Energy use in China: trends in oil demand and imports.

AuthorGuth, Joanne
PositionINTERNATIONAL TRADE DEVELOPMENTS

Since 1994 China has been the second largest consumer of energy, lagging behind only the United States. In 2002 it surpassed Japan to also become the second largest consumer of oil, and by 2003 accounted for 7.6 percent of total world oil use and 12.1 percent of world energy use. As China becomes an increasingly important player in world energy markets, its behavior has the potential to impact world energy prices. This article provides an overview of energy use in China, with specific attention to trends in Chinese oil production and consumption.

Overview of the Chinese Economy and Energy Sector

In 2003, China was the second largest economy in the world, after the United States, on a purchasing power parity basis. (2) China has experienced real GDP growth of over 7 percent for each of the last 5 years, (3) growing an impressive 9.1 percent in 2003 and 9.7 percent at an annualized rate in the first quarter of 2004. (4) Figure 1 demonstrates the growing share of GDP that has been accounted for by the energy-intensive industry sector, reaching 51.1 percent of GDP in 2002, while services have remained stable at roughly 33 percent and agriculture has seen its share decline to 15.4 percent, from over 25 percent in 1990. These trends are expected to continue, as the agricultural sector grew only 2. (5) percent in 2003, while industry grew 17.7 percent. (5) Industrial production is concentrated along the coastal regions, with urban areas in Southeast China experiencing more rapid development than other areas of the country.

[FIGURE 1 OMITTED]

In 2003, China consumed 1178.3 million tons of oil equivalent (t.o.e.), (6) a 13.8 percent increase from 2002 and accounting for 12.1 percent of the world total, whereas the United States, the largest energy consumer in the world, used 2297.8 million t.o.e., accounting for 23.6 percent of total world energy consumption. The Russian Federation, the third largest energy consumer, used 670.8 million tons in the same year. Whereas China's energy consumption increased steadily in the early 1990s, it decreased from 1998 to 2000, rose again in 2001 and surpassed its 1997 value in 2002. (7)

After climbing during the first half of the 1990s, per capita energy consumption in China has remained relatively stable since 1996, at around 900 kilograms (kg) of oil equivalent per year. In 2001 (the latest year data are available), the United States consumed 7,996 kg of oil equivalent per capita. (8) Growing GDP and rising development standards could contribute to increased per capita energy consumption in China.

Chinese demand for energy has been increasing rapidly, but obstacles such as a limited rate of exploration for new discoveries, inadequate infrastructure, and government control of the sector, including price setting, have led to widespread energy shortages. Blackouts have become increasingly common and hold the potential to limit expansion of industrial output. (9) The Chinese State Council has demanded increased spending to address blackouts, but until June 2004 kept a tight grip on prices. (10) Artificially low prices set by the government kept energy demand high, but government officials were concerned that raising prices could interfere with farming and capital construction. (11) Chinese officials estimate an 11-percent increase in electricity consumption in 2004 over 2003, and indicated that areas will continue to be subject to staggered blackouts and electricity rationing. (12)

Coal is China's primary energy source, providing over 70 percent of the total energy used throughout the 1990s and, with 799.7 million t.o.e., accounted for 68 percent of energy consumption in 2003. Oil ranked second, accounting for 23 percent of energy consumption. Hydroelectricity made up 5.5 percent of energy consumption and natural gas comprised 2.5 percent. Nuclear power accounted for less than 1 percent of total energy consumed within China. (13)

Although absolute levels of coal use have been increasing (with the exception of the 1998-2000 period), coal's contribution to the total amount of energy used has been declining, while consumption of energy derived from oil and hydro-power has increased. (14) Coal will likely continue to be important in China, as the International Energy Agency projects that 34.4 percent of the world's coal mining investment over the next 20 years will be in China. (15) However, investment in other forms of energy is expected to grow as well. Government concerns regarding the environmental consequences of extensive coal use may accelerate this transition. (16)

China has placed an increased emphasis on hydro-power; when the Three Gorges project on the Yangtze River is completed in 2009 it will be the world's largest capacity power plant, at more than 18,000 megawatt-electric (MWe), which is 18 gigawatts (GW). Already, with just 7 of its 26 turbines operating, it is the largest hydroelectric power plant in China, with a capacity of 4,970 MWe. (17) Planning for other hydro-power projects is underway.

Production capacity for other types of energy is also likely to increase, with plans to build four new nuclear-power stations by 2020. (18) Nuclear power currently accounts for 1.6 percent of energy capacity, but the government hopes to expand this figure to 4 percent. (19) Plans are also underway to construct a pipeline to transport natural gas from the Tarim gasfield in the northwest to Shanghai on the eastern coast. (20) Additionally, continued infrastructure improvements may allow the southern inland areas to use forms of energy other than the nearby coal, increasing demand for a wider variety of energy sources. With oilfields throughout Northeast China, the Tarim basin in the northwest, and extensive offshore drilling, there is also significant potential for an increase in oil production to help meet the rising demand for energy.

Domestic Oil Production and Import Sources

In 1998 the Chinese government reorganized a variety of state owned oil assets into two vertically organized, regional firms: The China National Petroleum Corporation (CNPC) in the north and west and the China Petrochemical Corporation (Sinopec) in the south. Oil production in China is dominated by these firms on land and by the China National Offshore Oil Corporation (CNOOC) for all offshore exploration and production. Offshore energy sources account for...

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