China’s energy transition 2020-2050.
Decades of rapid economic growth have dramatically expanded China’s energy needs. China is now the world’s largest consumer of energy, the largest producer and consumer of coal, and the largest emitter of carbon dioxide. However strong growth of renewable power is currently the key driver of China’s energy transition.
Projections for 2050
2% to 14% Increase in primary energy between 2018 and 2050
-44% to -94% Decline in coal consumption between 2018 and 2050
34% to 55% Share of renewables in power generation by 2050
- China's economy grows at 3.5% p.a. between 2018 and 2050, down from 9.6% p.a. between 1990 and 2018.
- Primary energy consumption in China increases slightly, in all three scenarios. With the economy size nearly tripling from 2018 to 2050, China’s energy intensity declines by over 60% in all scenarios.
- China’s share in global energy demand drops from 24% in 2018 to 23% in Rapid, 22% in Net Zero and 21% in BAU by 2050. Nonetheless, China remains the world’s largest consumer.
- Renewables expand rapidly, with an annual growth rate >5.5% p.a. in all scenarios. Renewables’ share of the energy mix increases sharply, reaching 48%, 55% and 23% in Rapid, Net Zero and BAU, respectively.
- Coal’s share of the China power generation mix declines sharply under all scenarios, falling to 4% in Rapid, 1% in Net Zero and 31% in 2050 in BAU.
- Production of coal declines in China, dropping by nearly 90% in Rapid, and 57% under BAU.
- Nuclear power grows quickly in all scenarios, increasing its share of primary energy demand from 2% in 2018, to 11%, 12% or 9% in Rapid, Net Zero and BAU scenarios respectively.
- Production of natural gas greatly increases in China, by 76% in Rapid and 114% in BAU scenario. Conversely, production of oil declines by 73% in Rapid and 21% in BAU.
- Under all three scenarios liquids demand in China peaks in the next 5 years, driven by increased efficiency and fuel substitution in industry and mobility.
- Net CO2 emissions from energy use drop by 99% in the Net Zero scenario, 84% under Rapid and 35% under BAU.
Powering China’s Future
China is increasingly looking toward securing its future energy needs with sustainable alternatives. In accordance with the 2016 Paris Agreement, China has committed to make non-fossil fuel energy 20 percent of its energy supply by 2030.
China is the world’s largest investor in clean energy. Between 2013 and 2018, the country’s investments in renewables grew from $53.3 billion to an impressive peak of $125 billion. This figure has fallen in recent years, but in 2019 China’s investments still stood at $83.4 billion – roughly 23 percent of global renewable energy investment.
China is also becoming the largest market in the world for renewable energy. It is estimated that 1 in every 4 gigawatts of global renewable energy will be generated by China through 2040.
Due to large-scale investments in massive infrastructure projects, hydroelectric power has become China’s main source of renewable energy production. The controversial Three Gorges Dam, completed in 2012 at a cost of over $37 billion, is the largest hydroelectric dam in the world and boasts a generation capacity of 22,500 MW. The dam generates 60 percent more electricity than the second-largest hydropower dam, the Itaipu dam in Brazil and Paraguay.
Including the Three Gorges Dam, China has constructed 4 of the top 10 largest energy-producing hydroelectric dams in the world. From 2000 to 2017, China more than quintupled its generation of hydroelectricity, from 220.2 billion Kilowatt Hours (kWh) to 1,145.5 kWh. As a result of the Three Gorges Dam and other projects, China became the world leader in hydropower in 2014.
Over the past decade, China has also emerged as a global leader in wind and solar photovoltaic (PV) energy. China’s electricity generated by wind power accounted for just 2.1 percent of its total consumption in 2012, compared to 3.7 in the United States and 9.4 percent in Germany. By 2017, China’s wind-energy generation surged to 304.6 billion kWh, a 28.5 percent increase from the previous year. As a result, China accounted for over a quarter of global wind-energy generation in 2017.
In solar PV, China is both the leading supplier and consumer. Due to rapidly decreasing costs, aggressive policy incentives, and low-interest loans from local governments, China has dramatically increased its production of solar panels. In 2014, China became the world’s largest producer of solar panels, and a year later it surpassed Germany’s solar power generation capacity.
China is now home to two-thirds of the world’s solar-production capacity. The future development of China’s solar industry, however, has been called into question. Due to an over-saturated domestic market, Beijing halted all new solar projects and lowered tariffs on imported clean energy in June 2018. Additionally, the ongoing trade dispute between the US and China could further disrupt China’s solar panel industry. In January 2018, President Donald Trump announced a 30 percent tariff on solar panel imports from China.
How does China currently secure its energy needs?
Much of China’s foreign energy supply comes from politically unstable regions and must travel through narrow straits and contested waterways before reaching China. Securing guaranteed access to foreign sources of energy is vital for China’s ongoing growth and development.
China holds the third largest coal reserves in the world, which it has historically leaned on to satisfy its domestic energy needs. Yet as its economy has grown, China has increasingly relied on imported coal. In 1990, China produced 1.02 billion tons of coal for consumption, needing just 2 million tons of additional imports. By 2009, China’s rising demand drove it to become a net importer of coal, importing 125.8 million tons of coal to meet domestic consumption demand.
China fulfills its demand for coal by purchasing it from regional neighbours. In 2017, its coal imports primarily came from Australia (79.9 million tons), Indonesia (35.2 million tons), Mongolia (33.5 million tons), and Russia (25.3 million tons). Prior to 2017, North Korea was China’s fourth largest coal supplier, ahead of Indonesia and Mongolia. Due to the implementation of UN sanctions on North Korea, China has suspended all coal imports from the regime. As a result, China has shifted to rely more on Russia and Mongolia to fulfill its coal needs.
China’s demand for crude oil similarly outpaces its domestic production. Since 1993, China has been a net importer of crude oil, and in 2017 it surpassed the United States as the largest importer in the world. According to China National Petroleum, more than 70 percent of China’s crude oil supply in 2018 will come from imports. This dependence on foreign energy is likely to increase. Some estimates have suggested that by 2040 around 80 percent of China’s oil needs will be sourced from elsewhere. While China has taken steps to diversify its oil portfolio, it still must confront potential bottlenecks to access.
Given its political instability, the Middle East represents an important energy security concern for China, as roughly half of China’s oil imports come from the troubled region. China’s reliance on Middle Eastern oil is only likely to increase in the future. The International Energy Agency predicts that China will double its Middle East imports by 2035.
China’s oil trade with Iran is especially illustrative of this uncertainty. While sanctions against Iran had for years restricted Chinese access to Iranian oil, this quickly changed once a preliminary agreement on Iran’s weapons program was reached in November 2013. Chinese imports of Iranian oil in 2014 surged by 28 percent compared to 2013. In 2017, China imported 7.5 percent of its crude oil from Iran, just behind Oman at 7.7 percent and Iraq at 8.6 percent. The withdrawal of the US from the Iran nuclear deal in May 2018 has had seemingly little effect on this exchange, as China remains the top destination for Iranian oil.
China has diversified its oil portfolio by investing heavily in Africa. Africa only possesses around 9 percent of global proven petroleum reserves (compared to 62 percent in the Middle East), but there is considerable potential for gaining access to untapped resources. China has pursued a strategy of offering economic development loans to African states, such as Angola, in exchange for favorable access to oil reserves. Additionally, in 2015 China sent troops to support UN peacekeeping operations in South Sudan, where China has considerable oil investments. While South Sudan’s oil represents a miniscule amount of China’s total imports, 96 percent of its oil exports were sent to China in 2017.
Securing maritime energy shipments is another critical energy-security priority for China. Over 80 percent of Chinese maritime oil imports by sea pass through the Strait of Malacca. Therefore, this strategic waterway represents a potential risk to China should it be unable to protect its shipping interests in the narrow strait.
Another means through which China is seeking to mitigate its dependence on foreign oil is by building a strategic petroleum reserve (SPR), which is designed to insulate China from external market shocks. In November 2014, China’s Bureau of Statistics announced for the first time the size of China’s SPR, claiming to have 91 million barrels, or around nine days of reserves. China’s most recent update on SPR levels came in December 2017, when it reported a volume of 276.6 million barrels. China aims to accumulate 600 million barrels of oil, which would meet the OECD standard of 90 days of import reserves.
Although China holds the world’s largest shale gas reserves, the amount of natural gas readily available for extraction is much lower due to geographical complexities. Some deposits are buried as deep as 3,500 meters underground, making extraction difficult. In 2017, 38.4 percent (95.5 billion cubic meters) of China’s natural gas needs were met by foreign sources, a 27 percent increase from 2016.
With over 60 percent of its trade in value traveling by sea, China’s economic security is closely tied to the South China Sea.China currently relies on foreign natural gas delivered via land pipelines and carriers in the form of liquefied natural gas (LNG). Two existing pipelines supplied 46 percent of China’s natural gas imports in 2017, with three-quarters of this coming from Turkmenistan. The share of overland energy sources is likely to increase in the coming years. In 2014, China and Russia signed a 30-year, $400 billion deal to deliver Russian natural gas to China, and in December 2019, the $55 billion Power of Siberia pipeline sent its first shipments of natural gas from Russia to China.
However, China also imports LNG from several other countries, including Australia (47 percent), Qatar (21 percent), and Malaysia (11 percent) in 2017. The International Energy Agency predicts that in 2030, over 60 percent of China’s natural gas demands will have to be met through imports. In late 2019, China became the world’s top importer of LNG, overtaking Japan for two consecutive months. While monthly imports fluctuate significantly, China is expected to replace Japan as the world’s top LNG importer annually by 2022.
Source: BP Insights, International Energy Statistics