Special Report: Peak Oil

Sidebar: A Strangling Embrace

China and America appear to be headed on a collision course as they both scramble to secure access to a diminishing resource on which they both depend.

By Ryan McGreal
Published August 22, 2005

Sidebar: A Strangling Embrace

The global growth in demand for oil is fueled mainly by continued growth in U.S. consumer spending and dramatic growth in the economies of China and India. However, this year, demand growth has slowed from over three percent last year to around two percent this year. China's demand will grow 'only' eight percent this year compared to 15 percent last year, while North American demand will grow 1.5 percent this year compared to two percent last year.

Even though China's share of global consumption is under ten percent, China's absolute increase in consumption last year was larger than America's. If the two countries maintain their current growth rates, China's total consumption will surpass America's by 2023.

Projected Oil Consumption, China & America
Year Barrels per Day
China America
2004 6,888,000 21,000,000
2005 7,439,040 21,315,000
2006 8,034,163 21,634,725
2007 8,676,896 21,959,246
2008 9,371,048 22,288,635
2009 10,120,732 22,622,964
2010 10,930,390 22,962,309
2011 11,804,822 23,306,743
2012 12,749,207 23,656,344
2013 13,769,144 24,011,189
2014 14,870,675 24,371,357
2015 16,060,329 24,736,928
2016 17,345,156 25,107,982
2017 18,732,768 25,484,601
2018 20,231,390 25,866,870
2019 21,849,901 26,254,873
2020 23,597,893 26,648,697
2021 25,485,724 27,048,427
2022 27,524,582 27,454,153
2023 29,726,549 27,865,966

China is chronically short on power, suffering regular brownouts and blackouts as its energy demand grows even faster than its GDP. In recent attempts to secure long-term energy supplies, China has forged deals in Algeria, Canada (in Alberta's oil sands), Cuba, Iran, Russia, Uzbekistan, Venezuela, and elsewhere.

The state-owned China National Offshore Oil Corporation (CNOOC) recently tried to outbid ChevronTexaco to buy U.S. oil company Unocal, which mainly owns assets in Asia, but withdrew after U.S. Congress predictably threatened to mire the bid in red tape.

In a burst of irony, the Chinese Foreign Ministry lectured the United States on government interference in economic affairs:

We demand that the U.S. Congress correct its mistaken ways of politicizing economic and trade issues and stop interfering in the normal exchanges between enterprises of the two countries. (The Washington Post)

In fact, China and America are locked in an economic embrace with tremendous capacity for future grief. China sells America goods that American consumers can't afford, and America goes into debt to buy the goods. Then, China uses some of the money it makes selling those goods to lend America enough money (by buying US dollars at an increasing loss) to keep buying the stuff.

As a result, China now controls around 20 percent of America's foreign debt. If China unloaded its reserves of U.S. dollars, the dollar would collapse, in all likelihood provoking a major world recession. However, that would hurt China as much as it hurt the U.S., since it would be undercutting the primary market for its exports.

Nevertheless, China and America appear to be headed on a collision course as they both scramble to secure access to a diminishing resource on which they both depend. One day, the embrace may turn into a mutual stranglehold.

Ryan McGreal, the editor of Raise the Hammer, lives in Hamilton with his family and works as a programmer, writer and consultant. Ryan volunteers with Hamilton Light Rail, a citizen group dedicated to bringing light rail transit to Hamilton. Ryan writes a city affairs column in Hamilton Magazine, and several of his articles have been published in the Hamilton Spectator. He also maintains a personal website and has been known to post passing thoughts on Twitter @RyanMcGreal. Recently, he took the plunge and finally joined Facebook.

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