China’s GDP grew by 6.9 per cent last year, its slowest in 25 years. But that must be the envy of the world, which did not even do half too on average. Even though China’s electricity demand rose by only 0.5 per cent, overall energy consumption fell by 0.5 per cent, its first negative growth in 30 years.
While both structural and business cycle factors are responsible for China’s stop by energy demand, it is a mistake to blame China for the dramatic decline of worldwide oil and gas prices.
So, what explains the discrepancy of China adding over US$700 billion in value to its GDP in 2015 – the same as 40 percent of Canada’s economy – but using less power than the year before?
First, the earth’s second-largest economy is becoming more effective, with its energy use per unit of GDP decreasing 5.6 per cent this past year when compared with 2014. Overall, the amount of GDP China produced between 2006 and 2010 was generated by 20 percent less energy within the subsequent five years, exceeding the government’s 16 per cent reduction target.
Second, China’s industrial sector, the biggest energy consumer, has been shrinking; now comprising 40 per cent of the economy. But the service sector is continuing to grow steadily in the past five years, representing 50 plus percent from the economy last year and contributing to over 60 percent of the country’s growth.
China’s oil consumption increased eight per cent in 2015, the second-highest annual increase after 2010
Third, many Chinese manufacturers trusted the leftover inventory they produced or bought in 2014 to carry on their output in 2015, having a minimum increase in power consumption. This “de-inventory” process, having a gap between high GDP numbers with low power consumption, also happened in both 1997 throughout the Asian economic crisis and 2008 throughout the world financial crisis.
But, with regards to its gas and oil use, data show that China’s appetite continues to grow. China’s oil consumption increased eight per cent in 2015, the second-highest annual increase after 2010. China imported 7.82 million barrels per day (bpd) of crude last December, and 2015 oil imports averaged 6.71 million bpd, both record highs. The nation’s natural gas and LNG demands also increased, although without double-digit growth as in previous years.
Related
- Canadian energy to the rescue: How Canada’s resources can help to eliminate China’s emissionsChina’s ‘new normal’ is still astonishing
-
-
-
Here may be the interesting phenomenon of China’s energy-consuming behaviour: While overall power usage remained flat this past year, the proportion of coal use dropped by four percent over 2014 while other sources of energy increased. Which shift was mainly driven by very determined government policies.
For decades, China’s unprecedented industrialization process continues to be fuelled primarily by coal, which makes up nearly 70 per cent from the country’s energy mix. Near to 80 percent of China’s electricity is generated by coal. The country may be the largest producer and importer of coal on the planet, and uses 50 plus percent of total global output annually.
But china leadership is facing intense domestic and international pressure to solve its environmental challenges – chiefly air pollution and CO2 emissions.
So China’s central planners used many regulatory and material incentives to inspire energy sources other than coal. The plan is to increase the share of non-fossil energy in the current 11 percent to 15 per cent by 2020, and the part of natural gas and LNG, currently at six percent, will more than double in five years. To discourage coal use, local governments have been forwarded to offer higher payments for electricity generated by gas rather than coal.
With all the coal-producing capacity it’s accumulated over the past two decades, halting China’s massive coal industry has not been easy. More than 50 per cent of the added coal output last year was neither planned nor permitted.
But the authorities are allocating US$4.5 billion in the next 3 years to close some 4,900 coal mines, and re-direct one million coal miners, or 23 per cent of their total coal-mining workforce, with other employment.
This might not be great news for that coal producers in China or coal exporters around the world. But China’s emerging new energy structure, while less dependent on coal, is nice news for oil and gas producers in addition to non-fossil powers: China is by far still the fastest-growing market for all these energy products.
Wenran Jiang may be the Director from the Canada-China Energy & Environment Forum along with a former special adviser to the Alberta Department of Energy.
