Is China about to stall U.S. clean energy progress?
Let me start by saying a cold 2014-2015 winter season will likely fuel demand for natural gas and heating oil which has me thinking any move below $90pbl by WTI oil will likely be short-lived. Additionally, it is great to see gasoline prices at 4-year lows but if the USD gives up some of its recent gains, shorts will scramble to buy gasoline again. That will drive WTI oil prices higher since oil is priced in dollars. But the story doesn't end there.
There are reports that OPEC may have raised production but let's face it, OPEC doesn't have the same clout it used to have and any uptick in imports is likely coming more from China than from the U.S. That means if non-OPEC countries take their own foot off the oil production pedal due to current weaker refined product prices, oil prices would find even more support at present levels. Then there's Chinese rare earth metals.
Perhaps most importantly, if China uses its rare earth metals as a political weapon, crude oil should find a big bid since clean energy technologies like solar panels, wind turbines and lithium-ion batteries rely greatly on the supply of rare earth metals. Why am I bringing this up now? Sure the Chinese economy is slowing down but China just halted rare earth shipments to Japan this week on the heels of a Chinese fisherman being detained by Japanese officials. Considering China accounts for over 90% of the world's rare earth materials, this development is a very big deal and has repurcussions for the U.S. since Japan manufactures many American components containing rare earth metals.
Again, any snag in the clean energy manufacturing supply chain thanks to China hoarding rare earth metals should be seen as bullish for WTI oil prices and a large potential thorn in the side of clean enegy development here in the U.S. This may be why the U.S. created a $120 mln research hub last year called the Critical Materials Institute (CMI) to find solutions (i.e. recycling, efficiency in manufacturing, better economics of present sources and discovery of future substitutes) to offset low levels of domestic rare earth materials. For more of my thoughts on the CMI please read this article from October 2013.
Agree or disagree that China is holding many of the cards when it comes to the development of clean energy manufacturing? Leave us your comments and share your own thoughts on the subject.
Photo Courtesy: Flickr/Judy Borron