China's energy demand will jump by almost 160% during 1993-2015, and meeting that demand growth will call for energy outlays of $1 trillion.
Those are the chief findings of a new study by DRI International Energy Consulting, Paris, which has a special focus on China's energy outlook region by region.
DRI contends some of China's larger provinces will compete for foreign investment with other Asian nations on an equal footing, in part to rectify a significant energy supply/demand imbalance among the provinces.
While coal will continue to dominate China's energy sector, market shares for oil and natural gas are expected to rise sharply by 2015.
A currently fuzzy outlook for China's changing energy policy leaves several scenarios for the country's energy demand growth (Table 1 16244 bytes)). But even a low growth outlook envisions energy demand increasing by more than 144% in the forecast period.
STUDY DETAILS
DRI notes that under its reference case which assumes continued economic reform, decentralization, and energy price liberalization, total primary energy demand in China in 2015 will be more than two and a half times the 1993 level.
It sees Chinese primary energy demand increasing at a rate of 4.5%/year to more than 38 million b/d of oil equivalent by 2015.
If China delays the process of liberalizing energy prices in an effort to combat inflation to the end of the century, total energy consumption will be lower than the reference scenario by 5.7%.
Accordingly, the result of keeping state control over energy prices for a longer period would be to deter investment in new energy production, refining, and power generation capacity, thus prolonging energy shortages. The depressant effect on energy consumption would be worst in the provinces with minimal indigenous energy sources, notably the economically booming southeastern coastal provinces.
If China recentralizes policymaking to promote economic activity in inland provinces in an effort to equalize economic growth, this won't significantly affect the level of primary energy demand in China.
However, it would lead to a marked cut in energy demand in some coastal provinces and an increase in energy demand in inland provinces. For example, Guangdong province energy demand would be 21% less than the 2015 reference scenario, while Sichuan province demand would be 10% more under those circumstances.
ENERGY MIX
China's abundance of coal reserves helps ensure that fuel's dominance of the country's energy mix to 2015, as production rises in line with growing demand under all three scenarios.
Other energy sources, however, will increase their market share as China steps up development of its natural gas, increases production of oil from offshore and frontier onshore areas, and expands its hydro and nuclear power generating capacity.
So coal's share of primary energy demand in China will fall to 64.5% in 2015 from 76% in 1993 under the reference scenario.
Under the balanced development scenario, the energy mix shares coal and natural gas hold today will rise relative to the reference case as economic activity is stimulated in inland resource rich provinces such as Shanxi, Sichuan, and Xinjiang,
At the same time, economic activity would be less strong in China's eastern and southeastern coastal provinces, where the transportation sector is becoming an important source of oil demand.
Under the delayed price reform scenario, all energy sources would have a lower level of consumption compared with the reference case.
Natural gas and oil would see the biggest relative decline. That's because gas development hinges on significant investment in transmission and distribution grids, and meeting projected oil demand depends on China's refining capacity tripling during 1993-2015.
COASTAL PROVINCES
DRI notes that many of China's 30 provinces are very large, equal in size to national markets elsewhere.
The pace of economic growth, access to energy supplies, and structure of energy demand vary sharply among the provinces, the consultant said.
"For the foreign investor, the choice is no longer whether to invest in China or Thailand or Malaysia but whether to invest in Guangdong, Thailand, Malaysia, or Fujian," DRI said.
"This regional diversity is even more vital for energy companies to appreciate as energy supply capacity has lagged behind the pace of China's spectacular economic growth over the last few years, leaving a legacy of regional supply/demand imbalances which need to be addressed as well as the need to fuel a continuation of strong economic growth."
DRI contends China's eastern and southeastern coastal provinces top the list of attractive foreign investment candidates.
These provinces offer growing energy markets, capacity shortfalls requiring investment to meet growing local demand, and a relatively favorable investment environment for businesses.
Oil and gas production will see major growth off eastern China and in the far western provinces, notably the Tarim basin. In addition, there is investment potential for foreign concerns in refining/marketing, power generation, and electricity distribution in many areas of China.
DRI sees the most attractive provinces for foreign investment in refining/marketing as Shanghai, Guangdong, Fujian, Shandong, and Jiangsu. The best bets for foreign investment in power generation in the forecast period lie in Shangdong, Guangdong, Beijing, Jiangsu, and Hebei.
The analyst expects these coastal provinces to gain more latitude to implement policies that will attract foreign investment as they become wealthier and more economically competitive compared with inland China.
INVESTMENT NEEDS
China's electricity sector will represent more than half that projected total outlay
There is a severe electricity shortfall in many areas of China, which will be compounded by the fact that economic growth and improved living standards will favor wider use of electricity in the future.
DRI estimates China will need to add more than 600 million kw of electric power capacity by 2015, much of it in the eastern and southeastern coastal provinces. Foreign equipment suppliers and power companies are likely to be heavily involved with this expansion.
Oil refining is another major target for foreign investors. China's current refining capacity is 3.3 million b/d, some in areas with relatively weak demand, while there is a capacity shortfall in the southeastern provinces, where demand for refined products is strongest.
China will need to add 6.9 million b/d of capacity by 2015 to keep up with demand growth in the reference scenario and ensure a better regional balance of refining capacity. New refineries will have to have upgrading units to yield a higher cut of transportation fuels and less residual fuel as China's products demand mix changes.
While a good proportion of these projects can be financed by Chinese sources as a result of increased revenue stemming from price liberalization, it is certain that Beijing is looking for substantial foreign participation for capital as well as technology.
Foreign capital could account for about 20% of the total investment required but would be more strongly represented in oil and gas exploration and production, refining, and power generation than in coal production and transportation, where foreign companies so far have not been invited to take a major role.
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