Analysis: Coal to Remain Critical to China's Energy Mix

While China's growing population, economy and energy usage has prompted the Chinese government to encourage the development of other energy resources, coal is still expected to play a significant role in the nation's energy future.

"In the absence of national policies and/or binding international agreements that would limit or reduce greenhouse gas emissions, world coal consumption is projected to increase from 132 quadrillion Btu in 2007 to 206 quadrillion Btu in 2035, at an average annual rate of 1.6 percent, the U.S. Energy Information Administration (EIA) reported in its International Energy Outlook.

EIA reports that much of the projected increase in coal use occurs in China and other non-Organization for Economic Cooperation and Development (OECD) countries in Asia, which accounts for 95 percent of the total net increase in world coal use from 2007 to 2035.

Coal is expected to meet most of the increasing demand for energy to fuel electricity generation and industrial production in the region. For example, installed coal-fired generating capacity in China is expected to more than double from 2007 to 2035, and coal use in China's industrial sector is forecast to grow by 55 percent, EIA reported.

The development of China's electric power and industrial sectors will require not only large-scale infrastructure investments but also substantial investment in both coal mining and coal transportation infrastructure.

China holds an estimated 114.5 billion short tons of recoverable coal reserves, the third-largest in the world behind the United States and Russia and about 13 percent of the world's total reserves, according to BP's Statistical Review of World Energy June 2010.

Top Global Energy Consumer

The Paris-based International Energy Agency (IEA) reported last month that China has now overtaken the U.S. to become the world's largest energy user, consuming the equivalent of 2,252 million tons of oil last year, more than four percent higher than what was used by the U.S. China's rise to the top ranking was faster than expected as it was much less affected by the global financial crisis than the U.S., IEA said.

Since 2000, China's energy demand has doubled, yet on a per capita basis it is still only around one-third of the OECD average. Prospects for further growth are very strong considering the country's low per-capita consumption level and the fact that China is the most populous nation on the planet, with more than 1.3 billion people, IEA said.

"China's demand today would be even higher still if the government had not made such progress in reducing the energy intensity (the energy input per dollar of output) of its economy. It has also very quickly become one of the world's leaders in renewable energy, particularly wind power and solar energy, and paved the way for a big expansion of nuclear power."

The Chinese government said the IEA's estimate was not correct, noting that China's National Bureau of statistics put China's total energy consumption at 2.132 billion tons of oil equivalent.

The nation's energy usage is rising as its population continues to consume even greater numbers of cars and manufactured goods, which in turn increases energy usage in the manufacturing industries such as steel and aluminum. The country's transformation into a more urbanized nation also is pushing energy usage, with China's use of passenger transportation fuels expected to increase by 4.3 percent per year through 2035, and its use of freight transportation fuels anticipated to grow by 4.6 percent per year through 2035. From 2007 to 2035, EIA forecasts China's gross domestic product will increase by an average of 5.8 percent per year.

Efforts to Diversify

To meet its domestic energy needs, reduce reliance on imports and address criticism over its level of greenhouse gas emissions, the Chinese government is encouraging the use of natural gas, a new phenomenon in a country that has mainly relied on coal. The government also is seeking to diversify China's energy resources beyond coal and oil to gas, hydroelectric, nuclear, and renewable energy.

China has set an ambitious target of increasing the share of gas in its overall energy mix to 10 percent by 2020, including the use of gas-fired power generation assets. From 2007 to 2035, China has the largest projected increase in natural gas production in non-OECD Asia, from 2.4 Tcf in 2007 to 5.6 Tcf in 2035, for an average annual increase of 3.0 percent. Natural gas reserves in China totaled 107 Tcf, or 1.6 percent of global reserves.

The government's goal of increasing natural gas usage in China has resulted in increased development of tight gas, shale gas, and coalbed methane resources has increased in recent years. However, coal will still play a significant role in meeting China's energy needs, as the usage of coal, hydroelectric power, wind and nuclear power are all anticipated to rise through 2035, EIA said.

To increase its energy supply, China has been importing liquefied natural gas (LNG) while pursuing gas pipeline projects. At the end of 2009, China had three LNG import terminals in operation, two under construction, and several more proposed or in various stages of development.

China also has pursued gas pipeline import projects to meet its gas needs. China's first gas import pipeline was completed in late 2009, intended to transport supplies from Turkmenistan and Kazakhstan. Another new pipeline from Myanmar, scheduled for completion in 2013, will carry 0.4 trillion cubic feet of natural gas per year from Myanmar's offshore fields in the Bay of Bengal to Kunming in China's Yunnan province.

Exploration and production (E&P) efforts to find additional gas reserves also have increased in China in recent years, according to the EIA's country analysis brief from July 2009.

China's primary natural gas-producing regions are Sichuan Province in the southwest (Changqing Basin); Shaanganing Province (Ordos Basin); the Xinjiang Uygur Autonomous Region and Qinghai in the northwest (Tarim, Chungeer, and Caidamu Basins) and produce about 65 percent of China's total gas output.

Several offshore natural gas fields are located in the Bohai Basin and the Panyu complex in the South China Sea. The South China Sea is home to the Yacheng 13-1 field, China's largest offshore natural gas field and a primary source of energy for Hong Kong's power stations.

EIA noted that China's NOCs have logged several new natural gas finds in the last few years following aggressive E&P work. The largest recent discovery was Sinopec's find at the Puguang field in Sichuan Province in March 2006, which holds proven natural gas reserves of 17.7 Tcf.


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