China’s growing energy use and effect on U.S. jobs and prices

[ China’s huge appetite for energy creates a risk of war over the remaining oil resources.  But we are unlikely to take them on directly in the South Sea because they are so much better prepared to launch a cyberattack against us than we are against them.  If we clash with China, it will be in the sands of the Middle East, where two-thirds of remaining oil reserves lie (that is, if Middle Eastern countries didn’t exaggerate their reserves).

Alice Friedemann  author of “When Trucks Stop Running: Energy and the Future of Transportation, 2015, Springer]

House 112-31. April 4, 2011. The American Energy Initiative #2: China’s energy portfolio and the implications for jobs and energy prices in the United States.  U.S. House of Representatives.   110 pages.


ED WHITFIELD, KENTUCKY.  The dominant area focused in today’s discussion is the rising role of China. For the past 30 years China has experienced a remarkable economic boom in an effort to modernize and assert its position in the global economy. In fact, the International Energy Agency recently projected that the world will require 40 percent more energy in the next 25 years. Now, that is quite an increase in demand for energy.

The economic progress in China has been made possible through the availability of affordable, secure, and abundant sources of energy. China understands the importance of acquiring the resources necessary to power new manufacturing consumers, fuel millions of new automobiles, and electrify the homes and businesses of the world’s largest population. Becoming the largest energy consumer in the world has helped China become the U.S. chief economic competitor. As a result of the tremendous surge in demand, world energy markets have taken notice and are adjusting. China’s increased oil demand over the past 10 years has had a major impact on global oil prices. Coal consumption in China has risen at a tremendous rate and is projected to continue on the same path for the foreseeable future. Nuclear renewable and alternative energy technologies have also taken significant steps forward this decade as well. China is playing for keeps in its quest to modernize this economy to become globally competitive and improve the standard of living for 1.3 billion citizens. To do so, it realizes the value in pursuing energy in all its forms. Rather than abandoning fossil fuels in exchange for renewable energy, China continues to burn coal at an astonishing rate, using 3.5 times more coal than the U.S. and building, last year, one new coal-fired plant every 2 weeks with technology that exceeds our own.

During the recession, instead of billions of dollars of wasteful stimulus spending, the Chinese put their billions toward ensuring oil resources around the globe, some with our allies but some with countries who are not.  China is continuing to build 25 nuclear plants, 25 times more than the U.S. is building. China leads the world in hydroelectricity usage.

On the subject of oil, there are about 85 million barrels of oil being produced each day throughout the world. They are projecting by 2030 that China alone may be consuming 50 million barrels of oil. That is a lot of oil.

STEVEN KOPITS, MANAGING DIRECTOR, DOUGLAS–WESTWOOD.  China consumes 10 million barrels of oil per day on global consumption of about 88 million barrels. China is already the second biggest consumer of oil in the world. How will China’s demand develop? The historical record suggests that oil demand evolves quite similarly across a range of countries, with demand ascending an ‘‘S’’ curve as the country motorizes. China entered this ‘‘S’’ curve around 2005 and we forecast China to reach steady state consumption in a 2025 to 2030 period. At that time, we would anticipate that China might have per capita oil consumption around that of South Korea, implying demand in excess of 50 million barrels a day. That contrasts to the U.S. with 19 million barrels of consumption today. Further, we see China surpassing U.S. consumption levels around 2018.

As for China’s oil supply, China’s conventional oil fields are mature. The country currently produces around 4.5 million barrels a day and this level is anticipated to remain broadly stable for the rest of the decade. Like the U.S., China currently meets about half its needs through imports, and this is new.

As late as the 1990s, China was self-reliant in oil. Today it must be active in global markets to secure domestic needs. Indeed it has to obtain about an additional 1 million barrels per day each year just to keep up with the demand, and the situation will deteriorate markedly in the coming decade. By 2020 China’s dependence on foreign oil may be as much as 80 percent, a vulnerability is a cause for concern for that country’s policymakers.

Natural gas. China consumed 3.9 trillion cubic feet of natural gas in 2010. The U.S. consumes six times as much. China’s per capita consumption is even lower, about 1/26th of U.S. As a consequence, there is considerable scope for rapid consumption growth of natural gas in China well past 2030. China’s natural gas demand surged 22 percent last year and growth has averaged nearly 15 percent over the last decade annually. We anticipate this pace to continue. This would imply demand doubling to 2015 and nearly quadrupling from current levels to 2020.

China’s natural gas production has tripled in the last decade from 1 trillion cubic feet in 2000 to 3.3 trillion cubic feet in 2010, a growth rate over 13 percent per annum. We project this to double to 6 trillion cubic feet in 2015 and nearly triple to 8.6 trillion cubic feet in 2020, implying a 10 percent growth rate for the balance of the decade. Coal bed methane and shale gas are hoped each to contribute 5 to 10 percent of the natural gas supply in 10 years’ time. As late as 2006, China was self-sufficient in natural gas; however, the country has been a net importer since then, with imports soaring to 550 billion cubic feet in 2010. Our forecast calls for imports of 1.5 trillion cubic feet by 2015, rising to 4 trillion cubic feet by 2020, representing an import dependence of more than 30 percent by that time.

Indeed by the end of decade, China may import more than total consumption today. China has three leading options for the import of natural gas: Central Asia, Russia, and LNG shipments. Overall, China’s natural gas import prospects look promising from a diversity of sources, each with substantial supply capacity.

The Chinese oil and gas sector comprises essentially of three companies:  Sinopec, PetroChina, and CNOOC. Sinopec and PetroChina operate primarily in onshore fields and have refining and distribution operations. CNOOC specializes in offshore oil and gas exploration and production, although it is has diversified recently. All three Chinese majors are medium- to large-size oil companies and have a combined market capitalization of about $450 billion. That is about the market cap of Exxon. PetroChina, the largest of the three, has about the same capitalization as General Electric. The shares of all three companies are listed on the New York Stock Exchange

China’s oil demand will likely keep pressures on oil prices for the indefinite future.

FREDRICK PALMER, CEO of the World Coal Association (WCA). WCA is the global voice of coal for international producers from the United States, Australia, South Africa, India, China, Europe and Indonesia.

Energy is as essential as food, shelter, and clothing. The United States has linked life expectancy and income with per capita energy use. The World Resources Institute found that with every 10- fold increase in energy use, individuals lived 10 years longer. Half the world population, 3.6 billion people, lack adequate access to modern power.

As many of you know, energy disparities are growing in your own districts. Studies show that today’s middle-class Americans pay a disproportionate amount of their after-tax income on energy,

Energy inequality will only escalate as populations multiply and electricity use increases. The world is in the early stages of global hyper-growth and energy demand, as nations such as China, India and Indonesia industrialize and urbanize. The International Energy Agency projects that nations will require 40 percent more energy in the next quarter century. We believe coal is the only fuel with the low cost and large scale to satisfy this long-term need. Alternatives to coal are limited, strained, or centered in political flashpoints.

The world has trillions of tons of coal resources. That is why coal has been the fastest growing fuel in the world for the last decade, reaching about 6.5 billion tons of coal consumption per year in 2010. Coal was the catalyst for economic growth, in the last 20 years has almost doubled with an increase of about 3 billion tons of coal per year.  China’s coal consumption in the last 10 years has more than doubled to more than 3.5 billion tons in 2011, as the chairman noted. China alone is home to 36 percent of the world’s most advanced coal fleet, and the growth of goal use will approach 4.5 billion tons per year by 2015.

DEBORAH SELIGSOHN, Senior Advisor to the World Resources Institute’s Climate and Energy program in Beijing.

Energy security has always been very important to China. As a number of people have already noted, China is very dependent on imported oil. It has also depended on trying to move coal around the country, which can be difficult, especially in snowstorms and dealing with rail capacity. While it is true that China is building coal plants now, every 2 weeks; remember that 4 years ago it was two plants a week.

MARY J. HUTZLER, senior fellow with the Institute for Energy Research.

Why is China Building Wind and Solar Capacity?   China builds wind and solar partly because ratepayers in other countries pay them to do so. China has taken advantage of the Clean Development Mechanism (CDM) under the Kyoto Protocol to obtain funding for is solar and wind power. Under this program, administered by the United Nations, wealthy countries can contribute funds and get credit for clean technology built elsewhere as long as it is additional – technology that would not have been built otherwise. China is the world’s largest beneficiary of the program to the point where about 30% of its wind capacity is not operable because it Is not connected to the grid.  At the end of 2010 China had 42,287 MW of capacity, 5% more than the U.S (40,180).

China has a goal of producing 15 percent of its primary energy consumption from carbon-free energy by 2020. It expects to meet that goal primarily with hydroelectric and nuclear technologies because non-hydro renewables, mainly wind and solar, supply only a small amount of energy on a primary consumption basis. China is planning on hydroelectric power to supply 9 to 10 percentage points of its 15 percent goal by reaching a capacity level of 300 gigawatts, about 50 percent more than it has today.

At the pace China is adding hydroelectric capacity, it will have not trouble exceeding that goal by 2020. It currently has twice the amount of hydroelectric capacity as the U.S. has, and will have almost four times as much once it reaches its goal. China is expecting nuclear power to contribute up to 6 percentage points towards its 15 percent goal in 2020. China has 13 nuclear reactors operating, and at least 25 reactors under construction, half of the units in the world’s construction pipeline.

China’s goal for wind in 2020 is 150 gigawatts, and it is almost one-third of the way there. As Mr. Waxman noted, China now has more installed wind power than any country in the world, but the U.S. is a close second. Because China’s wind capacity is not all connected to the grid, the U.S. Has 30 percent more usable wind capacity than China.

China has one-fourth the solar capacity of the U.S. and generates a mere 1/100th  of a percent of its electricity from solar. So China does not have much solar capacity. It leads the world in solar cell manufacturing, exporting 95 percent of its production. Because manufacturing costs are lower in China, some U.S. solar manufacturers are moving there.

China relies on coal for over 70 percent of its energy and over 80 percent of its electricity. The U.S. relies on coal for 21 percent of its energy and 45 percent of its electricity. According to the Energy Information Administration, China will be heavily reliant on coal 25 years from now, generating 74 percent of its electricity from it. With its massive coal use, China will be emitting more carbon dioxide emissions than any other country in the world, over 30 percent of the world’s total in 2035, and twice the amount the U.S. is expected to emit. China passed the CO2 emissions years ago, and recently in energy use.

In summary, the Chinese are not fixated solely on green technology. China is a on a fast track to bring on line new generating units of all types. Because China is endowed with a sizeable amount of resources, and because coal is the cheapest energy source in China, coal-fired generating additions will far outpace those of other technologies.



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