US-China energy cooperation has large potential: expert

HOUSTON - There is large potential for the United States and China to cooperate in the energy field, John Hofmeister, a member of the US Energy Security Council, said recently.

In an interview with Xinhua, Hofmeister, former president of Shell Oil Company headquartered in Houston, a city in the southern state of Texas, believed that the business is never one-way.

"The US and China need each other to prosper," he said.

Interdependent relationship

The United States has abundant oil and gas resources which China is short of, Hofmeister said, and the fast growth of the Chinese economy needs energy and "that offers a good business opportunity for the US energy sector, especially for natural gas."

"China is a wonderful market for North American natural gas," he said, adding that this harbors the opportunity to develop partnerships and business models that will work for both the United States and China.

"I think (US President Donald) Trump recognizes that the US and China relationship requires interdependencies. And the interdependency ... could have long life and much mutual benefit in the field of energy," he added.

In fact, the energy cooperation between the two giant economies is growing. During Trump's first state visit to China in November, Chinese and US companies signed deals worth over $250 billion, including huge energy deals.

Hofmeister shared the views of many US scholars that such deals can help reduce the trade deficit between the two countries. But he also pointed out there are many other areas that both sides can cooperate in to help narrow the trade gap.

"The deficits between the two countries can be reduced by virtue of big energy deals," he said, adding there are many other areas in which the exchange of expertise, technology and intellectual property can take place."Many other advances can take place in years to come," he said.

The energy expert noted the size and scale of both economies require collaboration and partnership, which can benefit both countries and the world economy as a whole.

"Most of us don't have the understanding of how big and how exciting it can be to develop mutual understanding that leads to mutual success working together in partnership," he said.

Energy security

In the past few years, the booming production of shale oil and gas in the United States, primarily in Texas, has become a black horse in the industry. In December 2015, the country decided to lift its 40-year ban on crude oil exports driven by an increase in domestic drilling and production.

Commenting on this issue, Hofmeister said oil is a resource that continuously declines. Even with the increasing and promising output, he still believed oil will be more scarce than abundant in the future.

According to him, the reason for the scarcity is the continuous risks associated with the production of oil in difficult geological settings, such as the Arctic or deep-water production. Besides, shale itself can be a very short-term solution.

"I question its long-term potential because wells decline so quickly. We've now seen that the production decline of the average shale well is 50 percent in the first year. So every year after it's even less," he said.

In late November, the Organization of the Petroleum Exporting Countries (OPEC) decided to extend the current price-supporting curbs on crude output from March next year to the end of 2018. Some experts believed such a move would allow American firms to raise supplies even more and grab market shares from OPEC in places like China.

However, Hofmeister warned that investing and drilling more for profit would potentially harm the shale industry. He explained that because of the rapid decline of the shale formation, companies have to keep drilling to sustain supply. Besides, more and more borrowed money is used in the shale industry. In order to keep drilling with declining resources, companies have to borrow more.

"The financial support of the shale drillers is the mouse running on the wheel where the mouse could die, because it's going too fast to keep the higher oil supply numbers coming in, given the decline rate of the shale formation," Hofmeister said.

As a senior manager with rich experience in the oil and gas industry, Hofmeister said countries have no other choice but to rely upon fossil fuel in the foreseeable future, as it is much more efficient and makes energy affordable for the masses.

Alternative energy still an option

After taking office in the White House, Trump has promised to revive the coal industry by rolling back environmental regulations and moved to repeal Obama-era curbs on carbon emissions from power plants. Some observers believe such moves would boost the traditional fossil fuel industries.

Hofmeister agreed there is an obvious change in the energy policy of the current administration from the Obama administration, but "not all that big of a change from previous administrations."

He argued that the administrations before Obama, namely the Reagan, Bush and Clinton administrations, adopted policies focusing on "a balanced mix," while "Obama narrowed down American policy, focused primarily on alternative energy and renewable energy."

"I don't think Trump is excluding solar and wind in his policies, but he's putting oil and gas and coal back on the platform," he said. "It's a win-win for the world and society as a whole to approach energy in the fullest possible way."