[East Asia Forum] Outlook for energy security of China

February 27th, 2013

Author: Kejun Jiang, NDRC


Energy security has typically focused on energy imports, but increasingly the security of energy production, energy transportation, the energy environment, energy prices and energy investment have also become important considerations.

Given this diversification of interests, China must now consider its energy security from a new perspective.

Due to the rapid development of transportation technologies, energy-efficient, alternative-fuel and electric vehicles have made good progress across the world. This is determining the direction of future development. Sources including the International Energy Agency’s World Energy Outlook have concluded that world oil consumption will reach its peak before 2025. For China as well, oil consumption will reach its peak before 2025.

The global transportation sector will be the major consumer of oil. At present, the world’s major oil-consuming countries are strongly promoting energy-efficient, alternative-fuel and electric vehicles. Energy-efficient cars now occupy a major share in the market. Many of these vehicles require only 6 litres of fuel per 100 kilometres, with some using as little as four litres per 100 kilometres. At the same time, natural gas and bio-fuels have also entered the field. The United States is now promoting the development of natural gas vehicles. And after considerable progress in the past few years, bio-fuels are entering a steady phase of development; the bio-fuel sector is waiting on a second generation of manufacturing technology to allow it to fully commercialise. Based on current progress, the next rapid growth period for bio-fuels should arrive in five years’ time.

Electric vehicles have quickly been promoted internationally and have entered large-scale commercial use in the United States and Japan. This rapid progress and the environmentally friendly features of electric vehicles can already be held up to the public as evidence of a successful and mature technology. This success should lead to a rapid development in electric vehicles in the next five years. These factors will make automotive oil consumption in the United States and Europe reach its peak soon.

A similar situation applies to China. Ownership of vehicles in China may reach 400 million in 2030, with the increase in vehicles mainly relating to automobiles. If these new vehicles are mainly private cars, China would be able to limit its fuel consumption to eight litres per 100 kilometres, or even to below seven litres per 100 kilometres, with the proper government policies. By 2020, China’s new cars are expected to consume less than six litres per 100 kilometres. With the annual running distance of private cars around 1600 kilometres and with the development of alternative fuels and electric vehicles, gasoline and diesel consumption for 100 million private cars (an approximation of the current figure) will be below 50 million tons or even 30 million tons in the long term. Given these factors, China should already be thinking about when it is likely to reach peak oil consumption, and its national oil companies should be revising their strategies accordingly.

China’s energy consumption grew rapidly in the past decade, with consumption of fossil fuels the major contribution. Yet the exploration, production, import and combustion of fossil fuels have also raised concerns about health, air quality and other environmental conditions, challenging national strategies relating to energy security and sustainable development. As the international community enters a relatively stable era and China diversifies its energy imports, the difficulty of securing energy imports and exports is gradually weakening. Hence, China is currently well placed to focus on other aspects of its long-term energy security. Coal, for example, has long safeguarded China’s energy security, but this situation is gradually becoming more complex.

China imports a great deal of coal, but it is still considered a more secure option than oil because the latter relies on imports from often-volatile regions. Nevertheless, there now appears to be a growing number of problems between China and various coal exporters, such as increased tensions with Vietnam over competing claims to the South China Sea. Climate change policies will potentially impact on coal prices in other countries, like Australia. Meanwhile, frequent accidents in coal mining and high mortality rates caused by occupational diseases are also major factors in energy security, attracting the attention of both the Chinese government and the public. These factors will be unique security issues for China.

The scale of coal utilisation technologies is increasing. In the power generation industry, which accounts for more than half of China’s coal consumption, new coal-fired generators produced up to one million kilowatts. If such a large-scale unit breaks down the entire power grid is substantially influenced.

Coal combustion is now also the primary contributor to air pollution and greenhouse gases in China. Even with the most advanced de-dusting facilities, problems relating to fine particle matter (PM2.5), which is a health risk, caused by coal combustion will not be solved. Many parts of China took action to reduce or even desert coal consumption to improve air quality after reports of the effects of exposure of to PM2.5 were made available to the government and the public earlier this year.

Relative to coal and oil, the exploitation and utilisation of natural gas is cleaner. From the perspective of energy security, demand for natural gas in China will increase rapidly in the near future. Due to a shortage of domestic production, imports of natural gas are likely to be more than 50 per cent, constituting a problem of external dependence similar to that of oil. In contrast to oil, however, exporters of natural gases are located in relatively stable regions. Price is thus more likely to be an influential factor. Sources of natural gas imports should also be diversified early so China can take the initiative in this still emerging market.

Another security-related problem of natural gas is transportation safety. Memories of the gas explosion in Kai County several years ago are still fresh. The miles covered by China’s natural gas pipelines will measure more than one hundred thousand kilometres in the future. With such long distances, there must be good mechanisms to guarantee safety and security.

China energy future looks positive, with a movement away from pollution heavy power sources to more environmentally friendly ones without much associated additional cost. Much work still needs to be done however, to secure these trends and ensure they are not derailed by bad policy.

Kejun Jiang is Director of the Energy Research Institute, National Development and Reform Commission, China.  

This article appeared in the most recent edition of the East Asia Forum Quarterly,‘Energy, Resources and Food’.


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