China added 330 gigawatts of electricity from 2005-2008. Some commentators state that China will need to add the equivalent of Britain’s electrical capacity every year for the next several years to keep up with current demands (Britain’s total capacity is 83.6 GW; the US added 105 GW from 2005-07).
China’s government sees energy security as a vital part of their country’s stability, and citizen challenges to already-planned projects that involve power plants, refineries, or hydroelectric dams meet stiff resistance from the Government. Despite this resistance, citizen-input has been present in several cases.
Chinese citizens have used public participation through the involvement of legislators and some alternative dispute resolution techniques in order to influence development of several power projects. Whether ordinary citizens can influence power projects’ development seems tied to local official involvement, face, political power, and potentially the province’s economic wealth.
How Public Influence Works
Public involvement in processes is often expressed through informing legislators who take issues to higher levels and act as “champions” for citizens.
It is rare in China for a citizen to affect power projects’ development by sitting down with officials and a neutral third party agency to determine what will happen. Instead, government officials trade power and influence to decide how power projects will be developed and where they will be placed. Ordinary citizens, however, get involved in the process by informing legislators about issues and hope they take concerns to higher levels and act as “champions” for the citizens.
Citizens Without Power (But About To Gain Power Generation)?
Chinese citizens may protest some power projects, but outright protests tend not to gain positive results.
Citizens protested the building of dams near Pubugou in 2004. These dam projects would result in many citizens in losing their land. Pubugou is located in a poor part of Sichuan where the average per capita income was 12,930 RMB in 2007. Rural residents’ net income per capita was 4,120 RMB. (average per capita income in Beijing was 21,864 RMB in 2006).
“More than 100,000 people protested over several days. . . until riot police crushed the demonstration,” and several people were killed at Pubugou over the development of the planned hydroelectric dam. (Jim Yardley, NYT, 2).
Prior to the rioting, citizens communicated with government officials and lodged complaints when the country decided to construct dams that would flood and destroy land. However, the national need for development preempted those people’s attempts to preserve the status quo, as is detailed in Andrew Mertha’s book China’s Water Warriors.
Citizens With Power (Moving Power Generation)
A different situation prevailed in Guangdong province, where citizens are richer.
Sinopec and Kuwait National Petroleum Company agreed in 2007 to construct the Nansha oil refinery between Hong Kong (xianggang) and Guangzhou in order to ease “the tension of Guangdong’s petroleum supply, [promote] . . . energy security and . . . social stability.”(Yang).
The refinery was estimated to cost around $5 billion to complete, making the project China’s largest joint venture.1 The project would process 15 million tonnes of crude oil a year2 and produce 800,000 tons of ethylene.3 The Nansha Refinery would produce refined crude oil and ethylene.4
Following the project’s approval by the NDRC in 2007, residents inside eight square km of land were removed to make room for the project. However, the project still needed to complete an Environmental Impact Assessment (EIA) and then a half-month public comment period.
An EIA was made, but there was concern that the EIA would not be made public. Groups from Hong Kong lawmakers, to bloggers, to Greenpeace called for the EIA to be made public. The Government pushed back, telling media not to run “comprehensive coverage” of the EIA, but that they would in due time make the report public. (Chloe Lai & Shi Jiangtao, Nansha Refinery ‘Likely to Move’: Delta Petrochemical Plant Could Shift to Western Guangdong After Opposition From HK, Macau, S. China Morn. Post, Mar. 21, 2009.)
Although some citizens hoped the EIA would come out in March; as late as May the EIA was not released. (Wang).
Ultimately, disputes surrounding the Nansha Refinery situation were resolved through general administrative processes and the interference of several political movers-and-shakers in Guangdong Province.
The public push-back against the Nansha refinery found champions in government agencies to support their ideas. There was institutionalized lobbying on the part of 14 Guangdong provincial People’s Congress deputies, but there were no publicized mass protests or marches.
Guangzhou’s Special Champions
The government eventually decided to move the refinery. Government champions were noted for succeeding but little attention was paid to the citizens who initially suggested changes. Lobbying by powerful representatives in Pearl River Delta cities was likely vital to reconsideration of the refinery’s location. (See Chloe Lai & Shi Jiangtao, Nansha Refinery ‘Likely to Move’ Delta Petrochemical Plant Could Shift to Western Guangdong After Opposition From HK, Macau, S. China Morn. Post, Mar. 21, 2009).
Perhaps as a result of public cries for the Environmental Impact Assessment (EIA) report’s release, the report was issued in the same year it was made. This is quite a feat considering that historically, EIA reports have been significantly delayed or not released.
The political power of Guangzhou’s local representatives, when coupled with Hong Kong residents’ affluence and the important central policy of lowering pollution in the Pearl River Delta (PRD) region helped encourage higher officials to sit down with representatives and ultimately decide to to relocate the refinery further west along the coast, to Zhanjiang.
In the wake of the EIA statement, Zhanjiang, a place that only has a yearly GDP per capita of “17,973 yuan (HK$20,400), nearly 20,000 yuan lower than Guangdong’s average”, became the new planned home for the refinery. (Ivan Zhai, Guangdong to Help its Backward West Prosper: Region is Earmarked for Heavy Industries. S. China Morn. Post, Sept. 30, 2009.)
Citizen Involvement and Power Projects in Conclusion
The Nansha refinery case demonstrates that power project permitting can be influenced and local concerns can be addressed when local officials express distaste for nationally approved policies. Local officials’ may have considerable power even when state-owned corporations such as Sinopec are involved in the siting process for large projects.
However, the Nansha Refinery situation could be an isolated case where politics and or money influenced the State’s willingness to conduct, and then release an EIA assessment and relocation, as well as the State’s openness to dialogue.
1 Chloe Lai & Shi Jiangtao, Nansha Refinery ‘Likely to Move’: Delta Petrochemical Plant Could Shift to
Western Guangdong After Opposition From HK, Macau, S. China Morn. Post, Mar. 21, 2009.
2 Zeng, supra note 212.
3 Chloe Lai, Key Report on Nansha Refinery Under Wraps, S. China Morn. Post, Mar. 20, 2009.
4Winnie Zhu, China Approves $5 Billion Sinopec-Kuwait Oil Project, Bloomberg, Dec. 4, 2007, available at http://www.bloomberg.com/apps/news?sid=aP3B6lsQZ3QA&pid=20601080 (last visited Nov. 1, 2009).
Coal accounts for over 70% of China’ energy mix, whereas in the United States, coal is 44% of the energy mix. Below I analyze several reasons why China has such high coal requirements as a percentage of its energy supply and I attempt to explain why China’s coal requirements may remain high for a long time to come.
Just how fast are China’s coal demands rising? According to a study, “offsetting one year of recent coal demand growth of 200 million tonnes would require 107 billion cubic meters of natural gas (compared to 2007 growth of 13 BCM), 48 GW of nuclear (compared to 2007 growth of 2 GW), or 86 GW of hydropower capacity (compared to 2007 growth of 16 GW).” (Lawrence Berkeley National Lab. Study)
(See Part One of this series on China’s Coal and a chart comparing China’s energy use to the United States’ Here).
China has trouble diversifying energy supply sources because it lacks significant natural gas supplies, it is starting from a very low base in installed nuclear power plants, and because of other renewable energies’ technical limitations.
1. China’s Lack of Extensive Natural Gas Supplies
Natural gas provides over 20% of US energy, but China has much less natural gas reserves than are available in the US. The US has 79 trillion cubic meters estimated natural gas reserves, whereas China has 22 trillion cubic meters. (EIA). Natural gas only accounts for 3.5% of China’s total energy supply and it is unlikely that Chinese natural gas utilization will increase to anywhere near the levels that it is used in the United States.
Natural gas generally burns cleaner than coal, so use of natural gas is desirable from both a carbon and a sulfur emission point-of-view. “[I]n 2011, China [hopes to]… raise the ratio of natural gas in its total primary energy consumption by 1 to 2 percentage points. . . . Using natural gas … as opposed to coal, could reduce carbon dioxide emissions by 130 million tons a year and sulfur dioxide emissions by 1.44 million tons a year.”( China’s LNG.)
Still, much of China’s natural gas has a high sulfur content, which makes it expensive to produce in a usable, or clean form. However, unconventional gas reservoirs may increase China’s future output. Not all unconventional resources, however, are included in estimations of producible reserves (such as those given above). “[L]ow permeable gas, coal bed methane, and shale gas are each respectively estimated at 100 trillion cubic meters, 30 trillion cubic meters, and 100 trillion cubic meters.” (China Coal Resource, Sept 2009)
Even fast-increasing development of unconventional gas resources will only marginally affect coal’s dominance of China’s energy supply. A 2005 Oxford study determined that “the share of natural gas in the primary energy supply is predicted to rise no higher than 10 per cent by 2020, even in the most optimistic scenario in which natural gas use is significantly promoted.”
Realizing that its domestic resources may not be enough to guarantee sufficient natural gas supply, China has also planned natural gas pipelines to surrounding countries to import gas. China also constructed several LNG (liquid natural gas) terminals (The Guardian, Watts, 2006; see also p3 Oxford Energy Study for a map of planned LNG terminals as of 2005).
(A more in-depth study on the future of China’s natural gas industry is deferred until another article).
2. China’s Coming Nuclear Additions
Nuclear accounts for 20% of US capacity. China has plans to increase their nuclear capacity from ~1.3% of China’s current energy mix to 5% by 2020. Despite plans to construct the most nuclear plants of any country in the upcoming ten years (and subsequently demanding a great deal of uranium), China will find it difficult to quickly displace coal’s dominance of China’s energy supply.
The United States has over 104 nuclear reactors, built over a thirty-year period. Prior to 2002, China had less than three operating nuclear power plants. Today, China has 11 nuclear facilities and plans to construct at least 20 in the next 10 years. But even with a significant building program, it may not be in China’s energy security interest to rapidly increase its percentage of nuclear power. If a massive nuclear-buildout occurs, large quantities of uranium will need to be imported, and engineers will need to be rapidly trained. A more gradual increase in nuclear capacity may be in China’s best interest rather than a break-neck development speed.
3. China’s On-line Wind Capacity And Renewables
Wind and renewables have steadily increased as a percentage of China’s energy mix, rising from 0.06% of China’s energy mix to 1.3% from 2006 to 2008. Additionally, hydroelectric power capacity has grown significantly in the past three years. “In 2008, the country added 20.1 GWe of hydro capacity” (World Nuclear Ass.)
There are limits to how much any country can depend on renewables, however. Engineers I have spoken with claim that an energy grid can only handle a maximum of around 25% of its power from wind. Wind is a variable source and needs scaling units (other energy sources that can turn on when wind is not blowing) to balance wind’s output. Wind’s average capacity utilization factor is only around 31%. In comparison, Combined Cycle Gas, Nuclear, and Coal steam turbines all rated capacity factors above 40%, according to the Nuclear Energy Institute.
Given current technology, at the most, wind could only account for about a fourth of China’s energy mix- and subsequent developments in battery storage or natural gas scaling units are required to make wind economically viable and reliable. (See China’s Dirty Wind for more on wind and scaling). (See “Capturing the Wind” by the House Research Organization for the Texas House of Representatives for an estimate of the maximum amount of wind that can be integrated onto the grid using existing technology without radical alterations– 15GW; as of 2007 Texas already had nearly 5GW of wind online- which was only about 2% of the state’s energy supply.)
4. Hydroelectric Power
Hydroelectric power has been met with some controversy in China. Although there are environmental concerns, property takings concerns, and rainfall has declined, hydroelectric has a lot to offer China. Over 37 GW of hydroelectric capacity was added in China between 2004 and 2007. An additional 20.1 GW of capacity was added in 2008. China’s total potential hydroelectric rating is one of the highest in the world- at 694 GW. However, only around 171.5 GW of China’s capacity is utilized. China hopes to reach 320 GW of installed hydroelectric capacity by 2020 (Huang, 1658).
Of all potential alternatives to Coal, hydroelectric power will likely remain the number two energy supply source. Hydroelectric power has also done a great deal to reduce the amount of ash, sulfur dioxide pollution, and carbon dioxide emissions.
Although China’s coal consumption is double the number two producer’s amount, China seems to have little other viable options to displace coal as an electricity source in the near term.
China is embarking on ambitious wind and nuclear development programs, and it has built pipelines for natural gas, but these programs take time to develop, and there are drawbacks to all alternative energy sources. Even massive hydroelectric expansions have resulted in environmental and land-relocation controversy (See articles on the Nu River Project and the Three Gorges Dam; specifically see the book China’s Water Warriors by Andrew Mertha).
Coal will likely continue to provide a significant portion of China’s energy for the next 20 years– simply because the alternatives are not practical enough to scale-up large enough to replace coal’s necessary position in China’s energy mix.
These next few years will bring large challenges for China’s leaders as they try to balance energy security, energy demands, resource depletion and environmental concerns. With luck, China’s leadership will use constructive and creative solutions to manage and confront these growing concerns.
The Lawrence Berkeley Lab. Government Sponsored Study of the Chinese Coal Industry (July 2009)
Andrew Mertha. China’s Water Warriors. 2008.
China, Coal, and Energy: Part I
China needs and must use coal to satisfy its energy demands; at least in the near term. In fact, the entire World needs to use coal until more energy is produced using nuclear, hydro and wind…practical systems that do not generally generate large volumes of CO2. Oil, natural gas, and corn/sugar cane alcohol all produce significant amounts of CO2 in their combustion.
Given the upcoming Copenhagen climate talks and inspired by the comments section of a recent WSJ article inveighing against China’s “obsession” with coal, I concluded it might be interesting to compare America and China’s Coal use and to determine what is being done to mitigate China’s coal demand, which if unchecked- according to an article in Science, as reported in Wired- may result in “carbon dioxide emissions… reach[ing] 8 gigatons a year by 2030.” That amount of emissions would equal current total worldwide carbon pollution.
Statistics below are mostly from the US DOE (Department of Energy). World Rank is in Brackets after #. In some cases, links are to articles elsewhere (such as Reuters) for updated information.
|Total Energy Consumption||73.808 quadrillion BTU(’06) (#2)||99.856 quadrillion BTU (2006) (#1)|
|Total Electricity Consumption
||2.835 trillion kWH (#2)||3.873 trillion kWH (2006) (#1)|
|Coal Production||2584.246 MMST (’06) (#1) 2,772.799 MMST (’07) (#1)||1,112.292 MMST (2006) (#2) 1,128.836 MMST (2007) (#2)|
|Coal As A % Energy Mix||70% (‘06/’09)||350GW (2006)
|Average Sulfur Content (Coal)
|Average Ash Content (Coal)||17% (Attwood)||14.6%|
|Nuclear As A % Energy Mix||1% (‘06) 1.3% (‘07) [9.1GW] 1.1% (‘08)||20.4% (2009)|
|Renewables As A % Energy Mix||>1.5% [9 GW] (’08) + 21.64% Hydro [171.5 GW] (’08)||~1.0 +7% Hydro (’06)
3.6% (Sort of) + 7.1% Hydro (’09)
|Natural Gas As A % Energy Mix [Consumption]
||3% (‘06) 3.5% (‘07) [77.18 billion M3] (#11)||23.2% (2009)[657.2 billion M3] (#1)|
|Coal As A % of CO2 Production||82%||36%|
|Carbon Production||6,017.69 mil metric tons CO2 (’06) (#1)||5,902.75 mil metric tons CO2 (2006) (#2)|
Chinese coal production is very high– twice the level of the United States’ production. All this coal production has led to carbon dioxide production, sulfur dioxide pollution, and coal ash pollution. (Detailed in the NYT’s award-winning “Choking on Growth” series).
Given the amount of coal that China produces, and the relatively higher sulfur and ash content of some Chinese coal (MIT article | summary | Green Leap Forward’s Analysis) , the mere slight CO2 production lead that China has over the US is quite interesting– though that is likely in part due to China’s lower automotive emissions. “In , coal combustion accounted for 82 percent of China’s CO2 emissions, and [only] 36 percent of America’s CO2 emissions.” (MIT, 3)
Chinese coal’s average sulfur content was about 1.1 percent, according to an article by T. Attwood in “Market opportunities for coal gasification in China” (Journal of Cleaner Production 11 (2003) 473–479.) (See also 1998 statistics of 1.1% in Thomson, 192). In contrast, “coking coals produced in the United States have … a relatively low sulfur content of approximately 0.8 percent by weight.” (EIA). In 2003, burned American coal rated a 0.93% sulfur content.
China’s coal also has a relatively high ash content- but that percentage appears to have declined over time. 60% of China’s coal used in the late 1990s had an ash content of 25-35%, and some parts of the country saw ash contents of 40-50% (Thomson, 192). In the 1990s in the US, the rate was 14.86%. Apparently China began using coal with lower ash content in the early-2000s, but the content at 17% was still higher than American ash content (Attwood).
Cleaner Coal Plants?
China’s coal plants have installed technology that allows them to reduce their amount of sulfur emissions. A surprising percentage of China’s coal generation power has been improved with cleaner-coal technologies. By the end of 2007, according to some Chinese estimates, over 270 GW of generating capacity had been installed with some form of FGD [Flue Gas Desulfurization] equipment.” (MIT)[and] “state regulations demand that all new power plants as of January 1, 2004, must be equipped with FGD systems and a series of programs have been initiated to insure retrofitting of FGD systems on older plants by the end of the decade.” (MIT).
“[E]missions levels from Chinese powerplants (sic) … “depend almost entirely on the quality of the coal they use. When they’re hit by price spikes, they buy low-grade coal.” Lower-grade coal, which produces high levels of sulfur emissions, can be obtained locally, whereas the highest-grade anthracite comes mostly from China’s northwest and must travel long distances to the plants, adding greatly to its cost. Contrary to what many outsiders believe, the Chinese state has substantially improved its ability to implement and enforce rules on technology standards. It has been slower, however, to develop such abilities for monitoring the day-to-day operations of energy producers.” (MIT Summary)
Some question whether the cleaning technologies are actually being operated effectively, and argue that “regulatory traction is partial at best. The shortfalls appear particularly serious on the operational side of power plants. That is, the systems are increasingly in place, but whether they are actually operated is another question.” (MIT)
So why does China use so much Coal rather than natural gas or nuclear– which account for 40% US energy, but both of which are negligible in China’s energy-mix, accounting for less than 7% of their energy supply?
And is there any possibility that China will increase the amount of cleaner or non-coal generating sources?
Next week, I will provide some analysis into why China needs to use so much coal and the chances that natural gas, wind, hydroelectric generation may reduce China’s Coal dependency and CO2 emissions.
* The October 2008 MIT article mentioned above analyzing China’s coal power industry is well worth the read.
News in the WSJ on Sept 28th reported that China’s wind farms, which as I have noted before* , have some connectivity problems in joining the electrical grid. That information is nothing new, but the rest of the article’s discussion piqued my interest.
Apparently, the Chinese government is planning to ensure ample supplies of wind (even when it is not blowing) by balancing the load not with fast-starting natural gas plants, as some US wind farms utilize to manage the load, but with slow-starting and arguably heavy-polluting coal plants.
What is not common knowledge is that producing power is not as easy as connecting a wind farm into a preexisting grid. Wind power fluctuates and varies and sometimes needs to be shut down/curtailed if wind speeds exceed say 35 mph, or blow at less than around 5 mph. Too much or too little wind on the grid can cause power shortages. (A very basic explanation of load management and peaking is HERE). A news article on the problem of variable loads being matched with hydroelectric power is HERE.
According to NERC, which (under FERC’s supervision) can assess fines and create rules to ensure electricity reliability in the US, “Wind machines “ramp up” and trail off so fast that the grid is likely to need new generators fired by natural gas that can start up or shut down faster than the ones in service now.” (NYT).**
When I read the WSJ article, I could not initially believe what it was saying. For a country run by engineers and geologists, one would think that China would be well aware of the difficulties in cycling up and down different types of power. Natural gas is a good match for wind power because it is easy to cycle up quickly. Coal, however, takes longer to cycle up. For coal to be an efficient match to mitigate the variability of wind power, coal plants will need to be on constantly.
Considering that coal is a relatively cheap source of energy, wouldn’t it be cheaper for Chinese power plants only to invest in coal and run the plants at 100% capacity rather than constructing wind plants while running coal power plants at 50% and then scaling up their use when needed? By matching coal with wind, most potential environmental gains are negated since coal’s emissions constantly flutter into the atmosphere. Still, it could be said that some reduction in carbon output is better than none at all. But the matching of coal to wind certainly drives wind power’s costs up– for China’s economic detriment and only marginal environmental gains. (It could be that China is hoping the build-out of wind power helps them when the Copenhagen environmental carbon market targets are achieved; or that natural gas can be matched to the wind farms after certain pipelines are completed.)***
Why is China using coal instead of natural gas? China simply does not have very much natural gas. (EIA) Natural gas only accounted for 3% of China’s total energy mix in 2006, compared to nearly 70% provided by coal. (EIA). And of that, only 29% was used for electric power or residential and commercial uses as of 2005. (page 4, Yang Dengwei; 32% was used for industrial fuel) This should change, however, due to pipelines that China is constructing from bordering countries that have natural gas surpluses. And of course, Liquid Natural Gas technology also raises the amount of imports that China can receive. By 2011, China hopes to “raise the ratio of natural gas in its total primary energy consumption by 1 to 2 percentage points.” (China Daily). China’s natural gas consumption rose from 50 billion cubic meters in 2005 to 76 billion cubic meters in 2008, to an estimated 86 billion cubic meters in 2009. (China Daily).
I suspect that China may eventually decide to go down the route of battery storage of excess wind power in order to better manage the loads. But battery storage technology is still a bit expensive, “costing roughly $3 million per megawatt plus millions for start-up and testing.” (Scientific American).
When China’s excess natural gas pipeline capacity comes online, the country may also begin greater utilization of natural gas to manage wind’s load, but natural gas supplies will still be dwarfed by China’s coal– and natural gas prices may rise again like they did in Summer 2008. If a majority of China’s natural gas supplies are imported (as appears likely), in order to preserve energy security, Beijing may want to discourage generators from using natural gas to provide safety from wind’s variability. Hydroelectric power could also be paired to wind power. However, hydroelectric power is mostly concentrated in China’s south, whereas much of China’s wind resources are located in the North (Inner Mongolia, Xinjiang, etc.). Perhaps nuclear could balance the wind grid like coal currently does, but most new nuclear plants are to be built on the coast and near China’s south.
It will be interesting to examine how successfully China marries coal to wind generation and what sort of effect this will have on China’s future electricity pricing.
*In my older post I perhaps noted China’s wind connectivity problems a bit too harshly given that the US also has some grid connection problems regarding wind since even more so than in China, a great deal of US wind capacity is far from its citizens and will require long transmission lines to provide wind. This transmission problem helped lead to the demise of part of the Pickens Plan for a massive wind farm in Texas.
**At the very least, “[b]atteries or flywheels, both of which can store energy, may be needed to smooth out the production of wind farms, which stop producing power when the wind stops, or when the wind goes faster than the turbines can handle.” (NYT) [which leads to patents like THIS.]
*** Interesting fact. Due to the need for wind to be matched to more reliable sources of power, wind farms are not 0 carbon emission investments. One study reported that; “Increasing the capacity of wind energy on the Austin Energy grid causes increased usage of these less efficient peaking units. In other words, as more wind energy is generated, there is a drop in the overall efficiency of fossil fuel based energy on the grid, resulting in greater carbon emissions per unit of energy from the nonrenewable sources. . . For purchased wind energy from Austin Energy, with a 20 percent capacity of wind energy, each megawatthour of electricity would increase the emission from the fossil fuel sources by 60 lb of CO2 . While this CO2 emissions rate is lower than the current UT plant emissions of 694 lb/MWh, it is also not zero. Instead of the purchased wind energy being 100 percent carbonfree, the reserve offsets result in 91 percent carbonfree energy” (Is Wind Energy Hot Air?, UT)
Models employed by IEA, the Chinese Government, and the United States Department of Energy estimate, quantify, and predict China’s future energy demands. The estimates range from lowball numbers to significant over-estimates. 2008′s wild swings in commodity prices demonstrated the difficulty of predicting international energy markets. Exponential energy growth models significantly overestimated China’s demand, and a 1996 model failed to predict China’s torrid pace of growth. The methodology behind the World Economic Outlook’s (WEO) predictions have closely tracked reality for the past four years. The WEO provides perhaps the most useful framework for understanding China’s future crude oil demand.
China’s year 2008 crude oil production, at 189 million tons, was the country’s highest ever. China’s oil imports also soared to record levels, at over 164.51 million tonnes imported through 2008′s first eleven months (AFP). Still, China’s oil demand appears to have slowed in 2008′s fourth quarter. Oil is currently 21 percent of China’s energy mix. Yearly, China’s oil imports increase by 5-10 percent. Increasingly, oil gains in importance as part of China’s energy security strategy. Correct models of China’s future energy demands may make China’s future economic and political goals more understandable. Below, three energy demand models are examined and are followed by a data-table.
Exponential Energy Growth Model (Ramirez, Alvarez and Rodriguez- 2005)
China’s future energy demand has been difficult to predict. Models, such as Ramirez, Alvarez and Rodriguez’s (below) depend on exponential growth patterned on prior returns. An exponential growth graph fails to capture nuances of human nature and account for plateauing of demand after an optimum supply-level and equilibrium price is reached. At some point, every society becomes “built out” and its growth slows. Accompanying the reduced GDP growth, crude oil demand likewise declines. Ultimately, exponential growth predictions that do not incorporate an eventual plateau will tend to over-estimate growth.
Exponential models of increased oil demand help provide some answer to the mystery of this summer’s rise to $150/barrel oil. Ramirez’s 2005 prediction of Chinese energy demands in 2010 requires an equilibrium crude price of greater than $120 bbl. Under the Ramirez scenario, China’s requirements rise from 7.6 million barrels a day to 11 million barrels of oil a day in 2010. Even with consumption at 7.6 million barrels a day, China still ranks second highest in world demand to US consumption of 20.68 million barrels a day. If China’s middle class, its economy, and its car culture threaten to grow to US, Japanese, or European levels of consumption per capita, then the world’s oil production infrastructure will be put under a mighty strain.
Moderate Growth Model (China Energy Strategy Study- 1996/CSIS 2003)
In 2003 the Center for Strategic and International Studies (CSIS), presented and commented on the 1996 China Energy Strategy Study’s predictions for China’s energy demand growth. The China Energy Strategy Study significantly underestimated future target figures. The Energy Strategy Study’s predicted energy demands were made before China joined the WTO. The predictions appear to have expected 6-8 percent GDP yearly growth. In contrast, the years 2003-2008 posted near-consistent yearly double digit GDP growth.
The Most Applicable Model for the Near-Term Future (WEO- 2004)
Of the three models for Chinese oil growth, the one with the best track record appears to be the 2004 World Economic Outlook prediction. Although the WEO revises its estimates slightly higher each year, the 2004 and 2006 WEO methodology gives the best model of future Chinese crude oil industry growth.
The WEO’s “reference scenario” approach closely tracks the actual evolution of Chinese crude oil demand. In contrast, Ramirez’s 2005 exponential energy growth model significantly overestimates actual requirements since China’s hyper-expansion slowed. The underestimating 1996 China Energy Strategy Study presumed China would benefit relatively less from international integration and trade than was ultimately achieved.
Chinese crude oil demand also appears to be best tracked by the WEO’s “reference scenario.” WEO projections will likely not underestimate Chinese crude demand since demand is somewhat tied to China’s economic success. Additionally, China’s future economic growth will be tempered by environmental externalities. In 2004, China’s government-created Green GDP measurement demonstrated environmental externalities cost three percent on potential GDP growth. The percentage-cost of environmental degradation is expected to rise as pollution’s harmful effects accumulate and China’s energy demands increase. State policies attempt to mitigate the problems of environmental externalities, but environmentally-friendly policies such as increasing automobile taxes and vehicle fuel-economy standards depress demand growth and discourage consumption.
The WEO’s “reference scenario” also likely does not overestimate China’s crude energy demand. Although the global automobile industry is currently in a retraction period, the annual arrival of hundreds of thousands of Chinese to the middle class presages a continued demand for automobiles and petroleum. Although US car sales plunged an average of 25 percent each month from September through November; Chinese automobile sales in November were only 3.2 percent off from the previous month (China Daily). Still, a sharper drop in Chinese automobile sales could be coming. To prevent that drop, the Chinese government offers valuable incentives for trading in cars (China Daily). Chinese GDP however, is still likely to grow at 6-8 percent in 2009, and as long as oil remains below $120 a barrel, there will be a significant number of citizens who reach the wealth threshold where it makes sense to own and purchase gas for a private car.
- Past experience is no guarantee of future returns, as world stock market investors learned to their chagrin in 2008. The WEO estimates appear to offer good insight into the future, but has the paradigm changed? (Feel free to respond in the comments.)
Actual crude oil demand and future projections given by various sources, including the above-mentioned models.
* Note on converted numbers: There may be some variations between actual amounts and reported amounts. Some “actual amounts” such as the BP and CBC data differ slightly, but by no more than 15 million barrels in any year. In all cases below, I have converted barrels/day to m. tonnes of crude/year. I identify where I convert numbers.
Total Crude Demand (Estimates and Actual)
2050- 520 m. tonnes of crude (1996 Prediction- Barring aggressive adoption of renewable energy or a decline in Chinese standards of living, this is vastly underestimated.)
2030- 746 m. tonnes of crude (WEO 2006, p. 86)
2030- 683 m. tonnes of crude (IEA WEO 2004 as reported by Dr. Tang (see sources).)
2020- 599.7 m. tonnes of crude (Converted from numbers of the DOE IEO 2005 and 2005 East-West Center report in Lieberthal)
2020- 585 m. tonnes of crude (Converted from numbers of the IEE Japan 2004 report in Lieberthal.)
2020- 565.75 m. tonnes of crude (Converted from the IEA WEO 2004 report in Lieberthal)
2020- 563 m. tonnes of crude (3.3% annual growth rate 2011-2020) (April 2008 Xinhua prediction)
2020- 320 m. tonnes of crude (1996 Prediction- Notably equal to 2004 actual data.)
2015- 487.6 m. tonnes of crude (WEO 2006, p. 86]
2010- 536.55 m. tonnes of crude (converted from “Short-term predictability of crude oil markets: A detrended fluctuation analysis approach” by Ramirez, Alvarez, and Rodriguez doi:10.1016/j.eneco.2008.05.006, Energy Economics 30 (2008) (p 2654). Based on 1984-2005 exponential growth activity)
2010- 448.2 m. tonnes of crude (Converted from numbers of the DOE IEO 2005 report in Lieberthal)
2010- 419.39 m. tonnes of crude (Converted from numbers of the East-West Center 2005 report in Lieberthal)
2010- 409.6 m. tonnes of crude [WEO 2006, p86.]
2010- 407 m. tonnes of crude (4.5% annual growth rate 2007-2010) (April 2008 Xinhua prediction)
2010- 385 m. tonnes of crude (Converted from numbers of the IEA WEO 2004 report in Lieberthal)
2010- 355 m. tonnes of crude (Converted from numbers of the IEE Japan 2004 report in Lieberthal; Notably equivalent to 2008 actual data.)
2010- 260 m. tonnes of crude (1996 Prediction- Notably equivalent to 2002 actual data.)
2009- 409.6 m. tonnes of crude (Converted from EIA numbers).
2008- ~354+ m. tonnes
2007- ~345 m. tonnes
2004- 323.39 m. tonnes. converted. (CBC) & BP 2005.
2003- 270.47 m. tonnes. converted. (CBC).
2002- 251.49 m. tonnes. converted. (CBC).
2001- 239.8 m. tonnes. converted. (CBC) .
2000- 233.97 m. tonnes. converted. (CBC) & BP 2005.
2050- 80 m. tonnes of crude. (1996 Prediction, perhaps lowballed.)
2030- 136.5 m. tonnes of crude. (WEO 2006, p. 92)
2020- 180 m. tonnes of crude. (1996 Prediction, notably equivalent to 2006 actual data.)
2010- 165 m. tonnes of crude. (1996 Prediction, notably prior to the Bohai Bay discovery, and equivalent to 2004 actual data)
2010- 185.3 m. tonnes of crude. (WEO 2006, p. 92)
2008- 189 m. tonnes of crude (Up 1.6%) [Xinhua Jan 2008]
2007- 186.7 m. tonnes of crude (Up 1.6%) [China Daily Jan 2008]
2005- 175.5 m. tonnes of crude (WEO 2006, p. 92).
2000- ~155 m. tonnes of crude
2050- 440 m. tonnes of crude. (1996 Prediction- frightening energy security situation for Beijing if this is underestimated.)
2020- 429.24 m. tonnes of crude. (2005 DOE IEO estimate in Lieberthal. Converted.)
2020- 346 m. tonnes of crude. (2004 IEA WEO estimate in Lieberthal. Converted.)
2020- 140 m. tonnes of crude. (1996 Prediction- Vastly Underestimated)
2010- 224 m. tonnes of crude. (2006 WEO Prediction, after I run the numbers.)
2010- 95 m. tonnes of crude. (1996 Prediction- Vastly Underestimated)
2008- 164.51 million tonnes (In 1st 11 months- 9.5 percent growth; (Reuters Dec. 2008) Note: Q1 and Q2 posted an 11 percent growth at 90.53 m. tonnes)
2007- 159.28 m. tonnes of crude imported [China Daily Jan 2008]
2004- 120 m. tonnes of crude imported. [China Daily Nov 2005]
2000- ~50 m. tonnes (IPR Strategic Business Information Database)
China’s Oil Demand Deficit
|2000||233.97 m. tonnes.||~50 m. tonnes|
|2004||323.39 m. tonnes.||120 m. tonnes|
|2008||354+ m. tonnes.||164.51 m. tonnes.|
|2010 (Xinhua & WEO predictions)||407 m. tonnes.||210-230 m. tonnes (surpasses 50%)|
|2020 (Xinhua & WEO prediction)||563 m. tonnes.||340-400 m. tonnes (around 75%)|
(*”PetroChina, like many European oil companies, measures its output in tonnes instead of the US standard of barrels.”)
- Gill, Bates and Matthew Oresman. “China’s New Journey to the West: China’ Emergence in Central Asia and Implications for U.S. Interests: A Report of the CSIS Freeman Chair in China Studies.” Center for Strategic and International Studies. Washington, D.C. August 2003. 25. [Analyzing the 1996 China Energy Strategy Study].
- “China says 2008 crude production up 1.6 pct: state media” AFP. December 2008.
- Lieberthal, Kenneth and Mikkal Herberg. “China’s Search for Energy Security: Implications for U.S. Policy.” NBR Analysis (National Bureau of Asian Research) April, 2006. 12.
- Tang, James. “With the Grain or Against the Grain? Energy Security and Chinese Foreign Policy in the Hu Jinato Era.” October 2006.
2008 was a rocky year for energy markets. Oil soared to $140/barrel, and then crashed to $40. Natural gas spot prices likewise jumped high to $13 MMBtu, then ended low around $6 (EIA). Investors, lulled by impending $200/barrel oil, poured record cash into renewable energy.
Below are some numbers from 2008′s first three quarters of China’s cleantech energy investment and development. The fourth quarter will probably post much smaller investment gains.
Venture capital investment in Chinese renewable energy quintupled in the first three quarters of 2008, rising from US$29.1 million in the same period in 2007 to US$165 million this year (MarketWatch).
Solar electricity generation-related venture capital investments raised US$85.2 million in China, up from under $4.6 million in 2007 (MarketWatch). The top energy capture efficiency of China’s photovoltaic cells is around 21% (PV Report, p41), which is competitive in the industry. Solar energy industry growth will likely be much slower in 2009. Businessweek cited concerns that worldwide solar growth may slow to just 15% in 2009, off from the 50% growth the industry has enjoyed every year since 2004.
China accounts for 11% of the market demand for solar power equipment. The US represents 9% and Germany dominates the industry with a 38% demand (Businessweek).
China produces significant solar photovoltaic capacity, but as of 2007 more than 90% of China’s local solar power manufacturing is likely exported (PV Report 2008, p11).
China’s Wind industry likely added an expected 7 GW of capacity in 2008,* which allowed China to leap-frog India into fourth place among countries with installed wind power. Comparatively, the United States added 7.5 GW (ABS Energy Research). Global wind energy installed capacity was 94 GW at the end of 2007 and may reach 120 GW by the end of 2008 (ABS and p 15 of the Global Wind Energy Outlook). 20 GW of capacity was added worldwide in 2007- 3.3 GW of that in China (Cleantech).
* NOTE: 1/10/2009 Caijing recently reported the actual added capacity was 4.66 GW.
China’s domestic manufacturing capacity of wind turbines and equipment consisted of 40 manufacturers at the end of 2007. Chinese manufacturing accounted for 56 percent of global wind equipment installed that year. As of 2008, “Domestic manufacturing capacity is about 8 GW and is expected to reach 12 GW by 2010.” (Cleantech).
The Chinese wind power market has changed significantly in the past four years. In 2004, 75% of the market demand was filled by foreign suppliers, in 2006 only 55% was, and in 2007 foreign suppliers’ share fell to 42.2%. Only 1.7% of capacity is constructed by joint ventures, the rest of capacity is produced and installed by Chinese companies. (p20). In that same time period, the China market has seen total installed wind capacity rise from under 1GW to 8GW.
Nuclear Power. China’s nuclear industry remained steady at 9GW of installed capacity as of December 2008. Nuclear energy accounts for about 1.3% of China’s total energy generation mix.
If you were inspired by China Comment’s article, “Pipelines to Partnerships,” I am interested in hearing your opinions of the feasibility of future international Chinese oil and natural gas pipelines. To help facilitate the discussion and feedback, I have a little poll here:
I am looking forward to reading the reasoning behind your choices.
Feel free to write in the comments section. Registration is not required, however, it may take a few hours for your first comment to appear, I must manually approve all first-time posters.
Thank you for taking the time to read, participate, and comment on China Comment!
Note: Update on the Russia-China pipeline. There are hopes it will be completed by 4Q 2009, but that early a date for completion seems increasingly unlikely.
China will build a further 150,000 km (93,000 miles) of oil and gas pipelines in the next 12 years, the official Xinhua news agency said on October 19th” (Reuters). These pipelines traveling within the country, and others which travel without carry oil, and geopolitical implications.
Below, I examine where China’s internationally-destined pipelines are going, examine the feasibility, and postulate what the pipeline developments mean for China’s future development.
Chinese Pipelines, Comparatively
China has a relatively developed system of oil and natural gas pipelines, but there is a great deal of room for improved coverage and efficiency. According to the CIA World Factbook, in 2007 China had 26,344 km of gas, and 17,240 km of oil pipelines. Comparatively, Russia in 2007 had 158,699 km of gas, and 72,347 km of oil, and the United States in 2006 had 244,620 km that carried petroleum products, and 548,665 km carrying natural gas. The United Kingdom, a much smaller country than China, had 18,980 km of gas and 4,930 km of oil pipelines.
If China’s goals are reached, in 12 years, the total length of its pipelines will reach around 193,000 km, still much less than the lines in the United States or Russia.
A great deal of China’s planned internal pipeline length will be achieved due to the construction of a West-East pipeline, pumping natural gas from Xinjiang to Guangzhou. The project will cost around $20 billion, and cover over 9,102 km.
There are great opportunities for natural gas expertise and development in China. According to Xinhua, “the country planned to raise the ratio of natural gas in its energy consumption by 2.5 percentage points to 5.3 percent by 2010.”
Overview of Expanding Chinese International Energy Pipelines
(This is by no means an exhaustive list; but it is extensive.)
Kazakhstan-China Oil Pipeline (Atasu-Alashankou pipeline)
November 2005; Expansion completed by 2009-2011.
Length: 962.2 km (600 mile) from Atasu in Kazakhstan to the Alataw Pass of Xinjiang. (Planned additional 700 km expansion to link to the Caspian Sea.)
Cost: $700-800 million shared between China and Kazakhstan.
Capacity: 5-20 million tons of oil a year.
What It Carries: “In 2005, China imported 1.3 million tons of crude oil from Kazakhstan via Alataw Pass.” (People’s Daily). By 2007, that number rose to 6 million tons (Upstream Online).
Future Developments: In August 2007, China and Kazakhstan agreed to extend the pipeline by 700 km (435 miles) westward to link it to the Caspian Sea.
(From: People’s Daily, May 25, 2006, China Daily, July 21, 2006, and Reuters, August 18, 2007.)
Length: 10,000 km. It originates in Turkmenistan, runs through Uzbekistan, southern Kazakhstan, and then enters China (People’s Daily, September 20, 2008). Stage I of the Uzbek part will be finished by Jan. 2010. Stage II finished by Jan. 2012 (RIA Novostoi, April 2008.) The Kazakhstan section began construction in July 2008, and phase I should completed by June 2010. “The first segment of the [Kazakh section of the] pipeline will go from the Uzbek-Kazakh border to the Kazakh-China border through Shymkent, the administrative center of the South Kazakhstan region and reach China’s Horgos” (From: New Europe, July 21, 2008).
Cost: $7.31 billion. (New Europe, January 5, 2008).
Capacity: Upon its completion and full utilization in 2013, the pipeline will have an annual transmission capacity of 30-40 billion cubic meters of natural gas (People’s Daily, September 20, 2008). These supplies should last for 30 years. Initially, 4.5 billion cubic meters will be pumped annually. Completion of Kazakhstan’s “second segment (Beineu – Bozoi – Kzyl-Orda – Shymkent) will have an annual capacity of 10 billion cubic metres and a length of 1,480 kilometres” (New Europe, July 21, 2008).
Of Note: Turkmenistan sells nearly half of its natural gas to Russia, around 40 billion cubic meters a year of the 70 billion cubic meters of gas a year it produces. By constructing this pipeline toward China, Turkmenistan gains access to a source that is willing to pay more for its gas, and loosens Russia’s hold on its economy, while bringing Turkmenistan closer toward China’s sphere of influence.
Also see: Silk Road Intelligencer, July 9, 2008 and Asia Times Online, July 17, 2008 and China’s Pipeline Diplomacy.
Russia-China Gas Pipeline (Altai Gas Pipeline Project)
(2011 previous plan; 2013 is now a more likely date due to diplomatic and economic hangups between China and Russia over the price of natural gas from the pipeline and its route. If however, a 2015 goal of piping gas to South Korea is achieved, an earlier constructed Chinese spur would seem rational. (Also see the WSJ))
This on-again, off again pipeline finally seemed ready to be deployed when resource and energy prices reached stratospheric levels during Spring 2008. However energy price drops, expansion of China’s energy supplies vis-a-vis domestic and Turkmenistani projects, and a worldwide economic slowdown have resulted in Russia rethinking the deal. According to an Oct. 8, 2008 Forbes article, “Russia will delay the construction of proposed gas pipeline to China due to competition from other gas sources in the Chinese market,” such as the new Central Asia Gas Pipeline.
Cost: $14 billion.
Capacity: 30 billion cubic meters/year. (10 billion cubic meters/year in the alternative South Korea-only plan.)
(Reuters’ optimistic September 10, 2008 article on the subject.)
Note (Update 10/29/2008) Despite delays in the natural gas pipeline; the ESPO oil pipeline spur, which will cost around $800 million and deliver 300,000 b/d should be completed sometime in mid-late 2009; although as often seems to happen with Russia-related projects, disputes and delay have arisen as of mid Nov/2008. When oil prices start rising again though, the parties will likely give/take more in negotiations. That would place pipeline completion around mid-late 2010.)
Pakistan-China Gas Pipeline
This pipeline would provide China with an alternative transportation route to the easily blockaded Strait of Malacca. However, a solely Pakistani-Chinese pipeline is more of a distant future hope than any short-term reality. Given Pakistan’s unrest and general difficulties, it will be difficult to safely tap the country’s resources or make any extensive long term investments.
Information on the pipeline’s proposal is from: (Xinhua, April 30, 2007).
Iran-Pakistan-China Gas Pipeline
(Construction begins May 2009? Completion June 2014?)
This pipeline is significantly more likely to be built than a solely Pakistan-China pipeline since Iran has better developed energy infrastructure than Pakistan and can supply the needed resources. However, there is danger that the pipeline in Pakistan may suffer damage due to terrorism or internal unrest much as pipelines in Iraq have been plagued by terrorism. Originally, the pipeline was planned to go to India, but has been held up for various reasons.
Cost: $7.4+ billion.
(More information at Stratfor; February 11, 2008. AND the Tehran Times, October 20, 2008; A March 30, 2008 Heritage Foundation backgrounder on the history of the original planned 1993 Iran-Pakistan-India Pipeline.)
Myanmar-Yunnan Gas Pipeline (Kyaukphyu-Kunming)
(Under negotiation and feasibility study. Plausibility of near-term development… low due to stability concerns, especially post-cyclone. Plausibility of development 2010-2012 medium to high depending on international natural gas prices and stability of the region.)
UAE Oil Pipeline (Habshan-Fujairah Main Oil Pipeline)
(March 2008 Construction begun; March 2010 completion.)
Length: 360 km.
Cost: $1+ billion.
Capacity: 1.5m bpd/oil.
Notes: “In early 2007 the China Petroleum Engineering and Construction Corporation (CPECC) signed an agreement with Abu Dhabi’s International Petroleum Investment Company to build a pipeline that would bypass the Strait of Hormuz… Still, when completed, it will be a drop in a bucket compared to the 17 million bpd of crude oil that pass the Hormuz Strait today.” This pipeline is important because it helps alleviate threats that Chinese oil will be blockaded should the international diplomatic situation degrade.
(Pipeline Information from Here. and Yitzhak Shichor writing for Jamestown in September, 2008.)
Importation of foreign Natural Gas is not essential to the growth of China’s energy industry since it accounts for less than 5% of China’s energy mix, but the addition of pipelines carrying up to 40 billion cubic meters of natural gas apiece would nearly double current Chinese capacity.
In 2006, China received 69.6% of its energy from Coal, 21.1% from Oil (350M tons; 183.7M produced domestically, around 47% imported), 5.8% from Hydroelectric, 2.7% (~3% in 2007) Natural Gas (55.6B cubic meters- in 2007 this rose to 69.8B cubic meters), 0.8% (1.3 % in 2007) from Nuclear Energy (9.6 GW), and 0.4% (0.7% in 2007) from Wind (5.6 GW), and [data from: Rosen (17), and China Daily (2006) with some updating.]
China‘s natural gas output in 2005 was around 48 billion cubic meters, in 2006 it was 58.6 billion cubic meters (China Daily, October 2007), and it was 69.8B cubic meters in 2007. “The government plans to increase the figure to 80 bcm by 2010 and 120 bcm by 2020… the expected demand [is] 120 bcm per year by 2010 and [150-]200 bcm by 2020.” (China Daily, Dec 2005)
Beijing will receive a relatively large chunk of Turkmenistan, Kazakhstan and Uzbekistan’s natural gas and oil, which will strengthen Beijing’s influence in the SCO (Shanghai Cooperative Organization) economic and defense grouping of Central Asian states. Beijing’s rising importance in these countries’ GDPs will lead to declines in Russian and American power, and present multiple diplomatic options for these countries.
Through its energy diplomacy and economic influence, Beijing appears to be creating a multi-polar near-term future for the Central Asia-East Asia world. A few years after the pipelines are completed at at capacity and the gas and money are flowing along the routes (perhaps as early as 2012), Beijing will become integral to these relatively small economies which may become increasingly less amenable to hosting Russian or American military bases or exercises without extremely viable compensation.
Beijing already surpasses the US in trade partner significance to several Central Asian States, trading $12 billion in 2006 (CRS, 71) with the region, compared to 2006 US trade of slightly over $2.3 billion with the region. (Data from HERE, HERE, HERE, HERE, and HERE for exports; HERE for imports)
The Central Asian states need Beijing more than Beijing needs them so it will be interesting to see what diplomatic initiatives China may enact and what diplomatic repercussions these energy shifts will have if Beijing attempts to exercise its soft power, especially as energy resources are diverted from Russia, economies become tied to China rather than Russia or US-Allies, and Iran finds a new source for its gas pipelines.
* China’s Pipeline Diplomacy. Deals with the reprecussions of China’s energy investments in the Central Asian States and what it means for their economies and ties to Russia.
* IAGS Global Energy Security.
* Iran’s Major Oil Customers.
* Kazakhstan’s Plentitude of Oil. Estimates of production of 3.5 million barrels per day (174 million tonnes) by 2020.
* Oil and Gas Industry Terrorism Monitor.
* Pipeline and Gas Journal’s October 2007 International Pipeline Report, and international trend analysis.
Also please see; Natural Gas Development, chinacomment’s prior treatment of the natural gas industry.
Hugo Chavez and Hu Jintao met on September 24, 2008 and signed 12 cooperative deals dealing with “trade, oil, finance, education, justice, telecommunications, infrastructure, sports and cultural relics” (Xinhua). The economic and oil agreements appear to be the most politically important since Venezuela is aggressively attempting to diversity its options in dispersing its abundant supplies of heavy crude oil.
Below, I explore possible effects of Chavez’s goal to ship 1,000,000 barrels of oil a day to China by 2012.
Amount of Trade / Growing Cooperation.
In 2001, China and Venezuela established a joint trade “committee [that] aims at consolidating and strengthening trade cooperation. “ (Xinhua), which helped China become one of Venezula’s five largest trading partners. The US, Brazil, and Colombia are among the others. China’s money, however, mostly travels toward the EU, the US, Japan, and the ASEAN nations (People’s Daily).
Year on year, China’s trade with Venezuela is steadily increasing. “Bilateral trade in the first seven months reached $6.23 billion, compared with $5.9 billion for all of 2007, Foreign Ministry spokeswoman Jiang Yu said” (Bodzin and Wang, Bloomberg).
Below is a chart examining the rise in trade between China and Venezuela.
Total Exports to China
Total Imports From China
Oil To China
|2000||>200 million total||from (p202)||—|
|2001||>350 million total
|2002||400-500 million total||from (p202)||—|
|2003||543 million||199 million||—
|2004||738 million||596 million||12,300 b/ day|
|2005||1,234 million||908 million||50,000 b/day (est.)|
|2006||2,622 million||1,698 million||~150,000 b/day|
|2007||3,014 million||2,835 million||200,000 b/day|
|2008||6.23 billion total||Through July (Bloomberg)||364,000 b/day|
|2009 (est)||> 8 billion total||est.||500,000 b/day|
(Unless otherwise indicated, data is from China Daily July 5, 2008; figures in USD.)
“Heavy” New Agreements
In the September 25th agreements, “Hu said China would like to deepen “all-phase and integrated” oil cooperation with Venezuela, encourage businesses to invest in Venezuela and establish a trade zone. China will also participate in building Venezuela’s infrastructures, including railway system, telecommunications network, social housing and hydro-power” (Xinhua). Additionally, China and Venezuela plan to construct two refineries, one in each country (Oil and Gas Journal).
Venezuela hopes to make 1,000,000 barrels/day in oil deliveries to China by 2012. The Venezuelans have been working diligently toward that goal; “In the first 7 months of 2008, Venezuela exported 5.18 million tons, or 38 million bbl, of crude to China—an increase of 93.8% over 2007.” (Oil and Gas Journal).
To facilitate cooperation and investment, China and Venezuela set up the “Joint Financing Fund, also known as the “heavy fund”” in early 2008 with capital of $6 billion (China Daily) [$4 billion of which was provided by China]. On September 25th, the countries agreed to double the investment to $12 billion (Shanghai Daily).
A market research report by Business Monitor International expects Venezuela will increase its 2008 production from 2.75 million b/day in 2008 to oil and gas liquids production of 2.93 million b/d by 2012. Internally, “[c]onsumption is forecast to increase by around 3% per annum to 2012, implying [domestic] demand of 675,000 b/d by this point. The export capability would thus be about 2.26mn b/d by 2012″ (*A).
Crude Predictions / Feasibility
Logistics of shipping the distance from South America to China will be important to overcome. To in-part facilitate this obstacle, “the two have a shipping joint venture that will build the shared very large crude carrier” (Guardian). Still, according to the Heritage Foundation, the largest supertankers cannot pass through the Panama Canal, which increases costs of oil transport from Venezuela to China. Expansion of the Panama Canal should be completed by 2014. Expansion will expand the current locks from “33 metres (108 feet) wide” “The new locks would be 50 metres (150 feet). A third lane of traffic would be able to handle the wider loads” (BBC; also “Brazil’s Passage To China“).
It is important to retain a sense of perspective about Venezuela’s importance to China. China wants Venezuela’s oil, but Venezuela currently supplies only 4 percent of China’s total oil imports, according to a quotation by a Chinese government official on Bloomberg, but from data elsewhere it appears the number is closer to 10 percent. [Forbes clarifies that Bloomberg misunderstood the quotation- China receives 4% of Venezuela's crude exports.] China imports about 46% of its oil needs (Xinhua).
In 2007-08, China mainly imported oil from Saudi Arabia (656,000 b/d, 17.92%of its total oil imports) and Iran (433,000 b/d, 11.83%) among others (Shichor, Jamestown).
In 2006, China’s oil imports mainly came from; Angola (~500,000 b/day), Saudi Arabia (~470,000 b/day), Iran (~350,000 b/day), Russia (~350,000 b/day), and Oman (~220,000 b/day). At that time, Venezuela’s supplies of oil did not even rank among China’s top five suppliers. (Data from the EIA).
Zweig, David and Bi Jianhai’s important article; “China’s Global Hunt for Energy.” (Foreign Affairs. Sep./Oct. 2005. 28.) noted that, as of 2004/5, China had relatively diverse sources of oil imports. China’s largest four oil suppliers accounted for the following percentages of China’s imported oil; Saudi Arabia (14%), Oman (13.3%), Angola (13.2%), and Iran (10.8%)).
Still, China’s oil import demands are rising and were up 14.7% in 2007. Every year, Venezuela supplies greater and greater amounts of oil to China, from a mere 50,000 b/day in 2005 to over 300,000 b/day in 2008.
Consequences. Can Hugo Shift to China?
Hugo Chavez needs other places to sell his oil if he plans to act on his anti-American rhetoric (PINR). Currently, though, the US is very important to Venezuela’s economy. “The U.S. buys about two-thirds of Venezuela’s daily exports of 2 million barrels,” which works out to about 1.3 million-1.5 million b/day (Bodzin and Wang, Bloomberg). As of 2005, over 60% of Venezuela’s oil exports went to the United States and was the United States’ fourth-largest oil supplier (Bajpaee, Jamestown). Interestingly, however, “U.S. imports of Venezuelan oil fell by 11.7 percent to a five-year low in the first four months of the year” (IHT).
The US is Venezuela’s largest trading partner, and Venezuela is the US’s 9th largest trading partner in terms of imports in 2006 and 2007. Venezuela accounted for over 37,000 million in trade in 2006 and 39,000 million in trade in 2007. In 2008, partially due to oil’s price spike, trade was up 58.5% to 32,000 million by July 2008, according to the Industry Trade Association of the US Dept. of Commerce.
China’s purchases of 364,000 b/day from Venezuela is about 1/4th of US purchases. Currently the United States is more attractive for Venezuela to ship to because the US has refineries which can deal with heavy Venezuelan crude, and the United States is much closer and cost-effective for Venezuela to ship toward.
Chavez interestingly claims that “Venezuela won’t suspend crude exports to the U.S. on increased supplies to China” (Bloomberg). If both the Chinese and the Venezuelans make significant investments in developing Venezuela’s oil fields, this will be possible. In fact, “PDVSA hopes that Chinese oil companies [alone] will produce at least 400,000 barrels of crude a day in Venezuela by 2011.”
However, President Chavez’s highly socialist economic policies might cripple indigenous Venezuela PDVSA investment into oil field development and refining. Although Venezuela may intend a “win-win” situation, the reality might turn into a zero-sum game where Venezuela gradually decouples crude shipments away from the United States’ heavy oil refineries (which refine nearly a third of Venezuelan heavy crude), and directs them toward domestic and Chinese refineries.
It is important to note that with expected growth of only 200,000 additional barrels/day expected by 2012, Venezuela may redirect oil and further decouple its economy from the United States in order to meet its self-imposed ship-to-China obligations.
As a result of its closer economic relationship with China, Venezuela appears to be purchasing political “cover.” The less its economy is dependent on America’s, Venezuela can more deeply pursue Chavez’s Bolivarian Revolution. It seems this deal mainly benefits Venezuela in its short term goals of independence from American economics.
In the long term, China gains a diplomatic ally, influence in South America, a guaranteed crude supply (because few countries can process Venezuela’s heavy crude), respect as an international economic leader, and gains expertise in heavy crude refining.
* China and Venezuela political relations (until 2003) from China’s Consulate in New Zealand.
* China Daily’s China-Venezuela Special (July 5, 2008).
* Another EIA article on Venezuela, with information on refining capacity (October 2007).
* (Added October 12) Forbes looks at China-Chavez relations (Oct 1, 2008)
(*A) Also of note; “Between 2007 and 2018, we are forecasting an increase in Venezuelan oil production of 23.2%, with liquids volumes rising steadily from 2.72mn b/d to 3.35mn b/d.” Business Monitor International Report.
Resources buried under Xinjiang account for over 20% of China’s future petroleum reserves, over 40% of its coal reserves, and Xinjiang has potential for large uranium deposits. Recent terrorist attacks and instability in Xinjiang makes it worthwhile to examine just what the Chinese have of interest in the region. Below, I explore the importance of Xinjiang’s security to Beijing’s energy policy. (Examination of a political point-of-view calculation will have to wait until later.)
An Overview of Xinjiang’s Energy Resources
“Xinjiang’s annual oil and gas equivalent output… ranks the first in the country… The third national resources evaluation shows that: Xinjiang’s total oil and natural gas resource reserves exceeded 30 billion tons… Recently, Xinjiang has been producing 75,000 tons of crude oil daily, occupying 14.4 percent of the country’s daily crude oil output. In 2007, Xinjiang’s oil and gas equivalent reached 44.94 million tons” which was the highest production value of all Chinese provinces” (People’s Daily).
“Xinjiang produced 26.4 million tons of crude oil and 21.2 billion cubic meters of gas last year, or 43.3 million tons of oil equivalent, representing a rise of 13.6 percent from 2006. [Note, these estimates differ slightly from People's Daily's estimates] As a result, Xinjiang, with estimated reserves of 20.8 billion tons of oil and 10.8 trillion cu m of gas, has been designated as a strategic area to replace Heilongjiang [in the Northeast] in China’s oil industry” (Stephen Blank, Jamestown).
“[B]eneath Xinjiang’s dusty soil and mountainous steppes lies buried 40% of China’s coal reserves. Equally abundant and far more precious to the central government are oil and natural gas deposits that total the equivalent of about 30 billion tons of oil and represent one-fourth to one-third of China’s total petroleum reserves” (Peter Navarro).
* A short, four page report on Xinjiang’s energy potential by the WSI (World Security Institute).
“It is predicted that during the 11th Five-Year Program period (2006-10), in the Zhundong area of eastern Xinjiang, the total installed capacity to be constructed – based on coal resources there – will reach 8.8 million kilowatts, and that of coal-to-methanol, coal-to-olefin, and coal-to-oil projects will total 7.6 million, 1.96 million and 3 million tons respectively. The aforesaid projects are expected to generate sales revenue of some 55 billion yuan (US$7 billion) after going into production… In 2006, raw-coal output in Xinjiang increased by some 3.6 million tons over 2005″ (Asia Times).
“In accordance with the region’s 11th Five-Year Program, by 2010 Xinjiang’s raw-coal output is expected to exceed 100 million tons, and its installed capacity to top 10 million kilowatts” (Asia Times).
Xinjiang’s Natural Gas
“The Tarin Basin alone has proven reserves of over one billion tons of crude and 59 billion cubic meters of natural gas” (Martin Andrew, Jamestown Foundation).
Xinjiang is also home to the Dabancheng wind farm, one of the largest in China, and has potential for much more wind power expansion. And “The Ala Mountain Pass region… will have an installed base of wind farms totaling 1 GW” by 2015 (Renewable Energy World).
“(Although significant power-grid transmission to the East would be a logistical problem to overcome.) “Currently, the total wind power capacity installed in Xinjiang accounts for 20% of nationwide capacity installed… The total capacity is estimated to reach 43.8 million kW, which can generate 1 00 billion kWh of electric power and is nine times of the current electric power generated in Xinjiang” (World Security Institute).
Energy Security and Transportation
* “The 2008 People’s Republic of China (PRC) White Paper on Diplomacy placed energy security as a major centerpiece of the country’s foreign policy…The White Paper specifically emphasized that China is currently the world’s second largest producer and consumer of energy, and therefore an indispensable part of the global energy market, and is increasingly playing a prominent role in ensuring global energy security” (Russell Hsiao, Jamestown).
* “Central Asia can serve as a transshipment area for Middle East oil should war ever break out over Taiwan or China’s various claims for oil reserves in the South China Seas” (Peter Navarro). Pipelines through Xinjiang connect China with Turkmenistan, Kazakhstan (2010), and also run through Uzbekistan. It is vital to China’s energy security that these energy pipelines are secured.
* Crude Oil reserve bases are also located in Xinjiang, which will be useful if coastal oil reserves in Zhejiang or Fujian come under fire due to a Taiwan conflict.
* Xinjiang’s vast resources can help China wean itself off of foreign countries’ energy. If developed properly, and if China restrains its energy consumption, the country can continue to possess a modicum of energy independence.
Security of Xinjiang’s resources is central to Beijing’s strategy of becoming a developed nation. Without Xinjiang’s resources, the Chinese would depend even more on the vagaries of the Malacca Strait for transshipment of energy. Russia’s new pipeline into China will help alleviate some of China’s dependence on pipelines through Xinjiang, should said pipelines become plagued by sabotaguge (which is unlikely). Additionally, more energy diversification is planned with expansions of China into Myanmar energy.
Still, China’s domestic energy hub for the future is Xinjiang. Its supply of energy to the rest of the country is disproportionate to its population and its wealth. Because Xinjiang is key, China will continue to be harsh in its crackdowns against splittists, terrorists, and overly zealous religion adherents.
China faces energy shortages. There has been power rationing in Shanghai, Hubei, and elsewhere this year. “China has forecast a power shortfall of 10 gigawatts for the summer, about 1.4 percent of installed capacity” (Reuters). Concurrently while boosting capacity, the country is struggling to achieve its stated goal of a 20% increase in energy efficiency from 2005 through 2010.
Steps have been taken to ensure that China’s energy efficiency goals are reached, but ultimately, it appears the Chinese will fall short of realizing their goal. Still, in striving, the Chinese government may realize that placing price caps on energy producers can actually harm the environment. As a result, China may come to allow market forces to dictate energy pricing- to a point. By doing this, China could finally succeed in chasing inefficient factories to other countries.
In 2005, China drafted a plan to increase energy efficiency per unit of economic output 10% by 2010. “In 2006, the first year of the plan, the country’s reduction in energy intensity… was a mere 1.23%. For the first half of 2007, this figure was close to 3%… but that’s still short of the 4% reduction needed each year from 2006 to 2010 to achieve the goal” (Forbes).
“In 2005, China’s energy consumption per unit of GDP was… more than three times the level of the United States, more than five times that of Germany and eight times that of Japan” (Xinhua); specifically, “the energy intensity of China in 2005… was 35,766 British thermal units per U.S. dollar. In the U.S., the Btu/dollar ratio was 9,113. In the U.K. and Japan, the figures were even lower, 6,145 and 4,519 respectively” (Forbes).
Interestingly, unlike the US, which utilizes energy on a massive scale- about 7.794 kgoe/person as of 2003, China’s consumption per capital energy consumption is still only 1.1 kgoe/capita in 2003, which rose from 0.946 kgoe/capita in 2000, and 0.791/capita in 1990.
Also, “in 2005, China’s per capita commercial energy consumption was about 1.7 Mtce, only two thirds of the world average” (People’s Daily).
Since China currently uses such low amounts of energy per capita despite being vastly energy inefficient, it will be crucial for China to modernize its energy efficiency before more people become affluent and begin using larger amounts of electricity.
By starting from such a low base in per-capita energy usage, China has the potential to easily build state-of-the-art power transmission grids, to dictate strict regulations, and to build a culture based on energy conservation first, rather than reverse-engineering its energy regulations and energy consumption culture like other countries need to do.
kgoe- kilograms oil equivalent
mtce- metric tons carbon equivalent
China’s power generation capacity in 2002 of 356.6 GW was 9.6% of the world’s total power generation capacity, second only to the United States’ capacity of 979.6 GW. By 2005, China’s power generation capacity had risen to 508 GW (statistics from HERE). In 2006, China added over 114 GW of power generating capacity, and is continuing to expand generously.
If China is to satisfy its energy demands, it will need to increase energy efficiency. Otherwise, world energy prices, which recently saw oil rise to over $140/barrel, could check Chinese economic growth.
“Green” construction alone will not ameliorate China’s energy situation, since even construction of over 30 efficient nuclear power plants in the next 10-20 years will only add 60 GW of power. Wind and Solar electricity will account for much smaller increases in Chinese energy capacity at a little over 30 GW of power by 2020.
Considering China’s ambitious goal to improve energy efficiency, it appears the Government does realize the challenge. But what reprecussions might happen as the country struggles to meet this challenge?
Why Price Caps Harm the Environment
By putting price caps on how much energy can sell for and concurrently subsidising SinoPec and other energy companies, China encourages inefficient, polluting companies to remain in business or delay upgrading technologies. When subsidies and price caps are eliminated, prices rise and factory producers have to survive in a more Darwinistic competition model where the most efficient companies are rewarded for infrastructure investments.
Of course, too-low-set price controls sometimes encourage producers to produce less power. Or producers may decide to do things on the cheap and produce dirty coal instead of less environmentally destructive, but more expensive options (NYT discusses high-tech coal plants).
Results: Higher Quality Companies, Freer Energy?
It appears that regardless of its ultimate decision on price controls, China will maintain some sort of government intervention so its poor will be able to afford energy. Considering the widening GINI coefficient of wealth inequality in China, such supports will be necessary. And price assistance will be especially needed in rural regions, since urban income still outpaces rural income by at least 3.28:1.
Future government intervention, however, may be more in the form of direct subsidies to people rather than price caps on companies.
Freeing energy markets will allow the market to incentivize energy efficiency, and continue the trend of driving away inefficient industries. For China to most efficiently continue its energy capacity expansions in an era of high oil prices and expensive energy, it makes sense that the country will move to price liberalization. When might this happen? To take a wild guess, I’ll predict it’ll happen whenever oil hits $200/barrel. Barring war or shortages due to a major conflict such as a Iran-US war, I don’t see that happening until at least 2012, so the move toward Chinese energy price liberalization might take some time– but since China’s power demands are so great, said liberalization will eventually happen.
* Official figures on energy efficiency increases in the first half of 2008. (2.88%).
* Erica Downs of Brookings is even more pessimistic about China’s eventual move toward energy efficiency and modernization, arguing that “China’s new energy administration is unlikely to substantially improve energy governance.”
* China Daily had evidence of a perhaps laudable, but perhaps disturbingly only stop-gap fix for solving China’s energy efficiency and “green” problems. By ranking 60% of cadres’ career evaluations on energy efficiency and pollution solutions, China’s government pursues a bureaucratic incentivistic solution to what appears to be mostly a market problem.
* More reading on China’s progress toward greater environmental and energy efficiency care can be found at China Environmental Law.
On August 1, China raised its planned development of nuclear power to account for 5% of China’s total energy mix by 2020 instead of the previously projected 4%. This would account for over 60 GW of power.
” The country would boost the development of the nuclear power industry by speeding up construction of nuclear power plants in the coastal areas and drawing up plans for the inland regions, said Zhang Guobao, director of the newly-established National Energy Bureau.”
As part of the development of new nuclear energy sources, on July 18, approval of development for a reactor on Hainan Island in Changjiang County was confirmed. China National Nuclear Corp. will construct the reactor. “[I]t is expected to come into operation in late 2014.” And, interestingly it is claimed that, “more than 70 percent of the plant’s equipment will be manufactured in China.”
Currently 1.3% of China’s energy (9 GW) comes from nuclear energy, originating from 11 reactors.
China’s 2006 agreement for Australian companies to supply uranium to China, has finally borne some fruit. (And see Forbes). Energy Resources of Australia (ERA), which is controlled by Rio Tinto and which produces 10% of the world’s uranium, agreed to make a one-off shipment in the fourth quarter to an unidentified Chinese electricity company. The uranium will come from the Ranger mine. Australia holds 40% of the world’s known uranium reserves (Forbes).
Ranger is Australia’s most productive uranium mine, producing 5256 tonnes in 2006-07. It is located in the Northern Territory. Politically, it is a slightly controversial mine, due to its location near a World Heritage site and some concerns regarding its safety record.
Other Uranium Sources
China domestically mines for uranium, but it also acquires it abroad from Kazakhstan . Other countries listed as sources include Namibia. It is important to note that although as I detail in China’s Nuclear Power, China believes it may have a fair amount of uranium, as of 2007 its “proven uranium reserves within China, even if it was possible to fully extract them, could only fuel 40 GW for 50-60 years, according to China Guangdong Nuclear Power Holding Co., the country’s second-largest nuclear builder by assets,” according to Dow Jones. And that dearth of power could by necessity make China an international player on the uranium markets since China wants to have 60 GW of capacity by 2020.
Kazakhstan – As of October 2007, “China will get a stake in a 2,000-ton-a-year uranium mine in Kazakhstan in exchange for its share in a uranium-processing business… Kazatomprom said on Oct. 12 it signed agreements in Beijing with the China Guangdong Nuclear Power Group and the China National Nuclear Corporation, China’s largest producers of atomic energy”, according to the NYT quoting a Bloomberg article. Kazakhstan currently has an agreement to ship nearly half of China’s uranium imports. (Kazakhstan holds 17% of known global uranium reserves). Kazatomprom is the world’s second largest uranium supplier as of 2007, accounting for 12% of global supply.
Niger – China also explores for uranium for its nuclear power plants in Niger. In what is perhaps too much wishful thinking, ” Niger hopes to become the world’s number two uranium producer by 2011 thanks to new mines being opened by France’s Areva and the China Nuclear International Uranium Corp. (Sino-U)” (Reuters). In production capacity, Niger is currently behind Canada, Australia, Kazakhstan, and Russia.
Tajikistan – Only accessible by Subscription, the Times of Central Asia (Kyrgyzstan) , quoted “China’s company eyes uranium deposits in Tajikistan” in Google News which claimed that “China’s Guangdong Corporation is interested in participation in development of uranium deposits in Tajikistan.” So it appears that talks have begun for uranium development in that Central Asian country. More news stories on this will hopefully develop.
Mongolia -There have been some talks (May 2007) http://www.mongolia-web.com/content/view/1044/2/ about China acquiring Mongolian uranium. Future agreements appear to be in the developmental stage. Mongolia may attempt to play China and Russia against each other for better deals. Russia appears to currently have the upper-hand in current prospective deal-making. “In April 2008 Russia and Mongolia signed a high-level agreement to cooperate in identifying and developing Mongolia’s uranium resources” (World Nuclear).
* More on China’s Nuclear Power industry in my article, “China’s Nuclear Power.”
* An interesting article on the Kazakh Uranium Industry. (I’m a little concerned about some of the numbers used in the article, but haven’t had time to double-check [it would take hours]. They seem okay, and the article IS on CNN, but if something seems out of place, it’s probably worth further investigation.)
* CFR also had a good report on the world’s Uranium Industry.
* Factsheets on Uranium from Cameco (slightly outdated in some places, but nice.)
The Spratlys, co-claimed by Vietnam, China, Brunei, Malaysia, the Philippines, and Taiwan appeared again in the news this week as China warned Vietnam and Exxon Mobil to not go ahead with planned exploration. Previously, in 2007 China discouraged BP from co-developing a natural gas field with Vietnam.
Chinese assertion of sovereignty in this case, when compared to its June 2008 deal with Japan to co-develop Chunxiao oil field in the East China Sea, is interesting. With the Chunxiao deal, China asserted supremacy, still claiming sovereignty, but it still agreed to co-develop the field, splitting investment and revenues 50-50% (“Sun Bin” has a description of that deal).
With Vietnam’s claim to the Spratly oil, China will reach no such consensus. PetroVietnam seems intent on not splitting investments with China, and Vietnam definitely has a legal case for not splitting. The Spratlys are beyond China’s Exclusive Economic Zone of 200 miles from its shores (in which it can exploit resources), however China still lays claim to them since the Spratlys are on China’s Continental Shelf.
And China has been enforcing its claims. In June 2007, “China arrested 41 Vietnamese fishermen near the Spratlys for straying into contested waters. They were released after paying fines. Vietnamese fishermen in another incident on July 9th were not as lucky. One fisherman was killed and several others were injured when Chinese navy vessels opened fire on their fishing boats near the islands.” In November 2007, “large military exercises by China in the South China Sea close to the Paracels sparked protest from Vietnam.” And “on December 4… Vietnamese state media criticized China for ratifying in the People’s Congress a plan to create the Sansha administrative zone to manage the Paracels, Spratlys and the Macclesfield Banks. The zone has been given the status of a “county-level city” within Hainan Province with its administrative headquarters on Woody Island in the Paracels… Chinese Foreign Ministry spokesman Qin Gang claimed China has “indisputable sovereignty” over the islands.”
As described by Bernard Cole in The Great Wall at Sea (2001), China signed the 1996 UN Convention on the Law of the Sea, but only after including several reservations. It claimed a sovereign right over an Exclusive Economic Zone (which would allow full naval intervention within more than 200 miles), and over its Continental Shelf (350 miles).
China also wanted boundary disputes to be settled bilaterally rather than internationally and would not allow foreign warships to transit through waters without approval. China’s naval claims extend from its coast nearly to the coasts of Indonesia, Vietnam, and the Philippines, and if accepted, would basically make the South China sea an exclusively Chinese lake, denying Vietnam easy naval access to the Pacific Ocean.
China’s historic claims to the Spratlys/Paracels are based on exploration by the Han from 200BC-220AD, and administration by the Tang Dynasty from 618-906, but Cole argues this does not really establish current-sovereignty according to modern usage.
China currently occupies around seven islands militarily, and vietnam has military garrisons on 20 Spratlys. Vietnam traces its legitimacy to 1933 French claims on the area.
The Philippines base their claim on an alleged discovery by a businessman in 1947. In 1974, he deeded the islands to government. The Brunei claim is based on proximity.
China is upset about Vietnam exploiting the natural resources because strategic costs and energy supplies are hanging in the balance. Although most estimates place reserves under the Spratlys at 7-20 billion barrels of oil; China believes there may be as many as 200 billion barrels beneath the waves. Strategically, if Vietnam starts developing the fields, then its claim to the islands would strengthen since the country would be utilizing the area.
Could this situation escalate? If the June 2007 collapse of the PetroVietnam/BP deal is any guide– then no, the status quo of undeveloped Spratlys could prevail. However, Vietnam and ExxonMobil may attempt to take advantage of the Olympics in order to push hard to shame Beijing into refraining from harsh rhetoric and threats. This would allow PetroVietnam and ExxonMobil to push ahead with developing the oil field and might lead to diplomatic consequences after the Olympics are finished.
ExxonMobil must have known the political consequences after seeing BP’s failure to join Vietnam in investing. Later, I hope to uncover some research on ExxonMobil’s oil interests and investments in China. To what degree would acquiring new sources with PetroVietnam hurt ExxonMobil’s bottom line? Now, ExxonMobil might still pull out of the deal if China exerts enough pressure, but I find it difficult to believe that ExxonMobil didn’t expect China to push back– they must have a good reason for pursuing talks with PetroVietnam.
What’s certain, though, is that Vietnam seems ready to go ahead with the deal and exploration despite Beijing objections.
Beijing continues its quest to fill its increasingly high energy needs since demand is up 8.6% in 2006, which is a staggering amount compared to global growth rates of under 2%. To mitigate the problem, Beijing plans to ambitiously expand natural gas supplies.
China’s natural gas industry is growing at a rapid pace. 2007 saw 23.1% growth and this year, Natural Gas output will “likely hit 76 billion cubic meters,” on around 15% a year growth!).
International agreements signed from 2003-2005 are finally coming on-line, and new agreements are being made. Below, I examine what this can this mean for China’s energy security and future geopolitical purposes.
First, for orientation purposes; 1,200 cubic meters of gas equals about one ton of oil (People’s Daily); or a conversion rate of 8.3×10-4. (Conversions will vary between sources depending on how oil companies rate the density of materials, but for simplification purposes, all numbers below are approximations.)
In 2006, China received 69.6% of its energy from Coal (1.19B tons of oil equivalent in 2006, but 2.5B “natural” tons of coal are expected to be consumed in 2007)^, 21.1% from Oil (350M tons; 183.7M produced domestically, around 47% imported), 5.8% from Hydroelectric, 2.7% Natural Gas (55.6B cubic meters- in 2007 this rose to 69.8B cubic meters), and 0.8% from Nuclear Energy [data from: Rosen (17), and China Daily (2006)]
To make the data easier to compare, cubic meters have been approximately converted into tons:
* Roughly converted into tons, thus is estimated down from the 69.8B cubic meters as per the formula explained above. Also, Natural gas data is for 2007.
^ 1 m.ton of coal = 4.879 barrels of crude oil equivalent (Source)
(Chart Data from Rosen and China Daily; 2005 and 2006 numbers except as stated.)
(2009-2010) – New Sources of Imports Coming on line
The Chinese government hopes to double use of Liquid Natural Gas from 2.5% of the energy mix (as of 2005) to 5.5% of the energy mix by 2010, and expects to utilize 200B cubic tons a year (166M tons, or roughly half of current oil consumption) of LNG by 2020 (IHT).
China is fast approaching its goals. In order to facilitate foreign imports, pipelines are being built, and China National Offshore plans to build an additional 10 LNG (Liquid Natural Gas)-capable ports (CER).
In August 2007, PetroChina and Chevron agreed to develop the Luojiazhai natural gas fields in Sichuan. The fields are believed to hold 2.03 trillion cubic feet of natural gas reserves (57,483,144 cubic meters or roughly 48M tons.) (CER).
In July 2008, PetroChina proclaimed “Sulige Gas Field in China’s Inner Mongolia Autonomous Region” can now produce 4.5 billion cubic meters (steres) a year (3.8M tons). By the end of the year, Petrochina hopes to increase output to over 7 billion cubic meters (steres) annually (5.9M tons) (China Institute).
Turkmenistan will be able to export Natural Gas to China, starting in 2009. Under an August 2006 deal, China plans to purchase 30 billion cubic meters in 30 years; averaging to 1 billion cubic meters, or around 833,000 tons a year.
In June 2008, China signed a deal with Qatargas Operating Co. for delivery, starting in 2009, of 2 million metric tons of LNG annually (CER).
TOTAL: (2009) 8.9M tons yearly
Sulige Gas Field (5.9M yearly)  (Inner Mongolia)
Qatar (2M yearly) 
Turkmenistan (833,000 yearly) 
Luojiazhai Fields (43M reserves) [~2010] (Sichuan)
Long Run Forecast
In July 2008, Kazakhstan started a natural gas pipeline (IHT) that should be “completed by June 2010.” When finished, it will carry 30 billion cubic meters of natural gas each year, or around 38M tons.
Sinopec also has high expectations for the Dayi Gas Field in Sichuan. They claim possible natural gas reserves of 100 billion cubic meters (85M tons) (China Institute).
China also, in June 2008, signed a cooperation agreement on natural gas extraction and transportation with Myanmar, which has over 5.7 to 10 trillion cubic feet of natural gas (283,168,199,078 cubic meters; or 238M tons) (China Institute).
In a July 10, 2008 statement, “Russia plans to export 68 billion cubic meters of natural gas to China annually by 2020 [58M tons], the president of the Russian Gas Union said. Valery Yazev, who is also deputy chairman of the State Duma, the lower house of Russia’s parliament, said that Russia planned to supply up to 30 million metric tons (220 million barrels) of crude oil to China via a branch line of the East Siberia – Pacific Ocean pipeline (ESPO)” (China Institute).
TOTAL: (2020) 96M tons yearly
Kazakhstan (38M yearly) [2010-2015]
Russia (58M yearly) [2015-2020]
Dayi Field (85M reserves) [2010-2012] (Sichuan)
Future pipelines from Kazakhstan will carry imports that equal half the amount of LNG consumed by China this year. As a result, Central Asian security will become more integral to Beijing’s foreign policy. The pipeline from Kazakhstan crosses Uzbekistan and goes through China’s sometimes-volatile Xinjiang province. New pipelines originating from Central Asian countries will require more People’s Armed Police patrols to guarantee safety, which will tie down a modest amount of troops since the lines present an energy security vulnerability. Anti-terror crackdowns will increase in Xinjiang, and possibly Islamic Mosque worship will be more restricted. (Children under a certain age are not allowed in Mosques; although when I visited, it appeared this practice was not entirely enforced.)
Also, Beijing will strengthen ties with the SCO (Shanghai Cooperative Organization) economic and defense grouping of Central Asian states, perhaps attempting to marginalize the United States’ regional influence. Beijing already surpasses the US in trade partner significance to several Central Asian States, trading $12 billion in 2006 (CRS, 71) with the region, compared to 2006 US trade of slightly over $2.3 billion with the region. (Data from HERE, HERE, HERE, HERE, and HERE for exports; HERE for imports)
With a future pipeline to Myanmar, Beijing might increasingly coddle that regime, like France and Russia at times did to Baghdad in the leadup to the Iraq War. However, given Myanmar’s undeveloped economy, it may be years before they practically exploit their natural gas. An Indian and a South Korean company are also involved in the explotation. The Myanmar issue will prove to be a complicated one, geopolitically.
Ultimately, Natural Gas is but one of several sources for China’s energy, and it will only account for 5.3% of Beijing’s energy mix by 2010. Coal is currently, and will remain the most important piece of Beijing’s energy plan for the next twenty years. And oil will remain the most vulnerable part of Beijing’s energy plan, since over 47% of China’s oil demand is imported.
Still, the importance of LNG will cause Beijing to bring in foreign experts (such as Shell, and Chevron), and will increase its influence in the Central Asian states. It will be interesting to see how relations and rights negotiations develop over the next two to ten years, given energy prices’ recent fluctuations.
Also of Note: Daniel Rosen and the Center for Strategic and International Studies’ AMAZING analysis of China’s Energy Future – http://www.iie.com/publications/papers/rosen0507.pdf