China’s ambitious energy plans – restraint still means growth

The last few weeks have seen a spate of announcements in the Chinese press concerning recent and future energy use. There are two reasons for this. The first is that the six year period (2005-2010) for a 20% reduction in energy intensity is coming to an end, and the government is keen to show that it is making every effort to achieve this goal. The second is that early indications of the possible content of the next five-year plan for energy (2011-2015) are being revealed through formal and informal channels.

Concerning the drive to reduce energy intensity by 20% before the end of 2010, the official statistics continue to be adjusted every few months, and usually in favour of the government. The most recent version shows that energy intensity improved by 15.6% during the period 2005-2009, but then rose again by about 0.1% in the first half of 2010. The last few months have seen desperate efforts by local governments to meet their targets, including cutting off power to manufacturers, to small businesses, to shops and even for traffic lights. Criticism of this behaviour by the central government has not halted such actions. In response, the affected businesses are buying up all available diesel generators and bringing disused generators back into action. This has driven up demand for diesel within China, pushing prices up above the official price ceiling and dramatically reducing exports of diesel.

Looking ahead, the central government has already re-stated its intention to continue its efforts to reduce energy intensity with an aggregate reduction from the year 2005 of 40-45% by 2020, with a 17% reduction between 2011 and 2015 and a further 16% over the period 2016 to 2020.

But this emphasis on the reduction of energy intensity and also of emissions intensity can easily obscure that fact that actual energy use is set to continue rising for the foreseeable future, for as long as China’s economy keeps growing. China’s energy use per person is about 40% of that in France, Germany or Japan, and about 25% of that in the USA. Yet, the GDP per person in China, in purchasing power parity terms, is a mere 20% of that in the first group of countries, and less than 15% of that in the USA. This discrepancy between energy use per person and GDP per person arises from the fact that China’s current energy intensity is substantially higher than all of these other countries, even in terms of purchasing power parity.

Given that China’s economy will continue growing at an annual rate of at least 5% and possibly as high as 8% for the next ten years, the size of the economy will approximately double between 2010 and 2020. Even if energy intensity falls by 20%, total energy use will still rise by about 60% over the next 10 years. Thus, as the figures being mentioned in the press suggest, total energy consumption will reach 4.0-4.2 billion tonnes of coal equivalent by 2015, up from about 3.1 billion in 2009, and may exceed 5.0 billion tonnes by 2020.

In 2009, China’s total energy consumption was equivalent to that of the USA and amounted to nearly 9% of the world total. By 2015, it will be greater than either the whole of North America today or the whole of Europe and the former Soviet Union combined today.

Coal will continue to dominate the fuel mix, though the government hopes to reduce its contribution from 70% today to 63% by 2015. Over this period natural gas, from various different sources, is to rise to 8% of the mix, up from 3.6% in 2009, and the total contribution from non-fossil fuel energy is to reach 11%, up from about 8% today. The share provided by oil will remain at about 18%.

Coal output in 2010 will probably reach 3.2 billion tonnes, up from 3.0 billion tonnes in 2009. The first nine months of 2010 saw net coal imports reach 105 million tonnes and the total for the year could be as high as 120 million tonnes, marginally higher than the 115 million tonnes of net imports in 2009.  Some officials have been saying that annual domestic coal production should be capped at 4.0 billion tonnes by 2015, on the grounds that higher levels of production risk undermining the effective management of the sector, of the coal resources and of the environment. If this policy is pursued then China’s net imports of coal may rise substantially over the coming decade.

Total oil consumption in 2010 may be as much as 7-8% higher than in 2009. Oil imports in first nine months of 2010 were up 24% on the same period in 2009, but this excessive jump is probably caused by the filling of strategic stocks.  Net imports of oil will continue to rise for the foreseeable future and may reach 400 million tonnes per year (8 million barrels per day) or more by 2020, double that of 2009. This is greater than the total present oil production in the Middle East.

The transport sector is one of the main drivers of rising oil demand. Motor vehicle sales have grown yet again and will probably reach 17 million in 2010, up 25% on 2009. The total number of road vehicles in China now stands at about 85 million. For comparison, China’s production of motor vehicles in 2009 was 13.8 million, 22% of the world total. This compares with annual production of 7.9 million vehicles in Japan and 5.7 million in the USA. However, as anybody who has visited China’s cities knows, vehicle use in terms of distance travelled per year does not appear rise as fast as vehicle ownership, on account of the intensifying traffic congestion.

China’s demand for natural gas is forecast to reach 200 billion cubic meters by 2015 and 250 billion cubic meters by 2020, up from 90 billion cubic metres in 2009. But domestic production cannot keep pace with this rate of growth. Even with expected contributions for unconventional sources of gas, imports of gas  are set to rise from 7.5 billion cubic metres in 2009 to as high as 100 billion cubic metres in 2020, unless the unconventional sources are hugely prolific. This level of imports would be greater than that of Germany or Japan today.

Electricity lies at the heart of any modern economy. Total generating capacity in China doubled the five years 2004-2009, from 440 GW to 874 GW. Though the rate of construction of new generating capacity has slowed from the peak of 100 GW per year in 2005 and 2006, and though many old plants have been closed, the total capacity is expected to reach 950 GW by the end of 2010, very close to the 1,000 GW in the USA. Looking further ahead the total generating capacity will probably rise to levels well above 1,600 GW by 2020.

Within this overall growth of power generating capacity, hydro-electricity is expected to grow from 207 GW to 270 GW by 2015, and to 320 GW by 2020. This is significantly below earlier targets of 400 GW for the year 2020. In contrast, the target for nuclear power continues to be raised. At the end of 2009, China had 9 GW of installed nuclear power capacity and 22 GW were under construction. Back in 2007, the government set an apparently ambitious goal of reaching 40 GW of nuclear capacity by 2020. This target has now been raised to 80 GW. This compares with 48 GW today in Japan, 63 GW in France and 100 GW in the USA.

Wind continues to attract substantial investment in China. During 2009, 12 GW of new capacity was added, bringing the total to 25 GW. By the end of 2010 this should reach 40 GW and could rise to 250 GW by 2020. At this time biomass and solar energy may provide 50 GW of power generating capacity.

These projections for non-thermal power generating capacity are indeed impressive, but the country will still require a minimum of 900 GW of thermal capacity to be available, and much of this will continue to be coal-fired.

The conclusion from this rough survey is that even if China succeeds in attaining its goals for energy intensity over the next ten years, energy consumption will continue to rise, and the country will have an ever increasing impact on international markets for energy raw materials, for energy products and for energy technologies, as well as on carbon dioxide emissions – for the simple reasons that it has a large population and is a growing industrial economy.


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