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By Robert Rapier on Sep 4, 2013 with 8 responses

Prepare for the Chinese Energy Juggernaut

The Energy Information Administration (EIA) recently released its International Energy Outlook 2013 (IEO2013). While the EIA doesn’t have a sterling track record for predictions, many organizations make decisions at least partially based on EIA projections. Therefore the organization’s forecasts are worth reviewing.

Of particular interest to me were the agency’s forecasts about China’s energy demand. Over the past decade, China has become the world’s largest energy consumer, as well as the world’s largest emitter of carbon dioxide. Chinese coal consumption is up 157 percent since 2002, and they now consume over 50 percent of the world’s coal. Their oil consumption rose by 5 million barrels per day (bpd) in the past 10 years, to nearly double the level of 2002.

But according to the EIA, we haven’t seen anything yet:

China Energy Consumption

In order to attempt to meet this demand, China truly has an “All of the Above” energy strategy. Renewable energy advocates like to point to China’s huge investments in that sector as if to say that China is leading the way toward a clean energy future. But China is making major investments across their energy sector, including investments in many new coal and nuclear power power plants. (China is expected to account for 40 percent of the world’s new nuclear power capacity over the next three decades).

I know a lot of people who would say that the forecast is silly, because there simply won’t be enough energy to enable that sort of growth. A friend recently said to me “It’s a zero-sum game.” I wouldn’t go quite that far yet, but to the extent that the global acquisition of energy does become a zero-sum game, that means there will be fierce competition — much more so than we have seen to date — for the world’s energy supplies. The last decade saw $100/barrel oil as the new norm. How high might oil prices go if China grows their consumption by another 5 million bpd?

At the end of every year, I list my Top 10 stories for the year, and I make predictions for the upcoming year. And every year, China ends up pretty high on both lists. I have stated on many occasions my belief that China’s growth is presently the single largest driving force in the global energy markets. If the EIA forecasts are even in the ballpark, that’s going to continue to be the case for many years to come.

Link to Original Article: Prepare for the Chinese Energy Juggernaut

By Robert Rapier. You can find me on TwitterLinkedIn, or Facebook.

  1. By Patrick R on September 4, 2013 at 4:58 am

    That China line isn’t the only unbelievable one in the chart above. Don’t the EIA also predict minimal oil price growth over this period? How do they square these two predictions? Hasn’t the recent 5 mbd growth in Chinese oil use really been a transfer from the west? Aren’t we [the OCED] being outbid for oil, coal, and in fact all portable primary energy? Isn’t it more likely that the US and the rest of the OCED will continue to head south by this metric? No bad thing, either increased efficiency or demand destruction, put it how you like, but something’s got to give. It is a zero sum game, pretty much, when it comes to oil [bumpy plateau]. Motordom and suburbia in the west are on the way out; unsustainable.
    Whether there is the source for China to grow energy use to the above extent looks unlikely; but the EIA has never been afraid of extrapolating present conditions, adding a bit of wishful thinking, and calling it a prediction….

  2. By Mark on September 4, 2013 at 12:45 pm

    [RR says: I have stated on many occasions my belief that China’s growth is
    presently the single largest driving force in the global energy markets.]

    A new and MEGA-sized NatGas pipeline to China?

    This April 2013 article at the URL above provides some insight concerning what is unfolding in Syria today. You’ll understand more about China’s energy appetite by reading about vast swaths of Middle Eastern NatGas looking for new markets.

    What if such highly pressurized methane with few spigots along a Henry Hub export route could be value-added 8x instead on a highly decentralized basis when converted to a new, biodegradable liquid fuel suitable for seamless use in ICE’s, turbines, furnaces and ships? Then maybe such market pressures as outlined in this article would diffuse and quickly…

  3. By Benjamin Cole on September 5, 2013 at 2:53 am

    Of course, there used to be predictions of much higher global demand for oil by this time, along with the “running out of oil” prediction for 2000.

    But the price signal nixed that—we seem to be in a period of nearly stable demand, almost “Peak Demand” for crude oil.

    As for 5 mbd, you could easily conserve 2-3 mbd out of the USA, and produce 2-3 mbd more in the USA, if shale pans out, and if prices edge up. I think I will stand uncontested when I say the USA guzzles oil, and our vehicular fleet could be way more efficient.

    Add on, who knows what production could be had out of Iran, Saudi Arabia, Iraq, Venezuela, Russia, Nigeria, and Mexico, should any of those nations develop civilized governments? My sense is that we are leaving 15-30 mbd on the table, thanks to the thugginess of the aforementioned nations.

    The future looks bright, in terms of energy. Terrific conservation technologies are improving, and new supplies are becoming closer and closer to commercial viability.
    Batteries and biofuels seem close to commercial. Natural gas is already there. Methanol could be there, except we seem to have a powerful ethanol lobby in the USA.

    At any date, the Chinese government might mandate PHEVs. They did mandate electric scooters.

    I think there is every reason to expect a cleaner and more prosperous future.

  4. By ben on September 7, 2013 at 11:19 am

    I dare say that Benjamin’s views are optimistic. Hey, finding an optimist in these challenging times is probably something to cheer. While tempted to share in his positive outlook, I’m inclined to think we are more likely to confront significant obstacles in achieving a seamless transition to a well-balanced, energy supply marketplace. No, I suspect there are some major speed-bumps along the way and energy demand in Asia is no small part of those daunting challenges. I might add that prospects for much greater growth in India’s energy requirements than currently projected is something that only adds to these dynamics.

    I remain of the opinion that we will not only survive but prosper in the years ahead, there is a reasonable expectation, however, that the historic rates of economic growth of the past half-century will suffer under the twin burdens of incrementally higher energy costs and the oppressive burden of accumulated (public and private) debt. Efforts on the part of the central banks in coordination with national governments aims toward a sustained era of financial repression where debt service obligations are massaged through a protracted period of demand-manged monetary policy. Unwinding such intervention (QE) remains the biggest game in the global economy. How well it plays out will go a long way in impacting the energy picture in the months ahead. The limitations of monetary-dependent policy will reveal itself in 2014 and the impact of demand destruction will began to have some teeth. This will, as Benjamin rightfully points out, trigger price signals as the ultimate arbiter in re-affecting underlying supply/demand dynamics of the global economy. One hopes that the supply picture remains nearly as upbeat as it has over the past half-decade here in the US.

    Should we continue to make marked progress on energy efficiency and supply diversification, well, we might manage to muddle toward a rediscovery of that bygone era of moderation of which Ms. Warren has spoken. Absent such progress on conservation and the build-out of new energy sources, well, I’m afraid Mr. Cole’s optimism may prove more akin to wishful thinking.

    Let’s keep our collective nose to the grindstone and our thermostats turned just a tad lower until the jury is back with the verdict. I believe in progress, it’s just that I believe it often comes as much out of adversity as convenience. Creative destruction? Perhaps.


    • By Benjamin Cole on September 8, 2013 at 4:26 am


      I enjoyed your comment. QE is an interesting gambit, and I think it will work. Inflation is not longer the bogeyman, but rather Japan-o-nomics—-that is, deflation, perma-recession, ZLB.

      It may be that we have to devote a larger share of our resources to finding energy—but remember productivity increases in all other sectors continuously, meaning we are freeing up resources constantly.

      When I become a pessimist, it is when I consider man’s ability to govern, to be humane and civil. You watch an Egypt, or Iran, or Iraq devolve over several generations, nearly into anarchy. Syria too. Pakistan. Afghanistan. Mexico, Venezuela. Russia. Latin America is ever the Gong Show.

      Here in the USA, we can barely govern anymore ourselves. Everything is partisan politics—-even whether to go to war is partisan politics. We have ethanol not as an energy program but a rural sop. we don’t have an energy program, we have anti-energy programs.

      But, if we can keep most of our economy in the private sector I think we will do okay.

    • By Energy Writer on September 12, 2013 at 12:20 pm

      Great commentary on the big picture. …”we might manage to muddle toward a rediscovery of that bygone era of moderation of which Ms. Warren has spoken” is my hope. I conclude that muddle is what we usually do. Many times in my adult life it seemed we were at the edge of a precipice but stepped back. Hopefully, we aren’t already standing on too close soft ground with the climate problem

  5. By Forrest on September 7, 2013 at 8:32 pm

    Predictions such as the EIA’s energy outlook project from current
    trends. They do so because of not knowing the future. Meaning, they project
    future based on past. Problem is the increasing unreliability for such
    projections when society is experiencing rapid change and I believe were
    currently on the cusp of rapid change. Think of the recent inventions of
    alternative energy, automotive efficiency, and natural gas oil recovery. How
    about the increased efficiencies for appliances, batteries, heating and A.C. I
    recently read of European company setting up hydrogen generation from excess wind
    turbines power. Supposedly a cost effective energy storage system to minimize
    the bane of intermittent power generation. Also, read of a cellulosic ethanol process
    that is carbon negative as the process generates char for farm land, which
    greatly improves soil fertility and water absorption. GMO corn seed, better farm practices, and cellulose processes combined is expected to yield per acre ethanol as much as Brazil sugar cane. The real problem for future is when our environmental proponents decide for the economy/market place that coal is to dirty, or oil is bad. That government should be empowered to regulate auto design, manipulate nuclear power permits. The danger is when elites falsely think they are smarter than the sum total of our national intellectual quota and run to government to curtail solutions.

  6. By ben on September 11, 2013 at 9:04 pm

    “QE is an interesting gambit, and I think it will work.” Wow! Talk about a trusting and adventurous fellow! QE is little more than an effort to prop up the financial sector with the central bank accumulating debt instruments in lieu of the role that the GSE’s (Fannie, Freddie) played in providing substantial liquidity to the mortgage market. With quiescence from the political class (of both parties), the Fed has been orchestrating a measure of financial repression that promises to pay back the public sector’s mountains of debt via more modest payments for Treasury-issued securities and in incrementally cheaper dollars over time. The burden of this policy logically falls to the universe of savers-investors who hold these securities. The gambit here is, of course, on the bet that the monetary authority is taking on an ability to significantly influence (let alone control) interest rates. Many close observers of the Fed and monetary policy question the efficacy of this strategy in the long run. I tend to agree with some of my own perspectives taking into account the assumptions of von Mises
    in his treatise on the Theory of Money and Credit (though I’m probably a little dark for an Austrian:). There is, of course, significant debate on the overarching merits of the Fed’s policy. Economists like Paul Krugman among others challenge those who take issue with policies holding out any promise of stimulating the economy during a prolonged period of fiscal drag emanating from Washington and the state governments.
    Yes, a gambit, indeed. Some might incline toward the observations of former
    US Senate Majority Leader, Howard Baker (R-TN), who offered up his “riverboat gamble” description of unorthodox policies aiming to address exceptionally difficult economic circumstances. Some say the gamble paid off. Others might argue that another dangerous precedent was set that has kept us marching down the Road to Serfdom. History will be the final arbiter on that note.
    And in the words of that old spiritual, “Will circle be unbroken? Bye and bye, Lord,
    bye and bye.” We shall see.

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