Saturday, February 26, 2011

China's Quest for Black Gold with Green Dollars

Way back in October of 2004, Time magazine quoted Chen Huai of the Development Research Center of Beijing as saying, "The world has the oil, and China has the money."  If anything has changed about that statement, it is that it has become more true. China's supply of money and its demand for oil have both grown at an amazing rate.

In 2007, China consumed about 7,578,000 barrels per day (bbl/day), nearly 9% of the world's petroleum. By 2009, China consumed an estimated 8,200,000 bbl/day and its demand continues to rise.

Meanwhile in the United States, over the same time period, the US consumption dropped from 20,680,000 bbl/day to an estimated 18,690,000 bbl/day. While the US is still the number one petroleum consumer by far, its consumption has dropped.

My point for those on the left that blame the US for "Global Warning" is that rising economies such as China and India are quite willing to use petroleum and coal laden with sulphur and they are unencumbered by EPA regulations. A patriotic keepsake sold in the White House gift shop that is made in China - No, I'm not making this example up - will necessarily have been the cause of more pollution than that same item made in the United States - even before we factor in shipping.

Driving up energy costs in the United States doesn't mean less pollution - it means more. Driving up energy costs in the United States means fewer US jobs and more jobs overseas. Even the threat of additional energy costs will encourage companies to expand overseas rather than in the US. Something a rookie US Senator from Illinois never bothered to learn. Remember this?

In an interview with the San Francisco Chronicle back in January of 2008, then-Presidential candidate Barack Obama said:
"You know, when I was asked earlier about the issue of coal, uh, you know — Under my plan of a cap and trade system, electricity rates would necessarily skyrocket. Even regardless of what I say about whether coal is good or bad. Because I’m capping greenhouse gases, coal power plants, you know, natural gas, you name it — whatever the plants were, whatever the industry was, uh, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers."
So when an Obama loyalist says that President Obama is a friend of business and is pro-growth, remind him of this interview. Anyone who aspires to be President should understand that their words have consequences. Combine that foolish statement with the continued ban on drilling - extended through 2017 for the eastern Gulf of Mexico and even off the coast of Virginia back in December. Meanwhile, Russia has plans to drill off of our southern shores and Washington sits idle.

Meanwhile China is aggressively seeking oil contracts around the globe, fueled by interest payments from our own country. So, you hypothetically say, who cares how China spends our old money? I'm glad you asked.

No one buys petroleum just for fun. It's not collectible; it's not ornamental; and it smells funny. People buy petroleum so that they can manufacture energy which is then used to manufacture items that are worth more than they cost to make. It's called making a profit - and producing trade goods.

So who buys those trade goods? The US buys about $273 billion more per year from China than they buy from us. Hey, no problem, we just borrow the money from China. Back in June, 2009, the US Treasury Department owed China only $757 billion just in long-term debt. Is it good news that this is only about five percent of our overall debt? I'll let you work that out.

So how do we get out of debt? Well, we spend less, but in the long-run, we must produce more 
and the only way to produce more is to use energy. Let's face it: a guy living in a cave with a wood-fueled fire is not going to manufacture a new car.

The Obama Administration may have forgotten, but business owners and conservatives know that energy is required to produce things. Back in 1776, Adam Smith wrote a book called An Inquiry into the Nature and Causes of the Wealth of Nations. Smith's "system of natural liberty" was capitalism unfettered by government interference. So, while our government prevents us from using our natural resources, China is making the most of the opportunity. It would appear that what government has forgotten - or chooses to ignore - China has learned.

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