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Energy, Environment, and Economy

China’s Nuclear Power

In February 2008, construction began on the Ningde Nuclear Reactor in Fujian province. According to China Daily, the reactor should cost around $7.1 billion to construct and will open for generation in 2012. Yearly, it will generate 33 billion kWh of power (3.3 GW). Ningde is just one of China’s nearly 30 reactors planned to be constructed between 2008 and 2020.

China is embracing nuclear energy. However, China’s nuclear industry is still nascent. Compared to France’s 59 operational reactors, and Japan and the United States’ 55 and 104, respectively, China only has “11 nuclear reactors currently in operation” and six under construction as of June 2008. These reactors “last year generated 62.86 billion kWh [6.2 GW], up more than 14 percent on 2006… [N]uclear power still accounts for less than 2 percent of the country’s total output… [But China] wants to boost this figure to 4 percent by 2020,” according to China Daily. By 2010, China plans to have 12 GW online. As of 2008, China can generate 9 GW a year.

China’s planned amount of nuclear power as a percentage of their energy mix (4 percent) amounts to an insignificant amount compared to nuclear’s predominance in the United States. In the US, nuclear power accounts for “20 percent [of power]… and nearly 80 percent in France,” according to the Washington Post. 

It does not appear nuclear energy will become a significant source of energy insecurity should future geopolitical problems arise between China and foreign countries. Coal remains the main ingredient in China’s energy mix.

In 2020, the Chinese hope to have nuclear power capacity of 60 GW. Also according to China Daily, China “will need to start construction on about 4 new generators a year through 2015 to meet its ambitious target.”

WILL CHINA MEET ITS TARGET OF ADDING NEARLY 50 GIGAWATTS OF NUCLEAR POWER IN 12 YEARS?

 China needs to satisfy a few strategic areas before they can have a strong, functioning nuclear industry.

Uranium Acquisition– China purchases uranium from Kazakhstan  and signed an agreement with Australia (2006). Imports of uranium account for 700-800 tons of the 1,600 it consumes yearly. Its uranium needs should expand to 4,000 yearly tons in 2010 (according to Bloomberg) and then 8,000 tons a year by 2020, according to AFP.

According to China Daily, more domestic exploration will be undergone. “Key areas that would be scoured for natural uranium include the Yili Basin in” Xinjiang and parts of Inner Mongolia. NTI has a chart of existing Chinese uranium mines and supplies. “China has [at least] an estimated 57,000 tons of uranium in the [already explored] south.” In 1995, the OECD estimated China’s readily-extractable uranium supplies at 65,000 tons, according to NTI. A 2007 Bloomberg news report estimates China’s domestic supplies at 300,000 tons, but that’s probably optimistic even though Chinese geologists are discovering new sources, mostly located in China’s border provinces. The location of these uranium deposits means that the Chinese government will have an even greater desire to increase border and internal security in these provinces.

IAEA data on country-by-country estimated recoverable uranium reserves are available HERE. China is estimated to only possess 1% of the world’s available reserves. Australia (24%) and Kazakhstan (17%) account for the lion’s share.

To reduce China’s reliance on uranium imports, it has established a strategic reserve for uranium. The reserve should be completed by 2010. According to the IHT, “China is building storage tanks in Zhenhai, Zhousan and Qingdao and in the northern city of Dalian.”

Enrichment Expertise– China has been aggressive in pursuing nuclear energy independence. In May 2008, Russia and China signed an agreement for a $1 billion investment in the completion of a gaseous centrifuge enrichment plant. The completion of the agreement, by 2010, should bring the Russian constructed capacity of Chinese Uranium enrichment plants to an ability to process over 1,600,000 SWU (Separative Work Units) per year. Compared to other countries’ capacities for enrichment in 2003; China’s amount will still be low. Russia, for example, can enrich over  25,000,000 SWU a year. The US can enrich 11,300,000 a year, and Japan can enrich 1,150,000 SWU a year.

Equipment– China has several indigenous nuclear power equipment plants being constructed. The most recent was built from June 2007-June 2008 in Shandong province. The plant produces steel containment vessels, according to a Hong Kong Ta Kung Pao article. Its “annual output volume is able to meet the demand of two sets of generating units in the AP1000 [type] nuclear power plant. ”

Reactor Designs– China is attempting to develop its own reactor design, so it will not have to transfer technology from abroad. According to the Washington Post, “Groundbreaking for an experimental $416 million Chinese plant is scheduled for 2009.”

Operational Expertise– China “is relying heavily on Western contractors such as Westinghouse to teach its engineers to build and operate plants,” according to the Washington Post. In December 2006, US-based but Japanese Toshiba-owned Westinghouse signed an agreement to build four new 3rd generation plants in China.

Waste Disposal- China plans to deposit its nuclear waste in the Beishan Mountains in Gansu province near Dunhuang, according to the Washington Post and The Asia Times. The repository will not be opened until 2050. Before China can begin transporting spent fuel to its interior, it will need to upgrade rail lines and security.

Conclusion– China’s nuclear industry faces a number of challenges in becoming self-sufficient and self-sustaining. It will also likely not be a major player in the country’s total energy supply until after 2020, since it will account for so little of China’s total energy supply (Around 4% of the mix). 

Beijing will probably need to confront Uranium supply dearths more aggressively, whether by beginning massive domestic extraction investments (with all the environmental destruction and populace dislocation that may involve) or increasingly seeking investments abroad in places that can supply said Uranium, such as by going back into Niger and more aggressively exploring resources in Australia.

Currently, China lacks the technical expertise to completely self-develop their nuclear energy program, as Xinhua admits. However, after 2020, when China’s capacity is expanded, Chinese indigenous reactor designs, expertise and operators may become players on the world market and the Chinese could be exporting their expertise elsewhere in the world.

APPENDIX

Chinese Nuclear Reactors

 Chinese Nuclear Reactors (From The World Nuclear Association)

 

The above map suggests more nuclear reactors are soon planned for the north of China; however, by examining actual work orders, all power plants planned to be built before 2015 are in China’s south.

After 2015, one reactor should be operational in Shandong, with several others under construction.

Chinese Nuclear Power Companies (Partial List)

China National Nuclear Corp.

China Guodian Corp. (also produces other types of energy)

Chinese Nuclear Reactors (Partial List)

Coastal/South

* Ningde Nuclear Reactor in Fujian (construction begins– Feb 2008; planned open– 2012)

* Sanmen Nuclear Reactor in Zhejiang (construction begins– 2007; planned open– 2011)

* Daya Bay (2) in Guangdong (~2 GW) (1994)

* Lingao (2) in Guangdong (~2 GW) (2002, 2003) (Expansion Planned)

* Yangjiang in Guangdong (Planned)

* Qinshan (5) in Zhejiang (~3.1 GW) (1991, 2002, 2002, 2003, 2004) (Expansion Planned)

* Tianwang (2) in Jiangsu (~2 GW) (2007)

* The World Nuclear Association has a more technical indepth report on the Chinese Nuclear Industry.

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26 June, 2008 Posted by | China Energy, China Future | , , , , , , | 4 Comments

Consequences of China’s Oil Price Hike

China has finally raised the prices on its oil. It came a bit sooner than I expected, but as I stated in “China’s Oil Price Freeze,” the raise was a lot lower than needs to be done (China’s prices are still 1/4 cheaper than gas in the US and 1/3 cheaper per liter than oil in the UK). The United States’ prices on oil have risen over 50% since December 2007 (based on calculations of average gas prices of 2.71 in 2007, according to the EIA);

China only raised their oil prices 16 to 18%. (In November, they raised prices 11% to confront $80/barrel oil;  China’s oil companies appear to still have a shortfall of $21 dollars per barrel from current prices of nearly $130 a barrel.)

Rising oil prices will affect Chinese stability, inflation, and government openness.

STABILITY

According to Xinhua, the Chinese State news agency: “more subsidies would be offered to farmers, public transport, low-income families and taxi drivers to cushion the crunch of price rises.” According to FT, “the finance ministry said the targeted subsidies would amount to Rmb19.8bn ($2.9bn, €1.8bn, £1.5bn).”

Given  China’s huge trade surplus, the burden of cost can be arguably borne by the government (And the amount of subsidies direct to the people currently is far less than the amount of subsidies ($50 billion plus) the Chinese government would have needed to give to state oil corporations forced to do business at under-market prices. Apparently,  Sinopec was losing money on imports when “the international price exceeded $78 a barrel.”)

The problem with the Chinese government pumping a lot of money into the hands of its poor peasants, however, is that it can lead to inflation. In a similar situation in Indonesia “the [Indonesian] government forecasts inflation will rise to 12% in June — up from 8.96% in April — as the fuel-price increase feeds into the broader economy.”

INFLATION

Remember, in 1989, part of the impetus for the massive protests was runaway inflation, rising unemployment and lowering standards of living. And as Pieter Botellier of the Jamestown Foundation also argued; “the Communists’ defeat of the Nationalists in the Chinese civil war of 1945-1949 was greatly assisted by the run-away inflation of those years, which sharply reduced the popularity of Chiang Kai-shek’s Republic of China (ROC) government. ”

This is not to say China’s government is in any danger of losing its grip on power– but rising inflation might cause its leaders to look to past lessons of history and react skittishly to the consequences of unrestrained inflation. According to Prof. Victor Shih of Northwestern, this is the highest inflation we’ve seen in China since the mid 1990s. Also according to Shih, there is a current factional dispute in China’s leadership about whether to continue to tighten the monentary supply, or to reevaluate the RMB upward to correct the domestic inflation problem. It’s a complicated situation, and I recommend reading his article for more details.

OPENNESS

In light of increased tensions as a result of upwardly spiraling inflation and energy costs; President Hu Jintao might be encouraged to crack down more on free press and coverage of unrest that will likely emerge as people are able to afford less and less.

The Chinese belief has long been that silencing opposition makes it go away. We’ll see what happens over the coming months.

RESULTS

Due to transportation costs, Chinese food prices will increase even more than the 22% percent they have already appreciated since last year. (In all, according to the BBC, China’s inflation as of April was up 8.5% on the year.) Rising inflation could lead to big problems and the end of 4 kuai (.50 cent) meals that sustain many low-paid migrant workers who labor in the cities and send remittances to their farming families.

Already, there has been a slight decrease in the amount of migrant workers in China’s coastal cities (regrettably, I can’t currently find the Journal article I saw the numbers for this cited in- I will post it as soon as I find it), driving up prices for construction and leading to more inflation. The eventual return of these workers to their villages and second-tier cities might be good for the economy in the long-term as some population stress is removed; but in the short term, their return with big city views, and big city demands for quality of life, these returnees could have big cosmopolitan demands for their local governments- demands that might not be met and could cause social unrest.

IN SUMMARY:

ONE Beijing still needs to subsidize a gap of around $20 in international purchases of oil. Its importing companies are still losing cash, but ultimately China can weather slightly cheaper oil prices than the rest of the world since “average Chinese [domestic] production costs were about $US20 ($21)”. It’s the internationally-bought oil gap that China has to pay for.

TWO China also has to manage the social unrest that will originate due to the rising oil prices. Subsidies to the right populations should take a lot of the bite out of that unrest. Prof. Victor Shih of Northwestern speculates a little on what needs to be done to prop up the Chinese middle and lower classes after gas prices rise. 

THREE There may be citizen-government clashes over the increased oil prices, much as there were in March 2007 during the Yongzhou Mass Incident,  sparked over rising public transportation costs. This could be why public transport costs are being kept steady. (According to the FT, “CSFB, the investment bank, estimates that an 8 per cent increase in fares would add 2.3 percentage points to inflation. “)

FOUR If there are clashes, the government will likely clamp down, and try to keep the media from reporting on negative developments since China does not want to look bad in the year of its Olympics (as noted in my earlier article.) How successful they are remains to be determined.

FIVE And certainly, other reprecussions will be demonstrated, from migrant worker movements, to wage price increases, to possible capital flight from China. Remember, it’s China… Anything can happen.

—-

Also of note: An article on hidden cost of fuel subsidies explains why China needed to reevaluate its oil prices.

And Forbes discusses in more detail the weird situation where one of China’s national oil companies, Sinopec suffered under the system and required billions in state subsidies to prop up its foreign oil acquisitions.

http://www.eeo.com.cn/ens//Industry/2008/06/25/104320.html Also had an interesting article on the possible reprecussions of the price rise on China’s national oil companies.

20 June, 2008 Posted by | China Economy, China Energy, China Future | , , , , , , , , , | Leave a comment

Wind Power In China

 Long known for its polluting and dirty coal industry, did you know that China also has fast-developing and promising wind and nuclear industries? It needs to, especially since it became a net oil importer in the last ten years and is importing increasing amounts of coal to feed its economic expansion.

This article focuses on China’s Wind Industry.

“China intends to spend an estimated $200 billion on renewable energy over the next 15 years.” And as of April 2008, “the [Chinese] government has set a target for renewable energy to account for 10 percent of the country’s energy consumption by 2010 and 15 percent by 2020.” This may be a reasonable goal, given that China met its goal for installed wind-power generating capacity three years ahead of schedule.

In February 2008 a report was released that stated China’s wind power generation rose 95.2% to 5.6 million Kw hours in 2007. “The government plans to increase its wind power equipment to a combined installed capacity of 10 million kw by 2015, and to 30 million kw by 2020.”

To encourage further development; “The Chinese government has begun refunding value-added tax (VAT) and import duties on core wind power turbine parts and materials in a move to promote the development of clean energy.”

And feverish work has already begun:

In March, China announced the “creation of a high-level body to integrate its energy management, supervision and policies, functions that are currently dispersed among many government agencies.” This should allow for more streamlined development of the wind and renewables sector.

“China National Offshore Oil Corp. (CNOOC) plans to build the world’s biggest offshore wind farm… near Weihai City in eastern Shandong Province.” The whole project which will result in 1.1-2.5 million megawatt hours may take up to 10 years to complete.

“By 2010, China Power New Energy… plans to put into operation 1,500 megawatts (MW) of renewable energy capacity… It also plans to have another 1,500 MW under construction and a further 1,500 MW in the pipeline… That would be 50 percent higher than the company’s original target of having 1,000 MW of renewable energy capacity on stream, 1,000 MW under construction and another 1,000 MW in the pipeline… The company now had installed renewable energy capacity of 980 MW,”

Why the focus on wind? According to a 2007 research industry report by QYResearch “Wind power is the most popular renewable energy in China, compared to the solar energy industry; as its cost is much lower. Chinese wind power price is about 0.5-0.6RMB/KW.h while the traditional power price is about 0.2-0.3RMB/KW.h, but solar power price is about 8 times that of wind power price, therefore wind power is very welcome in China. ”

For a little perspective, The Earth Policy Institute has a lot of good data on the amount of wind capacity installed worldwide. As of 2007 Germany leads the world with over 22,247 MW, the US is second with 16,818 (and led the world in 2007 installed capacity of over 5,000 MW), Spain is third with 15,145 MW, then India with 8,000 MW, China with 6,050 MW, and Denmark with 3,125 MW.

China added 3,449 MW of wind energy in 2008. Each year, China has added greater and greater amounts of wind energy capacity. With the current positive regulatory environment, increasing production capabilities, and the proliferation of environmentally-based trade fairs showcasing cutting-edge technology, China is demonstrating that it wants to move to the forefront of clean energy technology development. As quoted at the Green Leap Forward; “The National Reform and Development Commission was considering almost tripling wind energy targets for 2020, from 30 GW to as much as 100 GW. To put that number in context, realize that current installed wind capacity is about 94 GW…globally.”

Considering China’s rapid progress thus far in wind energy development; it appears that within the next three to ten years China might very likely become one of the world’s major leaders in wind renewable energy.

Other Interesting Tidbits
 * Junfeng Li at the WorldWatch Institute provides a nice analysis and chart listing of the major wind power producers in China.
* The Green Leap Forward had a good article on China’s Wind Power.
* China Wind Power Report: 2007
* China Brief on China’s new energy regulatory commission.
* Renewable and Alternative Energy News on China.

16 June, 2008 Posted by | China Energy, China Future, China Technology | , , , , , , , | 1 Comment

Isn’t That Odd? China’s Wind Grid Troubles

In a few hours I’ll post a more indepth article about Chinese wind power; but for this edition of “Isn’t That Odd?” I’ll discuss a little about some results of inefficient bureaucracies in China.

Similar to their counterparts in many state bureaucracies, China’s bureaucrats have a way of dropping the ball.

In January 2008, Reuters pointed out that: “China’s wind power generating capacity surged to 5.6 gigawatts by the end of last year, but over a quarter of it is still not connected to the grid because of bad planning.” With the creation of a National Energy Commission in March 2008, these inefficiencies might disappear, but some people who were hoping for a more comprehensive Ministry disagree.

I wonder if my earlier comment sunk in though, so I’ll repeat it: Over a quarter of wind-generating capacity installed in 2007 is still not attached to the grid- but why? Maybe because as the article goes on to say; “local governments are keen to jump on the renewable energy bandwagon as Beijing pushes greener growth, [therefore] they are approving new wind farms without proper planning.”

Chinese local governments, pursuing directives from the top have long been infamous for making grandiose plans that gain them plaudits from central planners, but don’t actually solve problems that the people are actually facing.

In Great Leap Forward times (1957-1959) local cadres gave “excess” food to the central government for redistribution while their citizens starved, because the cadres couldn’t admit the harvest was weak without admitting failure. In later times, shoddy buildings were constructed and polluting industries flourished because the important thing was the number of people employed, not the quality of the factory, or the buildings. This can have tragic consequences, as demonstrated by the collapses of shoddily-constructed schools as a result of the Sichuan earthquake.

So, in wind too, as in previous pushes toward “self-strengthening,” today’s Chinese government officials are making the same mistake as their predecesors did with the “backyard furnaces” (where steel was smelted en masse, but was of such low quality that all it really contribuited was greater pollution), and the project to eliminate birds (because they ate crops… somehow it was forgotten that insects, which birds eat, can be much more destructive.)

Likely, many of these wind generators are subpar- not up to international standards since the local cadres were more interested in gaining governmental plaudits than in really cleaning up the environment.

Oh well, that’s central planning for you. At least the turbines are there; some will work, and ultimately the cadres who know what they’re doing will (hopefully) be commended. (To take a pollyanna view of the situation.)

The question is, how many incompetent cadres will be reprimanded… But that’s a topic for another article.

13 June, 2008 Posted by | China Energy, China Technology, Isn't That Odd? | , , , , , , , | Leave a comment

China’s Oil Price Freeze

Considering recent shortages in fuel in some places in China, as reported by today’s WSJ and an article by the Jamestown Foundation, many may wonder why China is leaving its oil prices at the same level since the last raise in November 2007?

What follows is an analysis focusing on bank loans and stability concerns. More work needs to be done looking into the elite political decisions, namely the discussions between ministers in charge of different portfolios since that can also affect these decisions, but that will have to wait for later.

China wants to present a good image to the world while it prepares to host the Olympic games. The Olympics are a coming-out ceremony for them, an opportunity for much 爱国 (aiguo) or love of country/patriotism. Red, the color of China, appears everywhere. Even PEPSI changed its traditional blue to red in the run up to the Olympics. As one Chinese said in the article: “I thought it was a good idea when I saw those promotional cans. They’re supporting Team China.”

So, what stereotypes does China have to promote to present a good image of their country?

1.) China is not backward

Thus they have retranslated many formerly amusing signs that made little sense in English, such as “Deformed Man” signs outside toilets for the handicapped.

2.) China is ruled by law and order and every Chinese loves China.

Thus, they will increase security and recently presented new regulations aimed at discouraging protestors, both from outside and inside the country. Additionally, the recent clampdown on foreigners overstaying and sometimes working on tourist visas is somewhat based on this. China wants to catalogue all the people inside the country. Laxity in law enforcement is dissipating as the government becomes concerned that foreign elements might seek to upset the festivities.

This also explains the move to ban liquids on Beijing subways starting on May 9th, which appears to be based on International Flight legislation banning liquids on airplanes, and the ban on liquids in other major cities’ subways around the world.

Additionally, the ban of reporters from travelling freely in T*b*t is another example of China trying to present a good “face” to the world– if no one is seen protesting, then it doesn’t happen.

And of course China’s press has cracked down against “negative stories”, and the Hong Kong-based South China Morning Post and other media outlets routinely provide evidence of the country’s greater crackdowns on the free speech of the press. (“Free media for Games = media free of bad news, one city says.” South China Morning Post. March 20, 2007.); also see an April 30, 2007 report on: “The Olympics countdown – repression of activists overshadows death penalty and media reforms”

3.) China wants its economy to keep growing.

China has not reevaluated its currency extremely fast in order to control inflation since it fears (since 2007 in fact, when it had only appreciated 5% against the dollar since the July 2005 depegging, compared to the over 20% it has appreciated by April 2008) that exporters will not be able to survive if there is a rapid reevaluation. Chinese exports to the world have risen exponentially since the early 2000s as the multifiber agreement and trade protectionist agreements expired.

If exporters start suffering, then bad loans could accumulate back to levels not seen since 2005/6 when worries about China’s 10-45% nonperforming loans in state banks led some people to predict an imminent banking collapse– that did not happen, however (China claimed state banks NPLs were only 9.5%) . China seems to have cleaned up it banking act (surprisingly quickly), making its banks at least as solvent as those in America and Europe wracked by subprime.

Some argue that China’s state banks’ cleaned up their balance sheets. However, it appears that some exposure might be hidden. According to the 2006 NYT article: “China Construction had turned in the best numbers at that point, reducing its share to 3.92 percent of loan assets late in 2004, down from 17 percent in 2002… But the risk adviser began cautioning that bad loans were being hidden at the bank’s branches, erroneously labeled as good loans, even though company records showed that they were impaired. He told bank officials that in Beijing and Tianjin alone, he had uncovered $750 million in bad loans that had been deemed good.”

According to an article in Britain’s Telegraph from December 2006; “Less understood is that a sharp rise in the yuan could be the last straw for China’s banks, sitting on a network of loss-making factories living off marginal exports. Standard & Poor’s said a 25pc rise in the yuan combined with a 2pc rise in interest rates would slash corporate profits by a third.”

All these reasons may explain why China raised the reserve requirement to 17.5%. China’s leaders don’t want to risk a hit to their economy’s growth and want to insulate themselves from runs on banks that might happen if loans start to go bad.

As one professor said in regards to a 2006 report on China’s banks, quoted in the NYT: “If there is a slowdown, there will be a day of reckoning. It might be in a long, long time or it might be the day after the Olympics.”

BUT WHY WOULD RAISING GAS PRICES HURT THIS?

Considering all the unrest and trouble that China has recently suffered in T*b*t, and with increasingly loud voices calling for accountability in the construction of school buildings, China wants to avoid more unrest.

With inflation at around 8 percent on the year already, and likely to climb higher, increasing prices for gasoline and ending subsidies can send that rocketing even faster. China’s low per person GDP means that non-subsidized gas will negatively effect farmers, and small businesspeople disproportionately. This could cut into entrepreneurialship and send some to protest, like people have already done in India and Malaysia where “the pump price of gasoline rose Thursday by a whopping 41 percent to 87 cents a liter, or $3.30 a gallon.”

The question is, will gas shortages, caused by undersupply (due to price controls) result in more unrest than raising prices. It appears that as far as the Chinese leadership is concerned, they believe it is better to keep prices low, considering all the other hits to the world economy.

Therefore, I predict that if gas prices in China rise before the Olympics, they will rise much less than they have elsewhere in the world. More likely, the prices will be raised after the Olympic ceremonies are complete.

12 June, 2008 Posted by | China Economy, China Energy, China Future | , , , , , , , , , , | Leave a comment