It’s official. China is the world’s largest consumer of energy.
This happened a lot sooner — at least five years — than projected thanks to the disproportionate impact of the Great Recession on the U.S. relative to China. More significantly, this is an inexorable phenomenon as the IEA announcement notes:
Since 2000, China’s energy demand has doubled, yet on a per capita basis it is still only around one-third of the OECD average. Prospects for further growth are very strong considering the country’s low per-capita consumption level and the fact that China is the most populous nation on the planet, with more than 1.3 billion people.
Of course, this is no surprise to energy industry observers. In the recent past, energy growth in China has been the subject of numerous anecdotal tales. More importantly, it has cast a long shadow on energy dynamics in the developed world.
For example, higher power prices in the first half of this decade were attributed to the 10% annual growth rate of coal consumption in China. Two years ago, the high diesel-gasoline price differential was because of China’s dramatic spurt in diesel imports to fuel marginal power generation capacity in the wake of an unusually harsh winter. In the past year, energy circles have been abuzz with China’s green energy plans. The “Green Giant,” as it has been dubbed, built 12 gigawatts of wind capacity in 2009, has retired or plans to retire up to 35 gigawatts of small and relatively inefficient coal-fired power plants, build 20 nuclear reactors, and has committed to reduce its energy intensity by almost half.
In addition, it is implementing an aggressive outreach program to access energy assets globally. Recovering from a failed bid to acquire Unocal in 2005, China has purchased oil and gas fields in Central Asia, South America, Africa, and the Gulf of Mexico. It has supplemented asset acquisitions with a concerted diplomatic effort. As a result, it now attracts more barrels of Saudi crude oil than the U.S. and gas from places such as Australia, Malaysia, and Qatar, and even coal from the U.S. In similar vein, it continues to invest in critical energy infrastructure. For example, it has just completed a 1,100-mile pipeline to import gas from Central Asia and is amplifying its R&D and technology development capabilities in energy.
Interestingly, China has disputed IEA’s conclusion “highlighting the lack of clarity in China’s energy sector as well as the country’s unease at its growing global impact.” The IEA and China have been at loggerheads regarding data quality and access. Even so, China’s official estimate of energy consumption is a measly 1% lower than that of the U.S., a difference that would be most likely met in 2010.
While energy consumption per capita is much lower, China’s energy consumption per GDP is much higher than that of the U.S. Further, its energy mix is heavily dependent on coal, which contributes 66% of total demand in comparison to 22% in the U.S. Collectively, these two pieces of data show the intense draw of energy by the Chinese manufacturing sector.
Altering this energy mix will be very expensive but far more doable than suggested by some observers. This is because China’s energy infrastructure is not at a steady state and the large investments it will need to support higher energy demand per capita can be directed far more easily (given its political economy) to renewable energy sources. Indeed, the country’s on-going investments in green energy and its commitment to reduce emissions intensity reflect this thinking while responding to global pressure around climate change.
China as the New Energy Dragon is just the beginning of a fascinating story in the future of energy.
