Mixed Signals on China’s Energy Picture?

If you think understanding China’s energy future is difficult, it may not be you…

Coal on the rise in China, US, India after major 2016 drop                        (Matthew Brown and Katy Daigle, AP, 06.26.2017)

China energy demand may already have peaked: researchers                   (David Stanway and Alister Doyle, Reuters, 06.30.2017)

To be fair, the AP article focuses on domestic Chinese coal production, finding:

China’s production rose more than 4 percent through May, according to government figures, compared to a drop of more than 8 percent for the same period a year earlier.

while the Reuters article focuses on China’s total energy consumption, noting that, according to a study by the China Academy of Social Sciences (CASS):

China’s total energy consumption is expected to fall to the equivalent of 4 billion tonnes of standard coal in 2020, which would represent a decline of 8 percent from last year.

The Reuters article also quotes Qiang Liu, director of CASS’s Institute of Quantitative and Technical Economics, as saying:

“(Peak demand) could be this year or next year”

Of course, the Reuters article goes on to say:

The CASS study suggests Beijing is cutting coal use far faster than expected

which does bring the subject of coal directly into the article, at least in terms of consumption, if not production.

Perhaps CASS is just wrong?

As Reuters notes, the study comes weeks after President Trump decided to quit the Paris agreement on climate change and ahead of the July 7-8 Group of 20 summit in Hamburg, Germany.

Moreover, according to Reuters:

The CASS forecast contrasts with China’s 2016-2020 energy plan that said total energy use would grow around 2.5 percent a year until 2020 and a forecast by state-owned China National Petroleum Corp for energy consumption to peak by 2035.

Is there anything else that could explain the seeming divergence between trends in domestic Chinese coal production and consumption?

Perhaps.

Don’t fight China, the Federal Reserve of Coal                                 (Nathaniel Taplin, WSJ, 06.29.2017)

According to the Taplin article, China – far and away the world’s largest producer and user of coal – has been struggling with excess capacity at home for nearly half a decade, and:

China is now poised to curtail coal imports

in particular:

Chinese state-owned media said Wednesday that many of China’s small or midsize ports were already refusing imported coal shipments, although major ports appear to still be open.

The rationale:

State media said regulators want any benefit from its “supply side reforms” – that is supply curbs – to remain in China.  Translation: higher coal prices and profits at home, not abroad.

Now, if the decline in coal imports were large enough, it is possible that domestic coal production could increase even as overall coal consumption fell.

Is that what’s going on?  Who knows.  An increase in domestic coal production coupled with flat or declining coal consumption is also consistent with an increase in domestic coal inventories.

They say patience is a virtue; so stay tuned, and in time, maybe we’ll learn more.

 

Mixed Signals on China’s Energy Picture?

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