That China and the US are on sharply diverging energy transition tracks became undeniable in 2024. As 2025 introduces the unpredictable second term of President Donald Trump, the question is no longer whether there will be a two-track transition, but what that split will mean for diverging US and Chinese economies. China has long had costlier energy than the oil-, gas- and coal-rich US. There’s now a real prospect that the energy cost advantage will shift to China. Another big question is what the Chimerica dismemberment will mean for everyone else. US sanctions have pushed Russia, Iran and Venezuela into heavy market reliance on China — an uncomfortable position given Beijing’s renewables turn and sputtering economy. The precarious fence-straddling of the Arab Gulf states and of the EU, India and other big consumers is no more comfortable. If they have to choose, who’ll jump where?
China is building renewable energy and electric vehicle (EV) manufacturing and markets as rapidly as possible at home and around the world while remaining heavily dependent on coal as its fossil fuel backup. The US is trying to build renewable energy factories, too, but, being a decade or more behind, is using tariff walls to shelter companies that will struggle to meet domestic needs, much less export. It looks set to remain dependent for longer than most of the world on natural gas as its generating backup and oil as its transportation fuel. Fossil fuel exports are likely to continue for some time.
The difference in the two countries’ approaches was reflected in two forecasts that came out almost simultaneously in mid-December. Top national oil and gas player China National Petroleum Corp. said that China’s oil product usage had peaked in 2023 and forecast that national gasoline and diesel consumption would each fall by a stunning 35%-50% by 2035. No plateau there. It tweaked up expected natural gas demand, helped by lower LNG price expectations as China becomes a more price-sensitive commodities’ buyer and also by the need for flexible generating capacity to balance all its renewable electricity. It sees peak gas use by 2035.
Exxon’s Expectations
Top US oil and gas player Exxon Mobil, in contrast, outlined plans for a whopping 25% jump in corporate oil and gas production to 5.4 million barrels of oil equivalent per day by 2030 — also the date by which Exxon expects global oil demand to have “plateaued.” Exxon expects that oil growth to come from the Permian Basin and Guyana, both in the Americas where the US-style energy transition looks firmly imbedded. In its home US turf, that transition slowed in the last two years as the Biden administration’s trade policy explicitly targeted China’s clean energy and EVs, and it will likely slow further given Trump’s stated intention to weaken auto efficiency standards, dump personal rebates on US-made EVs and halt a still-nascent government build-out of EV charging stations.
It seems likely that, within a few decades, stunningly low solar and battery manufacturing costs and virtually free renewable power once the initial investment in equipment is paid off mean that China’s heavily electrified energy system will provide cheaper energy than anything available today. Cheaper than the US, even at $2-$3 per million Btu gas. And it applies even if declining global oil demand undermines Opec-plus’s ability to reliably prop up oil prices and retain a coherent globalized crude oil pricing system.
Fence-Sitter Precarity
So far, the Arab Gulf oil states have managed to successfully navigate the widening China-US political and energy divides, maintaining their decades-old military security ties to the US while their customer base shifts towards China. China also supplies solar, EV and high-tech equipment and, potentially, help in building manufacturing capability, in line with an early 2023 offer to the Gulf states by President Xi Jinping. Such manufacturing is needed alongside sports, futuristic architecture, and stock-market and real estate holdings if Saudi Arabia and the others are to succeed in diversifying their economies ahead of the widely expected eventual crash in the market value of their oil asset base.
But what happens if a trade war between the US and China turns into a shooting war or, less dramatically, perhaps, one side or the other insists on a more exclusive relationship? The US doesn’t need Saudi oil, so China is the obvious choice for the Gulf states. But what seems obvious isn’t always what happens. China’s oil demand peak and its strong links to Russia and Iran will over time diminish it primacy as a buyer of Arab Gulf crude. The timing is uncertain, though, and it’s just as possible that the recent weakening of Iran’s “Axis of Resistance” could push the Saudis toward China, as they perceive less need for the military protection Washington claims to offer. Then again, it could just as well tilt the Saudis and United Arab Emirates back toward the US and Israel as the perceived winners in the latest round of the Mideast power game.
The US seems to have taken some cues from Xi’s 2023 offer of renewable energy and high-tech investment to the Gulf states and has been working to pull these countries into its artificial intelligence loop, including with the promise last April of a $1.5 billion Microsoft investment in the UAE. Israel could become another US-aligned go-to partner in Arab Gulf high tech expansion. Whether Trump will share the US liberal establishment’s interest in overseas investment as a means to spread US power is, however, an open question.
The View From Brussels
Europe’s response to the widening split between the US and China is hard to call as well, but China has a strong hand to play at the energy level. The bureaucracy in Brussels under the center-right leadership of Ursula von der Leyen tilts reflexively toward the US. But the centrists are also all-in for renewable electricity as the solution to the energy cost squeeze resulting from the break with Russian gas and oil that they’re determine to make permanent and complete. And cheap renewable energy means China. Europeans might conceivably build their own EVs. They can no longer realistically imagine a rapid solar or battery-storage build-out without China.
However, that’s the view from Brussels of a globalized world led by the US. That’s not Trump’s world. Or the world seen in many of Europe’s national capitals. The EU members’ own accelerating turn to the nationalist/populist right is friendlier toward China and, in many cases Russia, than is Brussels’ view. So while the hard-right turn could keep Europe more open to fossil fuel use, it might also support Brussels’ inclination to keep the door open to solar and other renewables purchases — or even manufacturing investment — from China.
India’s Perspective
India is another crucial player in the complex, potentially multipolar energy transition. The US has contributed to keeping India’s renewable and EV build-out in a state of perpetual instability by pushing Narendra Modi’s right-wing nationalist government to avoid reliance on China. The US decision to bring bribery charges against Modi’s ally and major renewables developer Gautam Adani is an unusual but potent example, as it weakened India’s attempts to develop a free-standing solar industry. Whether Trump will continue the Adani prosecution remains to be seen. The one thing that seems reliable in this is that Modi will stick with his self-proclaimed policy of pursuing national interest in a multipolar world, in which India’s Brics economic cooperation with China often butts up against its would-be “Quad” military alliance with the US, Japan and Australia.
The pushes and pulls in opposing directions are becoming intense — and are likely to get more so as the years pass.
