The bigger oil story behind the headlines

Michael Levi: The EPA regulations don't really tell you anything about which sources will benefit, because the micro-level incentives that will affect investments in operation are all going to be determined by the states. The EPA certainly uses the possibility of nuclear shutdowns in determining its baseline.

So, there's a bit of a message there that saving nuclear power plants is one way you can achieve your goals, but it's all up to the states whether that's how they do things or not.

James Stafford: Your new book, co-authored with Elizabeth C. Economy, "By All Means Necessary," takes us through China's resource quest and how it will change the world. What is the key takeaway message from this work?

Michael Levi: To me there are two very large takeaways. The first is, while we fixate on the sexy headlines about how Chinese workers in Africa are changing society there or on how Chinese behavior in the South and East China Sea is creating military risks, by far the biggest consequence of China's resource quest so far has been through its simple impact on trading prices. That's had consequences for producers and consumers all over the world regardless of whether they have direct interactions with China. We often skip over that, but it's enormous.

The second big takeaway to me is that while China's changing the world, China's engagement with the world is changing China in big ways as well. You see that in the behavior of Chinese companies on the ground in the countries where they invest. You see it in the way that China thinks about military deployments, about cooperation in securing sea lanes.

You see that in the way that China is addressing its own demand and its own production opportunities, as it responds by itself to the high prices that it's played a critical part in creating. Its impact on China itself, as China's resource quest evolves, I think is something that's been under-appreciated but that over the long run will be very consequential.

James Stafford: In terms of impacting climate change, how does China compare globally and what can we expect over the next 5-10 years?

Michael Levi: What we do see is an interaction between China's efforts to deal with its local environmental problems, its efforts to provide security of supply for its energy sources, and the climate outcomes that develop. To the extent that China feels more confident, for example, in securing natural gas from a variety of sources--domestic, LNG, Russia, Turkmenistan--it becomes more willing to use natural gas to replace coal as a way of cutting local air pollution. That, in turn, has benefits for global climate change.

I think that's how you think about the impact of China's resource quest on climate change. It's the sort of second order effect. I would've said a few years ago that extreme Chinese concerns about the security of natural gas supplies means that there won't be a substantial shift from coal in that direction, which itself has timing implications, but this changing level of confidence, together with much greater concerns about local air pollution, starts to tilt things in a different direction.

James Stafford: How is China's resource hunger changing the face of competition globally for oil and gas plays in frontier venues in Africa and the Middle East?

Michael Levi: Still, I think you need to distinguish between two different kinds of frontier venues. Chinese companies appear to have considerably more appetite for politically risky places. You've seen that in Sudan, for example. That's a place where they have a peculiar kind of competitive advantage over Western firms.

Where I think the competitive advantage has been overstated, at least by casual observers, is in frontier places that are frontier because of their technical difficulties. The Chinese companies still are not on the cutting edge. They still need to partner, at a minimum, with Western companies, and that constrains their ability to directly out-compete Western multinationals, because in so many cases they need the Western multinationals.

You saw that, for example, in the more technically complicated parts of the Iranian natural gas sector. When Western companies pulled out because of sanctions, there was a fear that Chinese companies would fill in and undermine the impact of sanctions. It turned out that in a lot of cases, the Chinese companies weren't capable of operating the projects, or needed equipment from Europe or the United States that they simply couldn't get.