Geography, it’s often said, is destiny.
The paths nations follow though history are written like a script on the patterns of their rocks, rivers, plains and coasts, in ways that often confound the views of the people who inhabit them. It’s rare for a country to escape that geological fate.
Over the past two weeks, we’ve seen dramatic examples of this happening in five countries covering more than a third of the planet’s land mass.
Most notable has been President Joe Biden’s brutal round of tariffs against Chinese clean technology imports. At a time when core inflation in the US is at its highest level in nearly 30 years and disposable income growth is sputtering, pushing up the cost of consumer goods such as solar panels and electric vehicles seems perverse.1 It makes more sense when you look at the other side of the energy picture. In December, US crude oil output reached 13.3 million daily barrels, the highest level of any country in history. Natural gas hit a similar global record of 106.5 billion cubic feet per day.
Biden’s justification for the tariffs is that they’re a pro-climate initiative, which will buy the US time to scale up and compete with China’s formidable clean-technology industry. You should take that with a pinch of salt, given how Washington’s wavering commitment to clean technology has seen it squander early leads in solar panels and EVs. It’s America’s strength as a fossil fuel producer that allows it to be so lackadaisical about cleaning up its act — and so willing, now, to suppress alternative technologies.
For most nations, the energy transition isn’t just sought for climate reasons: It’s also a strategic and economic necessity, reducing dependence on foreign exporters and the burden of imported fuel spending on the budget and balance of payments. The US, as by far the world’s biggest fossil-fuel producer, sees things differently.
The same dynamic explains why China has been so much quicker to exploit the energy transition. Switching to battery-powered vehicles makes a lot more sense when you have to import some 90% of your petroleum. Maximizing your output of cheap renewable power seems an obvious move when domestic gas reserves are minimal, and coal resources appear to be declining in both quality and affordability.
Would-be exporters see China’s shortage of indigenous energy supplies as an opportunity. In Canada, the C$34 billion ($25 billion) Trans Mountain Expansion crude oil pipeline was scheduled to load its first cargo, bound for China, on Saturday. The federally funded project, the most expensive in Canadian history, might seem an odd investment for the government that introduced one of the world’s most stringent carbon taxes. And yet Canada is the world’s largest oil exporter after Saudi Arabia, the US and Russia.
If you believe geography (rather than the popular will) is destiny, it shouldn’t surprise you that North America’s two liberal democracies are now making common cause with authoritarian petrostates.
In Australia, meanwhile, the government laid out a natural gas strategy that envisions a role for the hydrocarbon “through to 2050 and beyond.” Canberra bills its plans as consistent with a path toward net zero, but that’s a triumph of wishful thinking over reality. Such a world will see demand for gas that lacks carbon capture and storage fall nearly 90%. Australia’s LNG — a premium product that costs more to produce than about 95% of all the gas produced globally — is unlikely to survive such a shift.
Piped gas is usually cheaper than LNG, and Russia’s President Vladimir Putin was in Beijing this week touting Power of Siberia 2, a proposed line that would feed China from the same fields that were destined for Europe until the Ukraine war cut that route. President Xi Jinping, however, seems reluctant — in no small measure because China’s domestic renewables and green hydrogen potential, combined with its aggressive contracting of LNG supplies and piped gas from smaller, more easily manipulated Turkmenistan, means it now has little need of Russian methane.
That sounds like a world where fossil fuels are on the march — but it’s not quite as simple as that. Demand for such products is peaking, or has already.
Petroleum was the cheapest, most useful form of power in the 20th century, and the countries best-equipped to access it became the preeminent nations of that era. Most of the world, however, is fundamentally short of energy.
Alongside China, that’s true of the 10 developing nations who’ll account for about half the world’s population growth between now and 2050, including most of Asia and Africa. They have far more to gain from cheap, locally produced clean power than from fossil fuels that damage the health of their citizens and put them at the mercy of wealthy exporters, who seem more keen than ever to throw their weight around.
Beneath Washington’s fear of Beijing’s clean-technology success, that’s the deeper worry. Just as Britain’s early lead in coal made it the indefatigable power of the 19th century, and US dominance in oil made it a hegemon for the 20th century, China’s advances in green energy give it a formidable position in the 21st. Oil-rich America has found itself strangely entangled with crude-exporting frenemies in the Middle East through their common interest in petroleum. In the decades ahead, a decarbonizing China will find many allies whose interests are just as well-aligned with its own.
1 The tariffs won't directly affect the price of EVs in the short term, since the Chinese cars being targeted are barely exported to the US. Still, they'll make it much less likely that prices are driven lower by the threat of cheaper imported vehicles coming onto the market.
A message from Advisor Perspectives and VettaFi: To learn more about this and other topics, check out some of our webcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
Read more articles by David Fickling
