China’s coal production and consumption: jam today and jam tomorrow?

News of coal trucks stuck in traffic jams reaches us from China each autumn, and serves to remind the world that China’s economy runs on coal. Yes, there is much talk and considerable action in renewable energy, nuclear energy, natural gas and energy efficiency, but coal still supplies some 70% of the country’s annual needs for primary commercial energy. Further, as China’s energy consumption continues to rise by about 10% per year, so does the amount of coal consumed and also the absolute quantity of carbon dioxide emissions –despite the achievements in reducing the GDP intensity of energy consumption and of carbon dioxide emissions.


Last year’s traffic jams kept trucks stuck for up to ten days on a 100 kilometre stretch of road from the coal fields of Inner Mongolia and was caused by road works on the Beijing-Tibet highway. This year’s jams occurred on a road which carries some 160 million tonnes of coal each year from a single county in the coal-rich Shaanxi Province of northern China.


These traffic jams tell us a number of things about China’s coal production and consumption.


The first insight is that China continues to have a problem moving energy from where it is produced to where it is consumed. This is a long-standing challenge, for most of the nation’s coal, oil and gas resources lie in the north and west of the country, whereas much of the economic activity has been in the south and east. Of this the government has long been aware. The last decade has seen this problem worsen for two reasons. First, annual domestic coal production doubled over the eight years from 2002 to 2010, from 1.5 to 3.2 billion tonnes, and continues to grow, albeit at a slower rate. Second, the new coal mines which have been opened in recent years lie progressively further to the north and west, in  Inner Mongolia and Shaanxi, and, in the future, in Gansu and Xinjiang. Although some of this coal will be used as a feedstock to manufacture chemicals, most will be used to meet the rapidly rising demand for electricity.


For this reason, the energy transport problem grows faster than the demand for and the production of coal. In order to address this problem the government has launched a programme to increase the capacity of the railways to transport coal from two billion tonnes in 2010 to three billion tonnes by 2015. In addition, the State Grid Corporation is constructing ultra-high voltage transmission lines to carry electricity from power plants constructed near the coal mines. These strategies were first proposed in a World Bank study in the early 1990s. Whether or not these investments will indeed alleviate the energy transport bottlenecks, as claimed by the government, remains to be seen, and much will depend on the rate of economic growth over the next few years.


This leads us to the second insight from the traffics jams and from these policy responses, which is that China still has plenty of coal to be exploited. Useful information on economically recoverable reserves of coal in China is very difficult to find. Estimates by international agencies lie in the range 114-320 billion tonnes. The higher estimate would give China the largest coal reserves in the world and would allow for nearly 100 years of production at present extraction rates. But new reserves continue to be discovered and we have yet to see any signal from the government that they wish exploration for new coal deposits to cease.


The observation of continued investment in both the extraction and transportation of coal points to the third insight, which is that China’s government sees the country relying on coal to supply a significant proportion of the country’s energy needs for many years to come. This is supported by the government’s active encouragement of the importation of coal. Although the level of coal imports in 2011 will probably fall short of the record of 165 million tonnes reached in 2010, it may reach 150 million tonnes. Further, the Chinese company, Shenhua, was awarded a 44% stake in a major coking coal mining project in Mongolia earlier this year. Much of this coal is likely to come south to China.


The actual level of future coal consumption in China will depend on the rate of economic growth, on the structure of the economy, on the success of efforts to enhance energy saving and energy efficiency, and on the steps taken to promote other forms of energy production. In the first seven months of 2011, electricity demand rose at an annualised rate of 12%, and coal consumption for the year may be as much as 10% higher than in 2010. Even though this rate of growth of demand for coal is likely to decline substantially in the next few years, total annual coal consumption could easily reach five billion tonnes by 2020. This is equivalent to the total consumption of coal in the world in 2002.


Given that the current top priorities for China’s government are to support economic growth and to maintain social stability, ensuring adequate supplies of energy is a critical task. For as long as demand for energy continues to grow rapidly, coal will remain the predominant source of primary energy. Only when the rate of growth of demand for energy slows down substantially will the development of new, cleaner forms of energy be able to make significant inroads into the dominance of coal in the energy mix.


This has implications for both international coal markets and for climate change. With China now producing and consuming more than 50% of the world’s annual coal output, minor fluctuations in the net import requirement will have significant consequences for international coal prices. The longer coal remains the dominant fuel in China, the greater will be the task of installing the capacity to capture and store carbon dioxide at the time that this technology becomes widely available and economically viable. And, yes, there will be traffic jams again next year.

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