Energy & Entrepreneurs

Russia, China and the U.S. on Energy

by Raymond J. Keating

Russia and China are moving ahead aggressively on the energy front, while the U.S. is, at best, running in place or, at worst, moving backwards.

On Monday, September 27, leaders of China and Russia signed various deals that will expand their energy relationship.

In addition to the completion of the first pipeline between the two nations that will carry 300,000 barrels of oil from Russia to China per day, the signed deals cover a joint power project in Yaroslavl and nuclear reactor technology, while a major natural gas agreement is hoped for next year. The Wall Street Journal noted "the strength and breadth of the new energy partnership, covering Russian crude oil and gas supplies to China as well as cooperation in coal, electric power, energy saving, renewable energy and nuclear power," and that the "pipeline is the centerpiece of a new era of energy cooperation between Russia and China, now the biggest producer of energy and its biggest consumer, respectively."

According to the U.S. Energy Information Administration, "Russia holds the world's largest natural gas reserves, the second largest coal reserves, and the eighth largest oil reserves. Russia is also the world's largest exporter of natural gas, the second largest oil exporter and the third largest energy consumer."

As for China, on the production side, the EIA reports: "China is the largest producer and consumer of coal in the world, and many of China's large coal reserves have yet to be developed." On the demand side, "China is the world's most populous country and the second largest energy consumer behind the United States... China is the world's second-largest consumer of oil behind the United States, and the third-largest net importer of oil after the U.S. and Japan."

While China and Russia seem to be dealing with their respective energy needs and production, the U.S. is doing nothing of the sort.

For example, President Obama and leaders in Congress keep talking about imposing a cap-and-trade regulatory regime, which would raise the costs of and limit the production of domestic sources of energy. Energy prices would rise for consumers, including small businesses struggling to survive, compete or grow. The resulting increased energy costs would mean reduced economic growth, and diminished U.S. competitiveness.

For good measure, the U.S. moratorium on deepwater drilling is still in effect, with U.S. Interior Secretary Ken Salazar saying the ban may be lifted "soon," according to Bloomberg News. That continuing ban is costing the U.S. jobs and lost domestic production. In a recent statement (September 16), Louisiana Governor Bobby Jindal noted that "three deepwater rigs have already left the Gulf of Mexico for Nigeria, Egypt, and the Congo and their contracts at these new locations overseas indicate they will all be there for around a year or even longer." He also pointed out: "Furthermore, the Administration's de facto moratorium on shallow water drilling - through new permitting requirements that are causing severe permitting delays - is also exacerbating the job losses caused by the deepwater drilling moratorium. The federal government approved an average of 14 permits a month for shallow water operations in the 11 months before the moratorium, and they have only approved a total of four permits since the moratorium on deepwater drilling was issued."

How do energy producers possibly make plans for investing in energy production in the U.S. under such an uncertain, high-cost regime?

There's nothing intrinsically bad about nations like China and Russia reaching energy agreements. Indeed, such efforts to expand energy production and trade are positives for global energy markets. Unfortunately, in contrast, U.S. policymaking right now is working against energy exploration, development and production right here at home.

_______

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.