Fueling Cooperation, Not Protectionism

Nearly four years later, we're still feeling the ripples from Washington's move to block Cnooc's bid for Unocal
Wall Street Journal
OPINION ASIA
MARCH 24, 2009
By VICTOR ZHIKAI GAO From today's Wall Street Journal Asia.
BEIJING
In the midst of the global economic downturn, there's one industry that's expanding rapidly: China's state-owned energy companies. Over the past few months, these companies have launched major multibillion-dollar oil deals from Russia to Brazil to Iraq. There's a good lesson here for policy makers in Washington who think protectionism is costless.
China is eager to secure a reliable and long-term supply of oil. The country is the second-largest oil consumer and importer in the world, next only to the United States. But China's per capita oil consumption is only one-thirteenth of the U.S. -- in other words, there's a lot of room to grow. As the world's largest oil consumers, China and America have much to gain from cooperation in new and renewable energy, clean coal and energy efficiency.
This is especially true today, given the oil price has dropped by more than $100 a barrel since last July. Both countries' energy sectors face declining revenues and the high costs of upstream exploration and production. The danger is that energy investments will dwindle, and when the global economy eventually climbs out of the current economic and financial crisis, demand for oil may far exceed supply, resulting in huge price hikes. China and America could thus potentially be hit with much higher costs for imported oil.
The hope is that China's increased investments in upstream oil exploration and development in different parts of the world to date -- and over the coming few years -- may make up for this significant vacuum. So long as China sells a significant amount of oil thus produced to the open market, rather than locking it up for shipment back to China, such investment should be welcomed and encouraged for its positive stabilizing effect over the long run.
Washington needs to embrace these investment flows. Since Congress opposed Cnooc's bid for Unocal in 2005, few, if any, Chinese energy companies have ventured into the U.S. market. Partly as a result, Chinese energy companies have since been expanding more rapidly in other parts of the world. Prior to the proposed Cnooc-Unocal deal, Cnooc hardly had any investments in Africa. Once America erected protectionist walls, Cnooc began its grand engagement with Africa.
Chevron, which ultimately won the bid for Unocal, hasn't been able to match what Cnooc would have achieved. The San Ramon, Calif.-based company is still sitting on large natural gas reserves inherited from Unocal, mostly in Southeast Asia, and may either have to treat them as idle assets for years to come, or have to knock on Chinese doors anyway, since the Chinese market remains the most logical and natural market in which to sell such a product. The bitter lesson here is that while oil is fungible, natural gas sellers need to aim at markets that have willing, ready and paying customers -- and offer the prospect of stable, predictable revenues for decades to come.
China and the U.S. should have the courage and vision to go beyond the failed Unocal deal and China's rejection last week of the proposed $2.4 billion Coca-Cola-Huiyuan merger. The Obama administration has introduced fresh air into the two countries' bilateral relations, and energy cooperation should certainly be an area of renewed focus. China conducts its relations with the U.S. as a steadfast, reliable and responsible stakeholder. We can both benefit from cooperation, not confrontation.
Mr. Gao is secretary general of the China Private Equity Association and former senior vice president and general counsel of Cnooc Limited.