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New measures for China’s energy efficiency drive

China, the world’s largest energy consumer, wants to cut its fuel import bill and reduce its carbon footprint – and sees new efficiency measures as the way to do it

Fu Chengyu, chairman of state-run firm Sinopec, said that the company has already saved 11 million tonnes of oil equivalent (toe) since 2005 by using energy more efficiently. But the 2.43 billion toe China consumed last year could have been cut by two thirds with more careful use. 

"If we fail to curb energy demand increases our survival is at risk,” Chengyu said in London this week. “Implementing a sustainable energy strategy is a core interest to China and will make a huge impact on the world energy industry. China's energy intensity is among the highest of the world so there is huge potential for conservation.” 

Last month the government released a new energy whitepaper that made energy efficiency a priority for a nation whose consumption has increased by 6% a year for the past three decades.  

The government has launched pilot programmes to increase efficiencies in areas such as coal-to-gas production and by using coal to create chemicals, such as olefin, to cut its need for oil-derived feedstock. Energy companies like Sinopec are also trying to develop greener oil products, such as biodiesel and bio jet fuels. 

Beijing’s moves tally with the kind of efficiency measures that the International Energy Agency (IEA) says could reduce fossil-fuel consumption across the world.

The IEA reckons measures to use energy more efficiently could halve its forecasts for global energy demand, which would otherwise rise from around 87m barrels a day (b/d) last year to more than 105m b/d in 2035.

But if policies to use energy more efficiently were introduced in the meantime, said the IEA, global oil demand would peak at 91m b/d before 2020 and decline to 87m b/d in the 15 years after. 

China is aiming to lower its energy consumption by 16% per unit of GDP by 2015, and to cut its emissions by 17% in the same period, saving 470m toe.

The IEA said China could save 2.4bn toe, or a quarter of its 2010 energy demand, by 2035. Doing so would boost China’s GDP by a further 2% in the period, the agency calculated.

Less intense

Although China’s energy consumption has been steadily rising over the past decade its energy intensity – how much fuel it needs for each unit of GDP - fell by 19% between 2006 and 2010. Sinopec’s Chengyu said this had saved China’s consumers around 440m toe they would otherwise have needed. 

Absolute energy demand and GDP growth are closely linked, and China’s economy has soared as it ramps up its industrial output. GDP last year was $7.3 trillion and the economy is expected to double again in the next decade. Using energy more efficiently will prevent an equivalent rise in the country’s fuel import bill. 

Chinese oil demand almost doubled in the past decade, to 9.8m b/d last year. The IEA reckons total energy demand could rise by another 60% in the next 22 years.

Victor Zhikai Gao, director of China’s National Association of International Studies (CNAIS), said that by the end of 2012, the country will import around 60% of its oil. By 2020 the figure will be 75% -- and involve a doubling of the number of barrels China imports.  Efficiency had become a national imperative, he suggested.

“There is no other choice. China has to practice economy in its energy consumption, coming up with effective ways in conserving its energy use,” Gao said. “For a large economy to depend mainly on foreign imports makes the economy fragile. Maintaining a high level of energy independence will be very important.”

Supply-side options

Conservation is not the only solution, though. China’s long-term energy security may also depend on efforts to tap its potentially vast shale-gas reserves. 

The US Energy Information Administration (EIA) says China could have 1,275 trillion cubic feet (cf) of technically recoverable shale gas reserves, the largest deposit in the world. The government is targeting production of 230bn cf by 2015. 

Chinese companies have been buying into US shale-gas acreage in recent years: ploughing cash into North America’s unconventional-energy business and taking upstream knowledge back to China in exchange. It’s a win-win outcome, said CNAIS’s Gao.

Meanwhile, by 2015 China also plans to increase the share non-fossil fuels in the country’s energy mix to more than 11% and boost electricity capacity from non-fossil-fuel sources to 30%. 

That involves a huge overhaul of China’s energy industry. Last year, coal met 70% of its total energy needs. Investments in renewable energy, carbon capture and storage, shale gas and nuclear power will have to rise significantly. 

The politics will have to support that. China is in a period of political and economic transition, which will decide its energy policy in the coming years. The ruling Communist regime concluded its week-long 18th National Party Congress this week, unveiling its new leadership committee. The new government, which will be headed by Xi Jinping, will take office in March next year.

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