The US secretary of state, Hillary Clinton, says China wants to elbow oil giant ExxonMobil out of the 15 billion US dollar liquefied natural gas project in Papua New Guinea.
Mrs Clinton has told the Senate foreign relations committee that Republican proposals to cut the US foreign affairs budget would hit US efforts to compete with China's rising power on the global stage.
She cited the PNG energy project as an example of US competition from China.
ExxonMobil is the majority stakeholder in the PNG project, which is due to come on stream in 2014 and is expected to produce 6.6 million tonnes of LNG per year.
Mrs Clinton said China was also boosting ties with other states across the Asia-Pacific, including what she called the dictatorial regime in Fiji and other island nations that have long been reliable if little noticed US allies.
She said funding cuts that would require a US pullback on everything from support for global health programs to protection of women's rights could have a serious long-term impact on US influence around the world.