China Bluntly Confirms my Oil Investment Thesis

“As a Chinese person, I cannot accept someone from a developed nation having more right than me to consume energy. We are all created equal – this is no empty slogan.”


If you’ve been following this blog, you would have noticed a major anchor: My DIY stock portfolio is overwhelmingly invested in the energy sector because I believe it is on the path of growth for the next decade. In my analysis, I covered China even though the whole world is a player in the zero sum game of energy consumption. The latest speech by a Chinese official comes as the seal of approval on what many people (not only me) suspect is coming down the road of global energy consumption.

China Dialogue, a fully bilingual website devoted to promoting dialogue about our shared environmental challenges, recently published a summary of a very interesting speech by Yu Qingtai who was Beijing’s top climate negotiator from 2007 to 2009. He gave a speech earlier this month at the Bejing University School of International Studies on climate, diplomacy and the balance of national and global interests in limiting global warming.

Please take a minute to read this small excerpt:

“During my three years working on climate change, I have reached some personal conclusions. Concern about climate change and China’s role must be seen against the background of China’s economic and social development. China’s national circumstances cannot be ignored. China is bound to be dependent on coal for energy – we cannot afford oil as an alternative when it costs more than US$100 dollars (680 yuan) a barrel. We have factors limiting our development, and the price and opportunity costs of energy saving and emissions reduction must be taken into account and stable development continued. Many problems can only be solved through development.

We cannot blindly accept that protecting the climate is humanity’s common interest – national interests should come first. Individual enthusiasm and willingness to make sacrifice for the sake of the climate is worthy of respect and praise. I myself usually walk or take the bus to work. The individual can choose not to drive, but China cannot choose not to have an automobile industry. The individual can save power, but there are 600 million people in India without electricity – the country has to develop and meet that need. And if that increases emissions, I say, “So what?” The people have a right to a better life.

I once pointed out to an academic from a developed nation that the emissions resulting from their country’s two-car households had been accumulating in the atmosphere for decades. Many Chinese households have only just purchased their first car and they tell us we should ride bikes? It doesn’t make sense. We want to develop the economy until everyone has the option of buying a vehicle, but at the same time use taxation and subsidies to encourage the purchase of low-emission vehicles and the use of public transport.

When it comes to greenhouse-gas emissions, we cannot only look at the current situation and ignore history, nor look at overall emissions and ignore per capita figures. China’s accumulated emissions account for only 7% of the global total. Emissions are caused by consumption of energy, and this is the foundation of social development. As a Chinese person, I cannot accept someone from a developed nation having more right than me to consume energy. We are all created equal – this is no empty slogan. The Americans have no right to tell the Chinese that they can only consume 20% as much energy. We do not want to pollute as they did, but we have the right to pursue a better life.”

This is one clear “You First” message to the developed world when it comes to lowering emissions. China is right, what are we North Americans doing to lower our emissions? I don’t see much of a national policy. Where are the plans to replace coal with natural gas power plants for example?

China has embarked on rapid growth in consumption. The population is happy with their rising standard of living. For us in rich countries, owning 1 car instead of 2 or turning off a few lights will result in using less energy. On the other hand, the Chinese would have to forgo goods or services we take for granted since they are still at the beginning of their growth.

For China, it will be the national interest above all. This is bad news for the environment, especially when you replace “China” with “India” or any other emerging country. Cheap energy sources will fuel the growth of these nations. This heavy reliance on cheap energy is seen as an entitlement for improving their standard of living.

It looks like Oil is not the only commodity to be invested in; Coal still has a lifespan remaining and Uranium will occupy an increasing place in the next decade. It’s time I start researching these sectors as well. I guess in 50 years, the path of global energy consumption will lead us to a Labor Day celebrated at the beginning of October for signaling the end of the summer.

How would you criticize the Chinese position? Do you think we have the right to push developing nations around because of global warming?

6 comments to China Bluntly Confirms my Oil Investment Thesis

  • Good post and thanks for sharing the excerpt Mich.

    Without going into a long monologue or rant, I’m not surprised by the comments or the attitude. I can see where the Eastern world is coming from…I wouldn’t necessarily criticize the Chinese nor Indian position. Pushing best practices to help combat global warming is one thing; preventing Eastern world industrialization is entirely another.

    For decades, rather, generations, the Western world has leveraged coal, oil and gas to grow our industrialized economy – we’ve had our engines, figuratively speaking, running in high gear for well over 100 years. The rest of the world is just starting theirs…

    Going-forward, coal, oil and gas, and water as well, will be the most sought after and precious commodities on earth. The trend is already starting. Those (investors) well invested in these sectors should reap high-rewards.

    Personally, I have to “get in gear” myself and buy more SU in 2011, as well as pick up other multinationals that find, produce and sell these goods and services to the world. For example, I want to have dividend-payers such as CPG, DAY, PWT, HSE, ECA, EMA, COS.UN in my portfolio for my reasons above.

    Thoughts – you feel the same – the big energy squeeze is coming Mich?

  • Mich

    @FC,

    You are right, throughout history the Western world had an “all you can burn” buffet of fossil fuels. We can’t just give moral lessons to the Chinese now that its their turn!

    One thing is for sure, energy demand will be rising, it will be slow and gradual and should reflect on oil prices as we move out of the double dip danger zone and gradually recover.

    I wouldn’t mind adding some of the titles you mentioned above! to my basket! Good Hold for the long term.

    Cheers!

  • Hey Mich,

    Great post about China, and I like the quote. I agree that it’s somewhat hypocritical for western nations to criticize Chinese energy consumption and industrialization when we went through the same phases decades ago. Perhaps the focus should be on developing cleaner technologies and making them more affordable, as choosing to remain in poverty is not an option.

    There will indeed be increasing pressures on resources, and I believe that they may lead to high prices which will in turn make “green” tech relatively more affordable. You can bet that if oil hits $250, there won’t be a need for solar subsidies and the like. Pure economics will drive adoption.

  • Mich

    Kevin,

    Hitting high energy prices might be the catalyst needed to finally roll out those green technologies and “save the day”.

    Great point!

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