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16720_0610_froggatt_lahn

16720_0610_froggatt_lahn

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Published by: richardck30 on Jul 29, 2010
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10/25/2012

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Growth in China will impact upon the energy trade like

no other country in the world. Currently China’s energy

consumption is dominated by domestic coal. In the

electricity sector it provides 80% of the power. While

the Chinese government aims to reduce its share in the

mix, an additional 450 gigawatts (GW) of new coal-fred

generating capacity is planned between now and 2030. In

spite of China’s massive coal reserves, the pace of growth

is leading to signifcant coal imports. Recent Chinese

commercial investments in Australian coal demonstrate

this expectation. Domestic oil production in China is

expected to peak in 2013, while demand could more than

double by 2030. This would account for nearly half of the

predicted global increase over the same period. Because

of the toll the extra imports would take on China’s foreign

currency reserves and the volatility of the oil market, the

government is keen to encourage alternative transport

fuels at home as well as securing long-term oil supply

contracts at stable prices.

China is also becoming a major importer of gas, both

through pipelines from Turkmenistan (and later Russia

and Burma) and shipped liquid natural gas (LNG). By 2030,

around 50% of the country’s gas demand is expected

to be met by imports. Energy security is resulting in

strong policies to improve energy effciency and develop

renewable and nuclear energy. In the longer term, what

happens in the areas of policy and new technology to

reduce consumption in China, India and other developing

countries will shape and catalyse the energy transition in

the rest of the world.

Energy is a globalised commodity. Sudden demand

pressures for certain fuels in one place, coupled with

previous inadequate investment in the necessary resources

elsewhere, will push up prices on the international market.

As traditional Organisation for Economic Co-operation and

Development (OECD) countries decline as oil consumers,

so will their power as rule setters in the international oil

market. For example, Chinese strategic oil stocks (not yet

included in the International Energy Agency’s security

mechanism) will become vital to balancing global markets.

Before new models of international energy governance are

developed, insecurity will encourage strategic investments

by the most import-dependent countries. Together with

policies to reduce subsidies and increase effciency, these

trends will drive up fnal consumer prices for transport,

fuel, heat and electricity in the short to mid term.

While price rises will vary from country to country (see

Box 5), all businesses will be affected through their

own exposure to energy costs or that of their suppliers.

The more effcient will have an important competitive

advantage in times of high and volatile energy prices,

especially in energy-intensive sectors or where supply

chains are sensitive to energy costs.

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