As China, U.S. Vie for More Oil, Diplomatic Friction May Follow

During 15 years, China's coal demand could also double. China, which has nine nuclear plants running now, will build more plants (30 according to Freeman) than any other nation over that time period. And it has drawn up plans for giant hydropower dams. "The trajectory they're on is not sustainable," said Herberg, former director of strategic planning at the Atlantic Richfield Co.

China has been taking several steps to bolster its energy security. It has imposed measures to dampen demand, including higher gasoline prices and surcharges on cars with big engines (which could hurt U.S. automakers with plants in China). It has established a state energy office, which reports to a new energy "leading group" headed by Premier Wen Jiabao and has set a goal of reducing the energy used per unit of GDP by 20 percent by 2010.

Leaders in Beijing also want to boost the country's strategic petroleum reserves, which would last just seven days, compared with the 90-day minimum for members of the International Energy Agency. If war, weather or terrorism disrupted supplies, China would soon be forced onto world oil markets. Herberg said that China bought extra oil before the Iraq war in anticipation of a supply disruption, thus contributing to the oil price spike at that time. Given current high prices, though, China is unlikely to step up purchases for its reserve at this time.

Xiao said that Beijing wants to diversify its sources by increasing imports from Russia, Central Asia and Latin America. China and Russia are in talks to build a $10 billion pipeline to deliver natural gas from Siberia to northern China.

China's major oil companies -- CNOOC, China National Petroleum Corp. and Sinopec -- have sought to lock in long-term supplies by buying stakes in operations abroad, which are still modest compared with major Western oil firms. CNPC, the largest state company that operates like a ministry, has a stake in Sudan's oil fields, giving it around 150,000 barrels a day in equity oil. It also has a 60 percent stake in a Kazakh oil firm that will deliver about 200,000 barrels a day to western China via a new pipeline. Sinopec landed a contract for the development of Iran's Yadavaran oil field, which may eventually produce 300,000 barrels per day. Sinopec has also acquired a 40 percent stake in Canada's Northern Lights oil sands project, which is expected to produce about 100,000 barrels a day by 2010.

China has also opened its doors to Middle East investment, broadening its relationship with that oil-rich region. A $3.5 billion refinery expansion underway in Fujian province, financed by Sinopec, Exxon Mobil Corp. and Saudi Arabian Oil Co. (Saudi Aramco), is seen as part of the effort to cement relations with Saudi Arabia. "What are the chances of cutting off oil to your own refinery?" Herberg said. "That's the nature of international oil security, not by going out and turning a country into your own private filling station."

While these moves make sense for China and help put more oil on world markets, they worry many diplomats and policymakers in Washington. Will China's oil relationship with Iran prevent it from joining other major powers at the United Nations in pressuring Iran to open up its nuclear plants to international inspection? Is China's willingness to buy oil from Sudan contributing to Khartoum's determination to resist U.S. and European pressure to stop raids on people living in the Darfur region? Will the dispute between China and Japan over rights to a large natural gas field in the East China Sea lead to wider conflict? (Lieberthal said both sides have been flying military planes over each other's claims -- perfectly legal, but worrisome.) And will China's growing presence in world oil markets drive up the price of crude oil?

Policy analysts have been recommending a variety of steps to ease U.S.-China tensions over energy: making it a partner, if not a member, of the IEA; creating a northeast Asia energy cooperation group to work out disputes and deals on natural gas reserves in Russia and the seas between China, South Korea and Japan; and inviting China to a Group of Eight meeting to discuss energy.

Freeman warns against blaming China for rising oil prices. He notes that U.S. imports have increased more than China's in recent years. "It's a wonderful issue," he said. "We get to blame the Chinese, the enemy of choice at the Pentagon. And then we get to blame the Arabs, perfect villains upon whom to heap blame."

Staff writer Glenn Kessler contributed to this report.