focus on China
What can feed China?
“WE'RE definitely losing money this
year!” says Ms Kong at Yabao Plaza,
a well-known international clothing
wholesale market in Beijing.
“Take April as an example,” she
says, busy on her calculator, “On
7 April, I was fined ¥6000 because I
failed to dispatch a batch of clothes
to the importer on time. On 11 April,
As China's I was fined ¥11,400 for breaching
the delivery time required on another
economy
big contract. Then, on 17 April, I had
continues an indemnity of ¥4000 for failing
to boom, its on delivery of another batch. I can
understand that losing money is part
energy crisis of business but I can’t accept it when
is worsening it’s for this reason.”
– Lu Feng The reason? China’s energy crisis.
Kong’s supplier is a garment factory
investigates in Zhejiang, where electricity has
been in extremely short supply since
April 2003. As a result, the factory
only works two or three days a
week, and this is hurting business
downstream. “Most of my clients are
Russian importers,” Kong says. “If I
breach contracts all the time, they will
definitely not come to me the next
time.”
China’s State Grid Corporation
says that in 2004, 24 out of its 31
provinces faced an electricity shortfall
– two more than in 2003.
Along with electricity, China has
also experienced shortages of oil,
coal, gas and any other kind of energy
over recent years. It seems that
overnight China has become a giant,
which needs an unimaginable amount
of power to feed itself.
why the shortage?
For more than a decade, China’s
GDP has grown by over 8% a year,
much faster than any other country
in the world. Although the Chinese
government has recently realised that
this may not be good for the country’s
sustainable development and that
Top: Despite the it should pin more importance on
energy shortage, quality, the economy is still rushing
the boom goes on ahead with great momentum.
42 tce may 2005 wcce7 is coming to Glasgow... see www.chemengcongress2005.com
2004’s growth of 9.5% was even
ahead of 2003’s 9.1%, fuelling the
country’s huge thirst for energy. Last
year, China consumed 7% of the
world’s oil output, 31% of global coal
production and 13% of electricity, while
its GDP still only represents 4% of the
world’s total.
Today, China is the world’s second
largest consumer of oil, outstripped
only by the US. Of its 300m t/y
petroleum consumption, 120m t is
imported. Estimates say that if China
keeps growing at present rates, half of
its oil will come from imports by 2010.
By 2020, this will rise to 60%, hitting
87% by 2040.
While oil prices skyrocket, China’s
overseas oil exploitation seems to be
progressing slowly. In September 2003,
the Russian government agreed to build
an oil pipeline from Taichet in eastern
Siberia to the Pacific Ocean to serve
Japan, but rejected plans for a pipeline
from the Russian city of Angarsk to
Daqing in northeastern China.
China’s oil cooperation with African
countries like Sudan and Nigeria is also
experiencing ups and downs thanks to
local political instability.
Coal, which currently fuels 60% of
China’s energy needs, is also in short
supply in recent years. This seems
ridiculous, considering that China sits
on 11.1% of the world’s total coal
reserves.
However, Wu Yin, deputy director
of the Energy Bureau at the National
Development and Reform Commission
denies that coal is in short supply. He
claims that there was a small surplus
of supply in 2004 but he admits,
“power plants are facing the problem
of a shortage in the coal supply, which
is mainly caused by price disputes
between coal suppliers and power
plants.” Coal companies are reluctant to
supply power plants as their rates are
well below market levels.
In the long run, China’s coal
supply will inevitably fall short of
demand if bottlenecks like safety and
transportation cannot be removed.
Government reports show that China’s
coal industry still needs to spend
at least ¥50b to improve hazardous
working conditions. In 2003, 6434 coal
miners died in accidents, and in 2004
it was 6027 – some three quarters of
them in small coal-mines.
Transportation is a further problem.
Currently, 86% of China’s demonstrated
coal reserve is in remote and drought-
ridden central and eastern areas, and
nearly all the railways and roads from
the coal-mines are at or over capacity.
Gas is also in short supply. In
December 2004, because of the extreme
cold weather, natural gas demand has
become many times larger than other
seasons. And the recorded climax daily
demand for natural gas at Beijing this
winter has reached 22m m3, while
supply tops out at 19m m3 per day.
Despite this, Beijing has committed
itself to further expand the use of clean
resources like natural gas.
Gas demand is forecast to reach
5.8 b m3/y by the time the Olympics
come to Beijing in 2008, still leaving
2.5b m3/y in excess over the current
supply capacity.
Now the Government is pinning its
hopes on the construction of a second,
3b m3/y gas pipeline from Shaanxi to
Bejing, which is due to be completed in
September 2005.
the way out
Experts suggest there are at least five
ways to ease China’s immense demand
for energy.
• Firstly, build up the country’s oil
reserves. Because of the absence of a
strategic reserve, China has to rely on
huge oil imports to satisfy domestic
demand, which not only greatly boosts
international oil prices but means that
China suffers immensely from high
prices itself. China’s surging demand is
widely thought to have been one of the
main factors behind the 65% increase
in oil prices in 2004.

Last year, China’s government gave
the go-ahead for the construction of
four huge oil storage tanks, which are
expected to be completed in 2010.
They will have a combined capacity
of 14m t – equivalent to about 104m
bbl – enough to cover roughly 30 days'
imports at current levels. Filling these
tanks will mean buying between 35,000
and 65,000 bbl/d between 2006 and
2010, analysts say.
China’s eventual goal is a 90-day
strategic petroleum reserve, which it is
expected to realise in 2015. Assuming
GDP growth of 6.5%/y, this would take
885m bbl by 2020, which is bound
to have an enormous impact on the
world’s oil markets.
• Secondly, find substitutes. China's
National Development and Reform
Commission favours coal as an energy
source, because it is abundant and
offers a secure supply. Because of this,
there is a great deal of interest in coal
liquefaction.
Three years ago, China’s largest coal
company, Shenhua Group Corporation,
signed a licence agreement with
Hydrocarbon Technologies of the US to
build the first direct coal liquefaction
plant in China. The ¥24.5b plant is due
to be completed in 2007 and will have
an initial capacity of 1m t of oil a year,
rising to 10m t/y by 2010.
Two indirect coal liquefaction plants
are under consideration. Shenhua Group
and Ningxia Coal Industry are both
currently working with Sasol and Shell
to see if the idea is practical. “It is a
pre-feasibility study. It’s the beginning
of the process of looking at what the
opportunities are,” says Nick Wood,
Shell’s spokesman in Beijing. “It’s very
early days.” The Chinese government
itself is looking to invest ¥30b in each
new coal-to-fuels plant. Proponents of
coal liquefaction, such as professor Tao
Shuren at China University of Mining
and Technology, stress the strategic
importance of the technology.
However, not everyone believes
coal liquefaction is the way forward.
Feng Fei, director at the Research
Department of Industrial Economy,
says that by 2010 liquefied coal will
only supply 10m t/y of refined oil – a
negligible amount considering that
demand is expected to hit 350m t/y by
then. The relatively high cost of coal
liquefaction is another concern.
• Thirdly: encourage mass exploitation
of natural gas, as advocated by the
China State Energy Bureau. China’s
proven reserves of natural gas total
wcce7 is coming to Glasgow... see www.chemengcongress2005.com
43 trillion m3. With oil becoming
scarce in China, customers, from
industry to public transport, are
switching to gas.
China’s longest gas pipeline,
which extends more than 4000 km
from remote western China’s Xinjiang
Autonomous Region all the way
to Shanghai, started commercial
operation at the end of 2004. The
pipeline has a capacity of 12b m3/y; a
second pipeline from Russia to South
Korea and China is currently under
construction.
The good news for foreign investors
is that the Chinese government
has fully opened up its natural
gas industry, encouraging foreign
investors to participate in everything
from gas exploitation to infrastructure
construction, building gas power
stations, city gas projects and more.
Building the infrastructure will cost
over ¥220b between 2002–2020. This
will build a 50,000 km gas pipeline,
construct several huge liquefied
natural gas (LNG) storage stations and
build LNG transport infrastructure.
The Chinese government also
promised to allow foreign companies
greater participation in natural gas
electricity generation. Currently,
around 14% of electricity consumed
in China is generated from natural gas
and, in future, the percentage will
rise to over 30%. “Natural gas will
be one of the most dynamic fields of
international cooperation in China,”
said Liu Keyu, deputy director at the
Economic and Technology Research
Centre.
focus on China
• Fourthly: alternative energy sources.
The Chinese government has great
hopes for nuclear power, which is seen
as clean and cost-effective. Currently
there are 11 nuclear power plants in
China, nine of which are in commercial
use, providing around 2% of the
country’s electricity. But according
to Kang Rixin, general manager at
China National Nuclear Corporation,
nuclear power should account for 4%
of electricity by 2020. “By 2020 we
will have around 40 nuclear reactors.
But this means we still need to build
30 nuclear reactors in the coming 15
years.”
Wind power has been somewhat
neglected in China, but as supply of
other forms of energy is becoming
short, wind power is receiving more
interest.
He Zuoma at the Chinese Academy
of Sciences says that China has a
proven wind resource of at least 259m
kW. Adding inshore wind potential
would bring China’s wind power
capacity to over 1000 GW – two and
a half times the capacity of China’s
water power.
Last year, China’s largest wind
power station project, also the
biggest in the whole Asian region,
was launched in Rudong in eastern
China. The 850,000 kW, ¥5b project
will generate over 250m kWh once
it starts operations in the second
quarter of 2005. Shanghai is also
planning to exploit wind power. It is China’s coal
estimated that by 2015, wind power struggles
can cover 3% of the city’s electricity with safety
consumption. and transport
According to Wu Guihui, deputy bottlenecks
may 2005 tce 43
 focus on China

director at the Energy Bureau, by 2020,
China’s wind power plants will have a
combined capacity of 20m kW, which
will lift the share of wind power in
China’s energy mix from the current
0.11% to 1% of annual electricity
consumption.
Other energy sources, like water,
also have a role to play. Recent
estimates suggest that hydroelectric
power could generate 448 GW,
possibly producing an annual power
output of 2470b kWh, equivalent to
that produced by burning 900m t of
coal each year. In 2003, installed
hydroelectric dams had a capacity
of just over 92 GW – 24% of China’s
total electric power – with annual
generation of 283b kWh, accounting
for about 14.8% of the country’s
total electricity consumption. This is
largely thanks to the completion of the
Yangtze Three Gorges dam.
The use of other power sources
such as solar, biomass or geothermal
power is still in its infancy due to their
low density and efficiency in energy
transformation, though they might
make some contribution in the future.
• Finally: energy saving. China’s energy
efficiency rating is among the lowest
in the world. For instance, every kg
of coal only produces $0.36 of GDP in
China, compared with a global average
of $1.86 and a record of $5.58 in
Japan.
Chinese experts now believe that
energy efficiency should be listed
after coal, petroleum, natural gas and
electricity, as the ‘fifth energy’ in the
country. Zhao Jiarong, director at the
department of environment resources
conservation under the National
Development and Reform Commission,
said at a news conference that China
could save up to 300m t of standard
coal each year – around 18% of its
2004 coal consumption.
At the end of 2004, China launched
the biggest and most ambitious energy-
saving plan in the country’s history.
The goal is to produce $1200 of GDP for
each 2.25 t of coal consumed, by 2010
– that would be a saving of 0.43 t on
the 2002 figure. By 2020, the figure is
projected to decline to 1.54 t.
envisioning the future
It is understandable that China’s strong
GDP growth is powered by great energy
consumption. The country is a
The combined ravenous importer
capacity of new of oil and oil
electric power plants products
China builds each year is equal
to that of half in Britain, or the same
as the whole Brazilian installations.
With this frenetic construction of
infrastructure, it is believed that in
the future, when the economy cools
down, China will inevitably have
problems such as a large surplus of
electricity capacity and a shortage of
non-renewable resources like coal, as it
plays a dominant role in China’s current
energy consumption. So what China
really needs now maybe is not only to
meet the current huge consumption of
energy, but more importantly to bring
its economic development onto a more
healthy and more sustainable track. ■

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