Explaining Energy Resource Cooperation: Shale Gas, Chinese Investment, and the Changing Calculus of U.S. Energy Security
Creators: name: Atkinson, Douglas B.
Publisher: name: Utah State University
Year: 2012

description: In June of 2005, the relatively small and generally insignificant energy company Unocal became the focus of a fierce bidding war. China National Offshore Oil Company (CNOOC) made the first move, outbidding the American firm Chevron. Accepting the CNOOC bid looked like an obvious choice for Unocal since it was almost $1.5 billion dollars more. However, as it became increasingly clear that policy makers in Washington would not allow the deal to go through CNOOC withdrew its bid and Unocal had little option but to accept Chevron’s offer.
Washington’s opposition seemed to be an overreaction to a deal that would have little immediate or long-term impact on U.S. energy supplies. Unocal accounted for less than one percent of U.S. oil and gas production. The opposition, however, was the product of larger forces. Industry experts and policy makers projected that the world was entering a period of fossil fuel scarcity. Holding energy resources was of vital importance for energy security and national survival. American policy makers found the deal unacceptable. China had a comparable energy demand and deficit. China would likely divert energy products away from the United States and towards itself. Many observers thought that this would be the beginning of what would be a long, drawn-out battle between the two countries over the world’s fossil fuel resources. This competition, many believed, would unavoidably strain resources, and scholars such as Michael Klare predicted it would eventually end in war.
In 2005, few would have predicted that the U.S. and China would soon cooperate in the development of energy resources located in the United States. This, however, is what transpired. In 2010, the U.S. allowed a Chinese company to invest in its domestic energy resources. CNOOC, the company that five years earlier had their attempt to invest in American energy assets blocked, reached a deal with Chesapeake Energy to help develop and produce shale gas reserves in the Eagle Ford formation in Texas. In 2011, these two companies reached an agreement to develop shale resources in Colorado and Wyoming. A little less than a year later, the Chinese firm Sinopec and the American firm Devon Energy also entered into a joint venture. CNOOC and Sinopec are also currently in competition to buy a 30 percent stake in FTS international, a company that specializes in hydraulic fracturing technology.
Why would U.S. policy makers allow Chinese investment in 2010? This question becomes especially perplexing when taking into consideration that the energy demand for both countries grew during this time, and projections of energy scarcity have persisted. While the shale gas boom has given US policy makers reason for optimism, the amount of gas in the ground or how long it will supply U.S. demand is far from certain. I will offer an explanation for this puzzle by applying the theory outlined by Stephen Brooks in his book Producing Security. I will use his theory to create a typology that explains when US policy makers support cooperation and when they do not. I will argue that the United States can no longer seek to obtain energy security independently, or to limit investment only to close allies who pose no threat to energy supplies. High costs and rapid technological development have forced the United States to allow for investment from China, an energy competitor. The United States, however, does not indiscriminately allow for Chinese investment but will only do so when the investment will enable technological innovation and provide needed capital that will further ensure energy security.
This paper will continue as follows: I will first provide a review of the relevant literature. I will then offer the theoretical foundations of my argument. I will then give the relevant background information. This will include a brief explanation of natural gas exploration and production as well as a short historical outline of the U.S.-China energy relationship. I will then test two case studies against the hypotheses that I will pose later in this paper. The first case will provide an in-depth examination of the previous attempt of CNOOC to buy a stake in American-held energy assets in 2005. This incident will help provide a baseline of the behavior of energy-deficit states when energy is scarce, or there are projections of scarcity, and there is no pressing need for technological innovation to produce fossil fuel economically. The second case study, U.S.-Chinese shale gas cooperation, will show the response of the United States when projects are technologically and capital intensive.