If China was attempting to solve its own energy trilemma— the balance between security, sustainability, and affordability— the 27-year liquified natural gas (LNG) partnership it signed with Qatar last month is a step in the right direction. Beijing rightly recognizes LNG will tackle future volatility, help retire coal, and satiate demand. In contrast, natural gas has been downgraded in the United States as antithetical to its long-term climate strategy. Though it might sound counterintuitive to find value in the world's largest polluters' energy transition strategy— China is poised to become a climate leader. U.S. policymakers would benefit by adopting a more pragmatic stance on natural gas production to complement renewables or forfeit its strategic advantage and security.
Natural gas consumption will continue to be under scrutiny and drive governmental policy and investment strategies. While the United States plans to reduce its dependence in the coming decades, China is using long-term LNG contracts to diversify and hedge against risk.
China and Qatar's landmark agreement strengthens the relationship between one of the largest global suppliers of LNG and the world's heaviest consumer of energy, providing a steady stream of reliable gas for decades to come. Moreover, it ensures Chinese participation in the operational side of future LNG projects through an equity stake in Qatar's Northern Gas Fields.
The deal also strengthens ties between the Gulf and China, opening doors for future collaboration. Qatar is an attractive alternative to China's traditional LNG suppliers, Australia and the U.S. The equity stake component of this deal should not be overlooked. China increasingly asks for equity in production agreements, edging out Western companies. Chinese energy companies now have the expertise to compete in providing operational and managerial expertise on future gas infrastructure.
China recognizes the role of natural gas in achieving climate goals. Half of China's greenhouse gas emissions come from industry and the other half from the power sector, so it must carefully balance its energy supply with more significant economic development. For China, natural gas will be indispensable in retiring coal, reducing greenhouse gas emissions, and achieving decarbonization.
The United States has indicated it thinks the need for gas will expire in the short term—China is betting it will need it deep into the future. It is uncommon to sign LNG contracts that last over 20 years at this point in the global energy transition. Unlike other major gas importers, such as Japan, who are unwilling to sign deals of this length, China has shown a unique willingness with its recent agreement with Qatar, because it is anticipating a constrained future supply of gas.
Despite U.S. reservations about investing in gas over renewables, a valuable lesson lies within the nuances of China's approach. China is playing the long game by diversifying its energy resources and hedging against risk. U.S. policy and regulation simply ignore domestic and global energy needs. Specific forecasts indicate we are approaching peak fossil fuel use, yet global demand for LNG increases yearly. If the Biden Administration intends to reduce greenhouse gas emissions by restricting production to, in turn, decrease demand for fossil fuels— it's not quenching American and global appetites for fossil fuels.
Gas is fungible. If the United States does not produce it someone else will step up, and China recognizes this fact. As the world's thirst for gas intensifies— for at least the next several decades—Qatar is gearing up to seize a more significant portion of the production pie while China is eager to carve out an expanding portion for itself. America loses in both supply and demand side angles, weakening its energy security and the balance of trade for U.S. suppliers, all the while not reducing global greenhouse gas emissions.
Even at this stage of the climate crisis, it is time for the U.S. to take a more realistic approach to natural gas. American policymakers cannot confuse improving renewable capacity with a fast fossil-fuel phase-out. The U.S. has seen massive reductions in greenhouse gas emissions–particularly in the power sector– since the shale revolution began in 2008, in part due to coal being replaced by cleaner-burning natural gas. China understands this transition will take time to happen. Ultimately, the U.S.—and the planet will benefit from striking a balance that embraces renewables while recognizing the reliability and transitional advantages offered by strategic gas investments.
In contemplating the dynamics of global energy transition, however different the approaches— Washington and Beijing share common goals. China recognizes that building institutionalized partnerships with Qatar is essential to addressing future volatility, and natural gas will be an indispensable tool in retiring coal and feeding the insatiable energy demand. This is the decisive decade for the climate, and like it or not, gas production and consumption move in tandem. As long as there is demand— someone will produce it. Despite its increased use every year, why must natural gas operate in the shadows of the United States' energy transition? Perhaps China's status as the world's leading polluter grants them a certain leniency in transitional fossil fuels. But to effectively address the climate crisis, U.S. policymakers must embrace a less idealistic stance or risk compromising their strategic advantage and security. At this juncture, natural gas deserves policy recognition and investment, and it takes a degree of courage to champion its merits openly. And that's China's advantage.
