increasing their share of nuclear and renewable energy, improving their energy efficiency, and establishing strategic petroleum reserves. At the international level, they are working hard to diversify their sources of energy away from the Middle East. Energy diplomacy takes the following forms: high-level political visits, trade and economic assistance, provision of military goods, and in some cases, the diplomatic support. In some instances China and India compete for energy resources and other times they cooperate. They compete for access to resources, in particular uranium and for geostrategic reasons, however in some cases they have an incentive to cooperate because they have greater power as consumers if they ally before negotiating with producer countries.
John V Mitchell began by correcting the misperception that oil is running out. He noted the difference between resources (the oil in the planet) and reserves (the oil that we know about, have the technology to extract, and believe is economically viable to extract). Reserves are a manufactured number and subject to human fiddling. This said, the Asia-Pacific region has particularly low reserves. Next he noted that most oil reserves are owned by states or state-owned enterprises, which gives them an enormous and enduring importance. He highlighted that in this environment, companies must bring technical skills or knowledge that the country does not already have, and must make a contribution to the wider economy and development of the country, in order to be accepted as a partner in an oil venture. Often, state owned enterprises, including China’s, often have an edge in negotiating with oil exporting countries as they have both the technical expertise and the government offers to combine these services with aid and trade packages. Looking forward, he suggested a list of “known unknowns” or reserves that we expect to find. These reserves are likely to be in Russia, China, Brazil, and India. He left the audience with a priority question: how do we deal with the next Middle East oil shock?
