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How much more will China economy grow? Rice University study says Asian giant’s oil consumption possibly could match that of U.S. by 2040; new car fever sweeps the nation Wesley Loy For Petroleum News
China’s emergence as an economic powerhouse has received plenty of notice.
Now comes a startling new picture of that country’s phenomenal growth.
China’s total oil demand could reach more than 19 million barrels per day by 2040, a level comparable to current U.S. consumption, says a report from Rice University’s James A. Baker III Institute for Public Policy.
“Already, China’s growing economy has been a driver of global commodity markets in recent years. Since the economic reforms begun in 1978, China’s government has succeeded in lifting hundreds of millions of Chinese citizens out of poverty, and provided employment opportunities that have moved much of the population away from subsistence activities,” says the Baker study’s executive summary. “China is now the world’s second-largest economy and second-largest consumer of hydrocarbons. In fact, soaring Chinese oil and natural gas demand has become a major feature influencing global energy market trends.”
The Dec. 2 report, titled “The Rise of China and Its Energy Implications,” reviews several important topics including who controls the country’s petroleum industry, the Chinese mania for private auto ownership, China’s efforts to secure foreign oil production, and prospects for development of the country’s vast unconventional gas resources.
Oil and Communist Party China’s government stresses central planning, but its official bureaucratic institutions guiding energy policy, including the National Energy Commission, “are small and not very powerful,” the Baker report says.
“These institutions lack the authority, autonomy, manpower, and technical experience to supersede informal networks within the Communist Party or to assert themselves over localities and provincial governments.”
China created the National Energy Commission, or NEC, to reduce the country’s dependence on domestic and imported oil, to expand renewable energy supply, and to promote energy conservation.
But the commission lacks people with industry experience or ties to regions rich in energy resources, and thus can’t “push through implementation of any policies unpopular with the state energy companies,” the Baker report says.
“China’s national oil companies are still likely to be able to tap potential patrons in the Communist Party to protect their interests in the coming years,” the report says.
This, and the NEC’s lack of authority, mean it will be “just as hard for China to implement a comprehensive, effective national energy policy as it is for the United States.”
Surging auto sales And so, despite such efforts as closing energy-inefficient factories and promoting electric cars, China is on track for steep growth in oil consumption, the Baker study says.
“The Baker Institute reference case projects Chinese oil consumption in transportation to reach 4.8 million b/d in 2020, rising to 13.4 million b/d in 2040. Together with non-transport use, China’s total oil demand would therefore reach more than 19 million b/d by 2040, putting China at oil use levels comparable to those in the United States.”
The reference case assumes an average economic growth rate of 6 percent annually in China, the report says, cautioning lots of factors could brake this growth.
Not surprisingly, many people in the new China want cars to drive.
“Despite sporadic government policies to discourage private car ownership, the growth in the number of vehicles on the road in China has soared in recent years,” the Baker report says. “The total vehicle stock in China, which includes cars, vans, buses, and trucks, has more than quadrupled in a decade, increasing from 14.5 million in 1999 to 62.9 million in 2009. Growth in the stocks of personal cars has been even faster, rising to a total of 45.9 million by 2009, with Chinese vehicle sales exceeding sales in the United States in both 2009 and 2010.”
The Baker Institute forecasts China will reach around 210 million vehicles by 2020, and 770 million vehicles by 2040. Electric cars are likely to make up less than 3 percent of the total car fleet.
Under the forecast, China would have 493 vehicles per thousand persons in 2040.
“As a point of reference, the United States currently has about 825 vehicles per thousand people against a much smaller total population than China,” the Baker report says.
‘Buying spree’ abroad China was among countries implementing economic stimulus packages in recent years.
“Of the roughly $2 trillion offered in stimulus funding, the Baker Institute estimates that about 60 percent was earmarked for refining, petrochemicals, and pipelines,” the report says.
Billions of dollars in inexpensive loans and outright grants were made to top state companies — China National Petroleum Corp. and its Petrochina operating arm; Sinopec; and China National Offshore Oil Corp., or CNOOC.
“The net result was to spur a sustained expansion of refining and petrochemical capacity rarely seen outside of a national emergency, such as a war, and to allow Chinese companies to continue their buying spree for overseas (mainly) upstream assets, when most private and state oil companies curbed spending in face of the economic downturn.”
China’s national oil companies have spent nearly $45 billion on overseas acquisitions since the 1990s and have access to roughly 1.2 million barrels per day of equity crude as a result, the Baker report says.
A big focus has been Africa — its light, waxy crude “has a similar quality to China’s own domestic production,” making it a good fit for Chinese refineries.
In the past, China’s strategy was to avoid competition with Western firms by investing in places with geopolitical risks or human rights problems, such as Iran, Iraq, Libya, Sudan, Burma and Venezuela.
Recently, however, these places have become more and more problematic for China.
“Realizing that its prior risky oil deals are less than ideal, China has been trying to diversify its holdings by shifting investments to the Americas and Australia,” the Baker report says.
In September 2010, China National Petroleum Corp. announced it had teamed with Chevron to explore for natural gas in Australia, and a month later CNOOC reported a $1.1 billion shale gas deal with U.S. independent Chesapeake Energy, the report notes.
China’s shale gas China’s need for liquefied natural gas imports might wane if it can develop its vast unconventional gas resources.
“Estimates of Chinese shale gas potential are uncertain, but preliminary studies show that the country may have more than 75 trillion cubic feet of recoverable resource,” the Baker report says. “However, in some parts of China, lack of water availability for hydraulic fracturing may considerably diminish the potential for domestic shale development.”
Shale gas production could take more than a decade to materialize, rising to roughly 15 percent of China gas supply by 2040.
“Chinese firms have little experience with emerging shale technologies and will need U.S. assistance and technology transfers,” the Baker study says.
On the whole, China’s central planning appears to have been no more successful than the “makeshift patchwork” of U.S. energy initiatives in bringing about a clear and effective national energy policy, the report concludes.
“China is not winning the energy race,” the report says, noting the United States and China “have a lot more to gain from cooperation than rivalry in energy.” For example, the two powers could commit jointly to auto efficiency standards or other measures to hamper OPEC’s ability to raise oil prices.
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