The change in energy policy in China , gas for coal

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The change in energy policy in China , gas for coal

The world’s most populous country, with more than 1.3 billion people, is beginning to take a change in its energy policy seriously, adopting a proactive, cleaner and more efficient approach.

The Asian country has shares of CO2 emissions well above the average of other countries. In fact, China is the most polluting country on the planet, emitting more than 10 million metric tons of CO2 per year. It may be a little confusing to manipulate such figures, but when we say that the United States, the second most polluting country in the world, emits half of the polluting gases to the planet, these figures do not usually go unnoticed.

The 10 countries with the highest CO2 emissions on the planet | Source: Carbon Dioxide Information Analysis Center

The 10 countries with the highest CO2 emissions on the planet | Source: Carbon Dioxide Information Analysis Center

Being the culprit for 30% of the world’s pollution is not the prize that everyone would like to see, and China is therefore taking certain measures to make the grey area disappear in its cities.

BUT… HOW DID IT GET HERE?

Sometimes answering this question is more helpful than finding a solution to immediate problems. Here are some of the reasons for this level of pollution in China:

  1. Economic growth. The boost in investment, industry and infrastructure construction has led, apart from an annual GDP growth of 10%, to China becoming the largest consumer of energy on the planet since 2010.
  2. Coal as the main source of generation. The major counterpart to this economic growth is that, more than 67% of it, has been fuelled by the world’s most polluting fuel: coal.
  3. Low efficiency. Apart from how it feeds its economic growth, another major problem is the large amount of consumption of raw materials it must have to generate the same wealth as other countries such as Japan, Germany or the United Kingdom (between 200-300% more).
  4. Absence of prohibitive policies. Things are beginning to change, but until very recently, the Chinese government was relying on economic growth figures, without environmental protection incentives.

A NEW HORIZON: FROM GREY TO GREEN

Given the current circumstances in the country, there is no choice but to work on new, more efficient measures. Some of them are an anti-pollution plan in the city of Beijing, valued at more than US$3 billion, aimed at supporting renewable energy projects in rural areas or controlling sources of pollution such as coal and road vehicles.

A more recent measure has been to impose special CO2 emission limits on industries in certain regions of the Asian country, in particular the provinces of Shanxi and Shaanxi. These regions belong to two of the three provinces with the highest coal production, exceeding 900 million tonnes of coal per year (25% of the total in China). These areas will have a set of 25 emission standards to be met, to be integrated in October 2018 for a period of three years.

However, without a doubt, the greatest measure the country has implemented is its transition to another less polluting fuel, gas. China was responsible for approximately 33% of the global growth in gas demand worldwide in 2017. This has been due to the political effort to transform coal-fired power plants into gas for the industrial and domestic sectors.

Its growth in gas demand has been so pronounced that China has become the second largest LNG importer after Japan in 2017.

Increase in LNG imports by country in 2016 | Source: International Gas Union

Increase in LNG imports by country in 2016 | Source: International Gas Union

A FUTURE WITH EVEN MORE GAS

According to the main energy agencies, China’s growth rate in relation to gas demand is expected to increase. In fact, China will be the largest importer of gas in 2019, as it will not be able to meet domestic demand with the country’s generation alone.

According to the IEA, the global natural gas market is expected to grow by approximately 4 trillion cubic metres by 2023, with emerging Asian markets, especially China, accounting for 50% of the growth in gas consumption until 2023.

Global natural gas consumption growth between 2017-2023 | Source: IEA

Global natural gas consumption growth between 2017-2023 | Source: IEA

These figures are largely justified by the 8% annual increase in demand from the Chinese over the next five years. In fact, its imports will increase from 45% of its domestic demand to 39% today.

AND… WHAT ABOUT GAS PRICES?

A considerable increase in demand could cause gas prices to shift upwards, but this requires prior analysis of the other side of the balance, supply.

Who is going to cover this increase in demand? In order to provide an answer, we moved from Asia to the American continent, specifically the United States. Trump’s country is currently the largest producer of natural gas, representing the largest share of expansion that the supply of this commodity could suffer. The price boom in 2017, and its famous shale gas, have allowed it to return to production peaks, thus correcting its decline in 2016.

Just as China is expecting an increase in the demand for gas, the US is also expecting its production to increase, due to the future outlook for oil prices. This will lead to US production representing 45% of the increase in gas supply until 2023, of which 60% is expected to be exported via pipeline or LNG.

Increase in gas supply by country | Source: IEA

Increase in gas supply by country | Source: IEA

Now, on the table we have two players immersed in a trade war, with an impact on industrial and technological sectors, with tariffs valued at 36 billion dollars a day today.

The Chinese safeguard lies in Australia and Russia. Both countries are expected to increase exportable production by about 50 billion cubic meters, which could translate into an opportunity for China. However, these quantities will be insufficient to meet the demand of Asians and will therefore necessarily depend on American gas. If so, what will weigh more heavily on China: its energy policy or a trade war with the Americans?

Adrián Gil | Energy Consultant

By | 2018-07-10T09:27:57+00:00 July 10th, 2018|Categories: Featured, Gas, M·Blog|Tags: , , |0 Comments

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