China's Energy Woes

China's Energy Woes

By staff reporter Wang Yichao
Power outages have hit nearly two thirds of China's provinces since
this summer, and though there has been some improvement, serious
problems still exist. In Changsha, the capital of Hunan province, some
shops have been doing business by candlelight. And Changsha is not
alone. The energy supply has become a critical issue for the whole
country.

It seems that diesel shortages appeared too. Since last autumn, diesel
shortages have been seen everywhere, and even in Beijing, where
limited provision of diesel was brought into effect once again. Even
Shanxi province, which is rich in coal deposits and has long been
China's coal energy provider, suddenly has to worry about its coal
supply.

Since all the mainstays of China's energy supply are running into
trouble, the Development Research Center of the State Council decided
to hold a high-profile forum on the subject. The two-day China
Development Forum special session on China's Energy Strategy and
Reform was held from November 15th to 17th.

More than 80 energy-related experts, officials and entrepreneurs from
both home and abroad attended the forum and discussed China's energy
issues. Among them were Xu Kuangdi, president of the Chinese Academy
of Engineering; Wang Guangtao, Minister of Construction; Jiang Weixin,
deputy director of the National Development and Reform Commission, and
representatives from the State Environmental Protection Administration
and the Energy Research Institute of the National Development and
Reform Commission.

"China's energy problem poses a big challenge to the national economy
as a whole, and it will not be solved without a reform," said a senior
energy expert who would not be identified. This point of view had many
supporters in the forum. Dai Yande, deputy director of the Energy
Research Institute of the National Development and Reform Commission,
expressed the same idea. "All the energy problems confronting China
now can be traced back to the strategies made several years ago."

Since the Ministry of Energy was dissolved in 1993, China's energy
industry has gone through several stages of market-oriented reforms:
the opening up of coal prices, the reorganization of the oil industry,
and the reform of the electric power industry. Although China's
government has been striving for the past 10 years to create a sound
long-term energy policy favoring sustainable development, the results
have been disappointing. When a series of energy problems broke out
this year, people begin to realize that one unified institution might
be needed, to supervise the whole energy industry.

"In a sense, the forum is a collective diagnosis of China's efforts to
draft a long-term energy strategy. It is open to criticism and all
kinds of discussion," explained an official from the Development
Research Center of the State Council. However, to discuss China's
future energy policy requires facing up to China's energy bill for the
next few decades.

Energy strategists estimate that by 2020, China's total energy demand
will be equivalent to 2.5 billion tons of standard coal per year, 90%
more than in 2000. A more pessimistic prediction is that 2020's energy
demand will be 152% more than that in 2000.

Between 1980 and 2000, China managed to quadruple its GDP, while its
energy consumption only doubled. That was considered something of a
miracle by international energy experts. The question is, will China
be able to do it again in the next 20 years?

Chen Qingtai, deputy director of the Development Research Center of
the State Council said that China's economy is now relying heavily on
huge energy consumption, a situation that becomes hard to sustain due
to dwindling domestic energy supplies and increased population.

Chen concluded in his speech at the forum that, from a long-term and
global view, the so-called energy crisis can be defined more precisely
as a petroleum crisis.

China became a net oil importer in 1993, and it is estimated that by
2020, its demand for oil will be between 450 million and 610 million
tons per year. However, it is projected that China will produce only
180 to 200 million tons of oil in that year. This means that as much
as 55% of the country's oil demands will have to be met with imported
oil by 2020. The US currently meets about 58% of its oil demand
through imported oil.

Although the natural gas and petroleum output of China's three major
petroleum companies, PetroChina Company Ltd., China Petroleum &
Chemical Corporation (Sinopec), and China National Offshore Oil
Corporation (CNOOC) all keep increasing, the increases are not big
enough to keep up with increased demand. In the first six months of
this year, PetroChina's crude oil output rose 0.58%, Sinopec's output
rose 0.97%, and CNOOC's output rose 15%. CNOOC's relatively small
output only accounts for one seventh of PetroChina's output, so its
increase did not play a significant role.

In the 1980s, coal was still the mainstay of China's energy supply.
However, during the last 10 years, increases in the relative
importance of petroleum and natural gas have become inevitable. China
reorganized the oil industry, and encouraged PetroChina, Sinopec, and
CNOOC to go public on foreign stock markets. Recently a new National
Oil Reservation Office was established. Xu Dingming, the head of the
newly established Energy Bureau, is also in charge of the National Oil
Reservation Office.

According to one insider, China imports oil from a variety of sources.
In the first three quarters of 2003, China imported 51% of its crude
oil from the Middle East. Other regions such as Africa and Latin
America also accounted for a considerable proportion. An example of a
different oil import strategy is Japan, which imports more than 85% of
its oil from the Middle East.

However, these efforts at reorganization of the oil industry are just
not enough to meet the country's increasing energy demands.

However, since the Energy Bureau was set up, there have been whispers
that the institution does not have the authority and clear mandate
that it needs to play a vital role in the critical energy issues. The
bureau has been facing a mighty challenge since the rash of energy
shortages this year. When asked whether the Energy Bureau will be able
to help create a viable long-term energy strategy, the experts and
officials who attended the China Development Forum were unanimous in
insisting that an institution without a proper authority would not be
able to do what needs to be done.

The energy experts who attended the forum also agreed on another
point: China's long-term energy strategy has not been well planned and
implemented.

This year's power outages serve as one example. Insiders commented
that besides bad weather, it is the former State Planning Commission
that should take the blame for insufficient electricity generation
capacity. In 1998, under the guidance of the State Council, the former
State Development Planning Commission decided that no new coal-fired
power station construction would be approved for the next three years.
That policy stopped the tide of power station construction that was
initiated by the Seventh Five-Year Plan(1986-1990).

"If not for that kind of policy, power generation capabilities would
have been built up, and we wouldn't be in the situation we are in
today," a senior energy expert commented. He continued to say that if
the impact of five years of a bad policy is so strong, , then what
could happen if a 20-year strategy is not sound?