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Oil Price Wars, Covid-19 Havoc and the Evolving US-China Trade War
Published online by Cambridge University Press: 14 March 2025
Extract
The US-China relationship continues to sour under the impact of Covid-19, with the Trump administration threatening to cut all ties with China in a move that would divide the world into two competing trade entities.1 It's been a bad year for China, with accusations over the origins of the pandemic coming on top of China's difficulties in managing the pro-democracy protests in Hong Kong.2 Under these circumstances, the energy perspective provides a fascinating set of insights into the evolving US-China relationship. The economic havoc unleashed by the Covid-19 pandemic has been bad enough, with reports of looming industry collapse by the International Energy Agency and others.3 But its economic impact has been exacerbated by an ugly price war in the oil industry, seeing prices tumble alongside a collapse in demand. At one point in April, the oil price reached a widely publicised negative level – an unprecedented phenomenon. Now the price is low but at present relatively stable, following a tripartite agreement between the world's three largest oil suppliers – the US, Saudi Arabia and Russia. In the last few days, the oil price has recovered to nearly $30 per barrel, providing some modest relief.4 But the impact on the US has been severe, with the high-cost and highly debt-leveraged shale oil industry, which propelled the US to become the world's largest oil producer, facing near collapse. It has long been the goal of both the Saudi and Russian oil industries to damage the upstart US shale industry, which was protected by relatively high oil prices. Now with this protection withdrawn, combined with collapsing demand, the US industry faces severe problems.
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References
Notes
1 ‘Trump threatens to cut off relations with China’, Financial Times, 14 May 2020.
2 ‘Hong Kong in 2020: Pandemic, protest, and great power rivalry’, Mark W. Frazier, Asia Pacific Journal: Japan Focus, May 15 2020.
3 ‘Renewable power surges as pandemic scrambles global energy outlook’, report finds, Science Mag, April 30 2020.
4 ‘Oil prices stage a modest recovery as demand rises and supply drops’, New York Times, May 17 2020.
5 ‘Covid-19 will not slow Southeast Asia's shift from coal to renewables’, Sara Jane Ahmed, Nikkei Asian Review, May 11 2020.
6 ‘Falling prices are hitting US shale oil producers’, Stockhead, Feb 9 2020.
7 ‘Coronavirus may kill our fracking fever dream’, Bethany McLean, New York Times, Apr 10 2020. Bethany McLean is the author of Saudi America: The Truth About Fracking and How It's Changing the World (Columbia Global Reports, 2018).
8 ‘Will American shale oil rise again?‘, Derek Brower and David Sheppard, Financial Times, April 25 2020.
9 ‘Eight days that shook the oil market – and the world’, Financial Times, Mar 13 2020.
10 ‘Saudi Arabia shows Asia focus with renewed oil price discounts’, Financial Times, May 8 2020.
11 ‘Will American shale oil rise again?‘, Derek Brower and David Sheppard, Financial Times, April 25 2020.
12 ‘By pumping at will, Saudi Arabia hurts oil investment’, Washington Post, March 16 2020.
13 ‘Few US shale firms can withstand prolonged price war’, Reuters, March 16 2020.
14 See Forbes May 7 2020.
15 South China Morning Post, Mar 10 2020.
16 See my 2017 book, John A. Mathews, Global Green Shift, London, Anthem Press – and accompanying webpage.
17 ‘How China came to dominate South Sudan's oil’, The Diplomat, February 11 2019.
18 New capacity added in 2017 amounted to 132 GW, of which 52 GW was thermal capacity (mainly coal) and 77 GW was sourced from WWS; likewise in terms of investment, fresh investment in 2017 on power generation was RMB 270 billion, of which RMB 74 billion went to thermal sources and 156.5 billion went to clean WWS sources. Both these results indicated that the system was greening more than blackening at the margin. See ‘The greening of China's energy system outpaces its further blackening: A 2017 update’, John A. Mathews and Carol X. Huang, with comments from Thomas Rawski and Mark Selden, Asia Pacific Journal: Japan Focus, May 1 2018.
19 In 2019 generation from thermal sources dropped to 69%, while generation from WWS rose to 26.4%.
20 The shift in green power for electricity generation includes generation from hydro power, wind power and solar power, with their different capacity utilization rates. Hence the extent of the green shift for electric generation is lower than for capacity.
21 See data from US Energy Information Administration (EIA).
22 As shown in Fig. 4, by 2019 the US had built electric capacity from WWS sources amounting to just over 25%, compared with China's level of 38.4%; and in terms of actual electricity generated, the US generated 18.7% from WWS sources, compared with China's level of 26.4%. China has clearly advanced a lot closer to installing a clean energy economy in recent years.
23 See Mel Gurtov and Mark Selden, The dangerous new US consensus on China and the future of US-China relations, Asia-Pacific Journal: Japan Focus, Aug 1 2019, 17 (15/5).