Sunday, January 01, 2006

China to Spend Billions on Alternative Energy



China is to spend billions on alternative energy and many times more on oil and coal.

Tim Johnson of Knight Ridder reports that barely a dozen years ago the country didn't need deep-sea oil ports, massive tank farms and a brawny foreign policy to procure oil in far-flung spots.

Today, China is an oil-guzzling dragon with a voracious thirst, much like the United States. Supertankers stretching three football fields in length now wait to enter China's deep-sea ports.

The busiest oil terminal is at Ningbo on the East China Sea. Shipping records show that in November, supertankers arrived there from Saudi Arabia, Oman, Iran, Yemen, Equatorial Guinea, Angola and Congo to feed a craving that's helped drive up crude oil prices, rattle global politics and put China and the United States at odds in some of the world's most unstable regions.

China's thirst for oil has emboldened Iran and complicated the refugee crisis in Sudan. With its economy growing at a 9 percent annual rate, China is also courting many of America's oil suppliers, including Canada and Venezuela.

Increasingly, the United States and China are throwing elbows as global rivals for energy. The tussle could get more aggressive if the two nations can't manage to co-exist in the global energy contest.

"We've got to start those discussions before the race for oil becomes as hot and dangerous as the nuclear arms race between the U.S. and the Soviet Union," Sen. Joseph Lieberman, D-Conn., said in a Nov. 30 speech to the Council on Foreign Relations. "If we let it go, this could end up in real military conflict, not just economic conflict." It is interesting to note that this "race for oil" is framed as a zero sum game in which one country wins and another loses. An alternative would be international cooperation to maximise energy efficiency, minimise pollution and radically increase renewable energy.

Compared with the United States, which consumes 25 percent of the world's annual oil output, China burns only 6 percent of the world's production. Yet its energy use is rising steeply.

China exported more oil than it imported until 1993, when imports began to surge. This year, it's importing 3.4 million barrels a day, and some estimates say that within a decade it'll need 7 million barrels a day. Within two decades, demand could reach 12 million barrels a day, which would equal U.S. imports today. China's oil thirst since 2000 has accounted for 40 percent of the global demand growth for crude oil.

Senior Chinese officials grow testy at the suggestion that China's rising needs are roiling oil markets, saying the nation is following a natural path to prosperity.

"Some people complain that China is driving up oil prices. They think the reason lies in China's high consumption of oil," said Zhang Guobao, the vice-chairman of the National Development and Reform Commission. But Zhang said that China's per capita energy consumption is one-sixth of developed countries and deserves to rise.

"Chinese people want to live a prosperous life. So the world should respect China's right to development," Zhang said. In other words Zhang is saying the Chinese have a right to an energy rich lifestyle, sound familiar?

China still wastes energy, leaving huge potential savings from efficiency. To generate $1 million in economic output, China needs eight times more oil -- or its energy equivalent -- than Japan does. Chinese officials claim a turnabout in efficiency is under way. Last summer, China made fuel standards for cars more stringent than those in the United States, and a campaign is afoot to ramp up reliance on renewable energy. The United States and other western nations have an opportunity to help China to become as energy efficient as possible as fast as possible rather than trying to sell Chinese consumers gas guzzling SUVs.

Some experts suggest long-term projections on China's energy needs may be premature because the nation is capable of rapid adaptation and change, and of greater reliance on its vast coal reserves.

Some 68 percent of China's power comes from coal, and the nation is building electric power plants at a rate never seen before on Earth, fueling them from unsafe shafts where thousands of miners are killed each year.

China built power plants this year generating 68 gigawatts of electricity and plans 80 more gigawatts of capacity in 2006, equal to the entire capacity of Britain.

"It took the U.K. 110 years to build those 80 gigawatts," said James M. Brock, an expert who advises the Beijing office of Cambridge Energy Research Associates, a U.S. consultancy.

Nonetheless, China is seeking oil security differently than other countries in East Asia. It has sent its three major state-owned oil companies to scour the globe and invest in foreign oil companies and oil fields. China, a relative newcomer to capitalism, allegedly deeply mistrusts the global oil markets, viewing them as distastefully volatile.

Some analysts believe China's strategy has led it to bid heavily -- and even to overpay -- for some assets. It's adapted a very 19th century approach to energy security, where you seek an almost mercantilist lock-up of energy sources," said John J. Hamre, the president of the Center for Strategic and International Studies, a Washington public policy organization.

China has some reason to be nervous. While imported oil makes up only about 12 percent of China's total energy needs, its energy lifelines increasingly lead to the volatile Middle East. Some 60 percent of China's oil imports come from the Persian Gulf region. Supertankers carrying the oil must pass through the pirate-infested Malacca Straits off Malaysia, where China's oil is protected by the U.S. Navy. China is beefing up its own navy, but it still can't protect faraway sea-lanes. To diversify its suppliers, China has gone oil shopping in Central Asia, West Africa and even in South and North America.

Sometimes, Chinese oil companies simply bid high, as CNOOC, one of the national oil companies, did last summer when it offered $18.5 billion for the California oil company Unocal, a deal that was derailed by Capitol Hill critics who suggested that it threatened U.S. national security.

At other times, Chinese diplomats trail the state oil companies, sweetening investment bids with offers of few-strings-attached aid packages, hands-off political support and weapons.

"Everywhere the Chinese go in the developing world, they go with a lot of development money" said Gal Luft, a Washington-based analyst and the executive director of the Institute for the Analysis of Global Security, a non-profit organization that focuses on the relationship between energy needs and the economy and national security.

China has offered large amounts of development aid in Africa, where it gets 28 percent of its imported crude and plays an increasingly important diplomatic role.

Last year, China gave Angola, its second-largest oil supplier after Saudi Arabia, a $2 billion oil-backed loan to help repair its war-ravaged national infrastructure.

China has courted oil-rich nations such as Sudan, Venezuela and Iran that are officially out of favour with Washington, even dangling the possibility of using its United Nations Security Council veto to protect them against sanctions.

China last year repeatedly blocked U.N. attempts to punish Sudan for failing to stop atrocities in its Darfur region. China owns a 40 percent stake in the major oil consortium drilling in Sudan, and it buys half of Sudan's crude exports.

Eyeing Nigeria's oil fields, China has offered Lagos some $7 billion in investments and said it may sell the country fighter jets too.

Iran which won pledges from China last year for $70 billion worth of oil and natural gas deals, also enjoys vital support from Beijing. Iran now appears confident that it can resist pressure from the European Union and the United States over its nuclear program, certain that China will veto any attempt to impose U.N. sanctions.

Reuters resports that a Chinese state-owned energy firm plans to invest at least $2.48 billion over the next five years in biomass, garbage treatment and other alternative energy projects.

China Energy Conservation Investment Corp. made the plans to take advantage of a new law promoting renewable energy, which sets tariffs in favor of non-fossil energy such as wind, water and solar power and is due to take effect in January.

"We see tremendous business opportunities from the new law," the China Daily quoted Wang Yi, a senior company official, as saying. Coal provides some 70 percent of electricity in China, the world's second-largest energy consumer and producer of greenhouse gases. The state-owned company has started building two wind farms and a new facility that would harness steam generated from garbage and sewage treatment to produce power, the newspaper said.

The firm had budgeted about $1.1 billion to build the garbage-powered plant underway in eastern China and 10 others like it in other parts of the country over the next five years, Wang said.

Another $1.1 billion would go toward constructing up to 30 biomass energy projects in major agricultural provinces, which use organic or woody material such as straw to make fuel or generate power.

China has set a goal of getting 15 percent of its energy from renewable sources by 2020, though it has acknowledged that coal will remain its primary source of electricity for decades to come.

Comment

Within the overall context China's $2.48 billion investment in alternative energy seems insignificant. China is spending huge sums expanding dirty coal fired electricity production. These new plants are not "clean" coal plants and are certainly not carbon neutral (at least not before 2020). Huge amounts of energy is being wasted in China and this looks set to continue. China has some of the world's worst industrial pollution. It doesn't have to be this way. There is an opportunity for international development and cooperation to help China and the rest of the world avoid some of the worst negative consequences of rapid industrialisation. It won't be cheap and it won't be easy.

Or we can seek to deny the Chinese the energy rich lifestyle that many in the west believe is their birthright.

China - An Energy Timebomb?

Watthead - Is Red China Going Green?

15 Comments:

Anonymous Tracy W said...

I don't think that China should necessarily spend more on energy R&D than on purchasing oil. The two are not really comparable and may have completely different marginal rates of return to additional resources. One of the interesting facts about the US is that since the 1950s it has tripled its expenditure on R&D in real terms without tripling its growth rate.

In other words, I doubt that vastly increasing the rate of spending on R&D will vastly increase economic output.

Meanwhile, China's increasing use of conventional energy resources is probably saving lives today by more efficient transportation of food (so cheaper), more money for healthcare, etc. Life expectancy at birth in China has been rising over the last five years (see http://www.indexmundi.com/g/g.aspx?c=ch&v=30), which implies current expenditure on energy is saving Chinese lives today.

7:16 pm, January 03, 2006  
Anonymous Jeffrey Osborne said...

Tracy W,

Your assertions and doubts do not make effective arguments. It's important to differentiate between correlation and causation.

5:22 pm, January 05, 2006  
Blogger IJ said...

It was helpful to learn of the views of US Senator Lieberman.

The EU seem reluctant to get into this debate. No doubt some of the 25 members are resisting an EU energy policy, or something wider, because they don't want a holistic solution - they think they'll be able to strike better short-term deals with suppliers on their own. Such is national sovereignty.

On the major energy consumer that is transport, it's bold in the circumstances to attempt legislation requiring that "10 percent of all vehicles sold in the United States be hybrid, hybrid-electric plug-in, alternative fuel or biofuel vehicles by 2012." Nevertheless China has tighter standards, and France is aiming to run its public transport system on alternative fuels within 20 years.

12:54 pm, January 07, 2006  
Blogger WattHead said...

Here's a summary of recent Chinese efforts to transition to a more sustainable energy future. They obviously have a tough task in front of them and a long way to go.

Let's hope that both the U.S. and China end up moving towards a sustainable and largely domestically supplied energy future or we may end up looking at new resources wars - but this time it won't be between the U.S. and Sadam's Iraq but between the U.S. and China... a scare thought.

5:54 pm, January 07, 2006  
Blogger IJ said...

"The EU seem reluctant to get into this debate. No doubt some of the 25 members are resisting an EU energy policy, or something wider, because they don't want a holistic solution. . ."

The European Commission are also frustrated:

"the 25 countries in the European Union (EU) possess so few of the world’s fossil fuel resources. Between them they have 7.3% of the coal, 2% of the gas and 0.6% of the oil.

"That is why the EU expects that by 2020 as much as two-thirds of its energy will be imported. Over the same period, the UK’s reserves of oil and gas in the North Sea are likely to virtually run out. In this context, it is hardly surprising that the EU’s energy commissioner Andris Piebalgs last week called for a more co-ordinated European energy strategy. “It is clear that Europe needs a clearer and more collective and cohesive policy on security of energy supply,” he said. He promised to issue draft proposals for a new European energy policy in the spring, with the aim of finalising it by the end of 2006."

In essence, the EC can do little.

4:12 am, January 08, 2006  
Anonymous Tracy W said...

Jeffrey - the implication in the original post that China's expenditure on alternative energy was too low since it was so much smaller than its expenditure on oil and coal was not convincing either.

And while correlation does not imply causation, lack of correlation does suggest lack of causation (e.g. when increasing expenditure on R&D is not associated with increasing wealth). Furthermore, in my experience in policy, you never have full evidence of causation. You have to make do with Bayesian statistics and use pieces of evidence to adjust your beliefs about the world.

2:57 pm, January 09, 2006  
Anonymous energy guy said...

Up to now even in the event of technology and fast breaking news stories. More people especially those who called themeselves with a higher intellect should realize that Minimizing polution and finding alternative ways like renewable energy is our answer for so much dependence on Oil. Oil on which some countries have leverage over and used it in a power games! I rest my case!

6:18 pm, January 09, 2006  
Anonymous Adrian Akau said...

China is one of the most important manufacturer of goods for the entire world and therefore is in need of developing its energy resources since manufacturing takes energy. As the price of oil continues to escalate, they should be looking toward other forms of energy as well as toward conservation practices. The transition from bicycles to automobiles and the on-going development of tens of thousands of miles of highways means that the demand for oil will continue to increase as China enters the automobile age.

China's committment to exporting cars along with the billions of dollars of other goods guarantees its economic superpower status. Hopefully,they will also export reasonably priced renewable energy technogy along with the multitude of other goods.

I think that once their infrasture has been properly developed, especially highways, power plants and waterways to bring water from the south to the north, then we will see them concentrate more on renewable energy. Right now, cleaning up pollution or developing renewables is not their number one priority. Solving serious water shortages for 300 million of them in the north and overcoming power black outs which affect manufacturing capabilities in their Eastern sectors are their greatest concerns.

Eventually, as China becomes more of a developed nation, pride in their country should be evidenced in the development of renewables. They are already starting to up the industrial sector around Beijing to remove the air pollution in preparation for the 2008 Olympics I feel certain that in the decades to follow, the entire country will undergo a transformation which will also include growth of its renewable energy resources.

adrianakau@aol.com

11:33 pm, January 12, 2006  
Blogger Rod Adams said...

China is also - very logically and with a long term view to the future - investing in nuclear power as a fossil fuel alternative.

They are starting from a rather small base, but have publicly announced their intention to build as many as 30 large nuclear power plants in the next ten years.

In addition, the Chinese are leading the world in actual construction of Pebble Bed gas cooled reactors - their HTR-10 has been in operation for almost 4 years and they are working diligently on the follow on to that plant. These reactors are designed to be economical at smaller power output levels than conventional light water reactor technology and are ideally suited as power sources for areas without large grid capacities.

It is nice to see that this large, rapidly developing nation is really doing something that will reduce its air pollution and also reduce its dependence on unsafe coal mines that currently kill a average of about 5,000 miners each year.

1:20 pm, January 16, 2006  
Blogger blogman said...

I am surprised that China is not more focused on biomass power technologies. Since their labor resources are available to grow and process biomass, they could easily lead the world in biomass power. They undoubtedly have large areas of land that are not suitable for normal crops, but that could grow jatropha, switchgrass, salix etc.

A commitment to avoiding dirty coal power must not seem worth it to them.

The same could be said of India, Malaysia and other rapidly developing nations.

I would appreciate any links to sites of interest re this issue.

All the best,

Ron Wagner

2:24 pm, February 01, 2006  
Anonymous Anonymous said...

I only want to point out a few facts here,

1 1/5 of the populations in the world are living in China.

2 many of Chinese infrastructures have still yet to be implemented.

3 yes China is becoming a economic supper power, but there are still many people are living in poverty. I would say it already is very encouraging to see that they have started their alternative energy program and actuary had allocated funding for the program as well.

10:59 am, March 28, 2006  
Anonymous CB said...

China's demand for oil will continue to put more pressure on the world oil markets. At some point, if we haven't already reached it, we will have a supply/demand imbalance that will put tremendous economic and political pressure on our country. We need to open our eyes and do something about it now. I did see one place where there appears to be a real proposal to place tremendous resources into developing alternative energy. And no gov't funding. Check out www.usoilindependence.com and let me know what you think. I can't find a problem with the proposal other than big oil will hate it.

10:24 am, July 04, 2006  
Blogger chalacuna said...

We must find ways to conserve energy before its too late. Every little effort we do is big enough to make a change and help preserve our planet.

We must be responsible to take care of our environment or say sorry for what we have done, and the effect could be irreversible.

If you want to know more about helping our environronment, check out these links: Green Cars
and Green Fuels

12:18 am, January 18, 2007  
Anonymous Anonymous said...

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5:45 am, January 22, 2007  
Blogger Solar in China said...

China has begun to promote the renewable energy already, and at present China is the largest user of solar water heater in the world, and there are many solar cell, solar panel makers in China also, China is producing over 20% of solar cell in the world.

But the solar electricity is still too expensive for Chinese people, and 3 years later the solar panel price will be reduced about 40%, then more and more PV systems will be installed in China to ease the energy burden and protect the environment.

http://solar-in-china.blogspot.com

6:58 am, June 03, 2007  

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