Coal presently supplies about 67% of China's commercial energy but its National Energy Administration, 21 March, released its five-year 2011-2016 plan for Chinese coal, which features a near-term peak, and then decline of coal in the energy economy. The world’s largest user and producer of coal intends to limit domestic output and consumption of the commodity by 2017, to reduce pollution and to curb reliance on this fuel, which also faces a rising number of supply problems from reserve depletion to coal import costs, infrastructure and transport needs.
The NEA announced that coal demand growth will be restricted to zero, and consumption to a maximum of around 3.9 to 4.1 billion metric tons a year by or before 2017.
China's coal consumption, including a growing amount of imports estimated at about 25 million tons this year but forecast to increase to 200 million tons a year by 2015, totaled about 3.75 billion tons in 2011. At that rate and for China's estimated 1.33 billion population, this is a consumption rate of 2.8 tons per person a year, which we can compare with the coal consumption peaks attained by early industrializing Europe in the late 19th and early 20th centuries. In 1913 for example, the UK attained its all-time coal peak at about 215 million tons a year. For its 1913 population this was close to 5 tons per person a year. Current US coal consumption of almost exactly 1 billion tons per year yields about 3.3 tons of coal per person each year.
China is the world’s biggest producer of carbon emissions and coal-related pollutants, and its authorities intend cutting both of these by as much as 17% per unit of GDP through the period to 2017, but its coal path remains locked-on to its economic growth. Throughout the period since 2000, Chinese coal demand growth has tracked the economy with a 1-for-1 relationship, resulting in coal demand growing at more than 8% a year, doubling the nation's need for coal every 7 years.
The main problem is therefore China's vast coal energy-dependence, and growing coal import dependence comparable to the OECD group's heavy dependence on declining and high-priced supplies of imported oil.
CHINA MULLS COAL ALTERNATIVES
China's coal demand growth will definitely slow, and reach a set limit, not only because of environmental concerns but also because of China's value-added and technology-based industrial and economic strategy. Coal remains cheap, is basic to iron and steel production, and for electricity production, but has nothing like the flexibility, ease of use and lower environmental impact of oil and gas energy. However, due to China's massive dependence on coal, achieving zero growth for coal by or before 2017 is a difficult goal unless the government substantially trims economic growth and accelerates its programme for phasing out energy-intensive industries, which are hard to reconcile.
Simply due to more than 66% of China's current electricity being produced from coal, with little potential for raising China's already impressive hydro output, and with the gas alternative currently based only on high-priced LNG imports, China's coal demand growth is locked-on to its economic growth. Breaking that link will in no way be easy and the short timeframe for achieving major change may indicate that China will engage a massive energy transition plan away from coal, and may be constrained to import more oil in the short-term.
The Chinese government is considering a wide range of alternatives to coal, both on the economic structure side, and on the energy supply side. China's annual growth of windpower and solar electric generating capacity is now running at about one-quarter of its annual 90 GW increase in power capacity, this annual increase being equivalent to two-thirds of Germany's total installed power capacity, and may rise further. This however will not be enough to achieve transition away from coal, and the nuclear option remains dogged by very high costs and long lead times.
Under any scenario however, Its now official goal of cutting the role of coal energy “significantly” will have major impacts. Coming adjustments to the nation’s energy economy and energy structure, as well as new and tighter environmental protection measures, will cause impacts that can affect global energy.
The especially include China's rapidly building hopes for shale gas development, its alternate energy industries and its oil demand.
China's NEA says that it is able to expand coal production and import capacity by 750 million tons a year in the short term, and might attain an ultimate peak of 4.1 billion tons a year, by about 2015, of which as much as 200 million tons/year could be imported. The role of China's coal imports, for energy traders, is almost as important as China's ever rising import demand for oil. This is due to both of Asia's giant emerging economies, India and China, being increasingly obliged to import coal due to their overstretched national coal mining and transport industries facing cost and infrastructure limits and their mines facing coal depletion issues. At the same time, coal import demand by Europe is rising, despite its clean energy programmes, and import demand remains strong in developed Asia. Coal export prices, which at oil parity would attain about $500 per ton, may however hit a ceiling due to rising LNG gas availability and declining gas prices triggered by US shale gas development, enabling China and India to import more coal at prices that cease to grow.
While costly high-tech LNG infrastructures like regasification terminals are rapidly being built by China and India, the gas alternative to coal for both countries mainly concerns their hopes for domestic shale gas development, but this is not growing at anywhere near the pace needed to phase out coal, or even cover their annual growth of coal demand. The net result is that both coal and oil import demand, by China, will likely tend to grow faster than previously anticipated and forecast.
Despite the Chinese target of cutting the energy intensity of its GDP by 17% over 5 years, coal demand growth has been running at 8% or more, per year, and this sets the "energy gap" for non-coal alternatives at around 300 million tons a year of coal, equivalent to 1.5 billion barrels of oil energy, by or before 2017. Replacing this 0.3 Mtce (tons coal equivalent) with either gas or oil will have major impacts on world energy trades, leaving the green energy and energy conservation option as a major rational choice for Chinese planners.
To be sure, Chinese hopes for shale gas are high, with the US EIA crediting China with the world's largest national resources, but without major gas transport infrastructures and shale gas E&P only at a very early stage, Chinese hopes are not matched by results on the ground. LNG import expansion is also problematic for China, for infrastructure reasons and due to present very high LNG prices for Asian destinations, sometimes above $18 per million BTU, driven by sustained import demand from Japan, South Korea, Taiwan and other ASEAN countries.
As a net result, it is likely China's oil import demand may grow more than currently forecast - rather than tend to stagnate - with major impacts on global oil prices, going forward
By Andrew McKillop
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights
Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.
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