글로벌 트렌드내서재담기 

책표지






  • China’s Underappreciated Energy Crisis

    China’s coal reserves, the essence of its energy security, are now in decline. That’s a big deal since over half of China’s energy is derived from coal.

    Imported oil is expensive and getting more so because of climate change policies that China does not control. China’s domestic oil production peaked in 2013. As a result, China produced 3.9 million barrels a day of domestic oil in 2020 but consumed 14.2 million barrels a day.

    As explained by Australian scientist David Archibald, the arrival of “peak coal” in China was forecast in the journal Energy , in 2013. Writing in the November 26, 2021 edition of The Wentworth Report , Archibald observed that, “Cheap coal has been the Chicom’s source of strength, enabling them to threaten most of their neighbors and bully others as far away as Lithuania. But peak coal has arrived on schedule for the Chicoms, and they are now staring into the abyss of rapidly declining coal production.”

    “Coal consumption at 4 billion metric tons per annum is the energy equivalent of 50-million barrels of oil per day, which in turn is half of world’s daily oil consumption. The Chicoms are halfway through their initial coal endowment and are now entering “a world of hurt.” [That’s because] the cost of coal extraction tends to rise strongly once half the resource is extracted.” he wrote.

    Archibald indicated that China could do what the West did in the 1950s and ’60s: turn to nuclear power. However, despite its massive commitment to nuclear power stations, Beijing has not built enough reactors to compensate for the loss of domestic coal. And, going forward, it would be difficult to build nuclear power stations at a sufficient rate to compensate for the decline in coal.

    Archibald went on to explain that “Apart from underwriting their export industry, cheap power from coal also keeps China fed. China uses 393 kg/hectare of nitrogen fertilizer to produce an average of six metric tons of grain per hectare. Nitrogenous fertilizer in China is made using coal as the energy source.”

    “Chicom coal production is now concentrated in three of [mainland] China’s 23 provinces: Shanxi, Shaanxi, and Inner Mongolia. Production from other provinces in aggregate peaked a decade ago. China started importing coal once its own production costs rose above the price of imported coal. Imports have risen to about 10 percent of Chinese coal consumption.”

    Archibald noted that some coal reserves in Xinjiang are also being developed, but the region is too far from the demand centers on the east coast for cost-effective rail transport.

    Therefore, three ultra-high voltage transmission lines have been built; these operate on direct current with very low transmission losses.

    What’s the bottom line?

    Just as China is running out of cheap labor, friendly export markets, clean water and eager investors, it’s also running out of cheap abundant energy. This puts further strain on its “economic and political houseof-cards.” Not only will this play a growing role in framing decisions made by CCP leadership, but it will influence the relative merits of options open to the United States and its allies.
    Given this trend, we offer the following forecasts for your consideration.

    First, China’s growing demand for coal will slow somewhat in the short-term, giving it a little “breathing room.” The declining demand for steel on world markets and within China’s own market has been exacerbated by the global steel glut; this means that less coal will be needed for steel production. Price controls on electricity will also be removed enabling utilities to pass on rising coal cost to consumers and businesses, forcing them to curtail demand. Nevertheless, peak coal will slow economic growth and increase public dissatisfaction for at least the remainder of this decade.

    Second, on the global diplomatic stage, China will promote its plateauing coal production as a virtuous attempt to reduce carbon emissions even though it’s simply an inevitable response to resource constraints. China wants to avoid substantially increasing its imports of coal, food or petroleum because it’s finally running low of the hard currency required to ensure continued strategic resources for the CCP and the Chinese state. This is particularly important in the run up to the 20th Party Congress in October 2022 when Xi needs to project the image that communist China continues to be a “rising power” even though its economy has been in serious decline since about 2015.

    Third, Costly coal will reduce fertilizer production exacerbating China’s food crisis. Given that it is overwhelmingly dependent on imported food to survive and that China’s 600 million “poor people” can hardly afford food now, this will be an enormous social and political destabilizer.

    Fourth, “peak coal” for China will make renewable energy increasingly expensive for the rest of the world to install and end China’s near-monopoly on the production of solar panels. The rising cost of coal production in China will adversely affect the price of solar cells around the world. Some 45 percent of the world’s polysilicon is now made in Xinjiang, where China has expanded its silicon smelting industry to satisfy the global demand for photovoltaic panels. Manufacturing polysilicon wafers is a low margin business which requires 117 kWh of electricity per kg.; this means higher coal costs in China will translate into higher solar panel costs around the world.

    Fifth, “peak coal” will make it harder for China to become “a self-sufficient consumer economy” than it will be for the United States. The United States has a unique set of natural resources that make it inherently self-sufficient in terms of energy, food and all-but-a-few strategic minerals. That’s not true of China. CCP economists have discussed returning to a Maoist “circular economy” in mainland China, in which dependence on foreign markets would be dramatically reduced. But without huge advances in technology, this is a recipe for famine and social unrest.

    Sixth, “peak coal” is just one of many factors which will make China increasingly vulnerable to push-back from the international community. Realistically, this state-of-affairs is positive for the United States and its allies but negative for the CCP. For example, if China engages in hostile military actions, which threatens vital U.S. interests, such as an attack on Taiwan, the U.S. could easily cut off China from indispensable imports of agricultural products and fossil fuels imported from anywhere other than Russia; it could also cut off China’s global exports and access to payment systems. And,

    Seventh, by the time new technologies enable China to side-step peak coal, the rest of the world will have had time to side-step China. As explained in the August 2021 Trends issue, China is now testing a potentially revolutionary molten salt reactor technology fueled with thorium. If successful it could eventually solve many of China’s problems. However, this solution is years away from commercialization and decades away from being deployed on a game-changing scale.

    Resource:
    1. The Epoch Times. December 5, 2021. Gregory Copley. How a Growing Energy Crisis Hobbles China.

    2. The Wentworth Report. November 26, 2021. David Archibald. Further to Peak Coal for the Chicoms.

    3. Energy. July 3, 2013. Wang Jianliang, Simon Davidsson,, Feng Lianyong, Mikael Höök. Chinese coal supply and future production outlooks.