Coal's Vital Role in China
Ecoal, Vol. 74, May 2011
The IEA declared that in 2010 China had passed the USA as the world's largest energy consumer*. Most estimates also project China to overtake the USA as the world's largest economy within the next ten years. As the IEA's 2010 World Energy Outlook report stated, it is hard to over-estimate the role of China in global energy markets.
Coal has been, and will according to projections, continue to be, the central character in this story. In fact, coal has played a major role in China throughout much of its history. China is reputed to have been the world's biggest coal producer for most of the past 2000 years. For the future, developments in China's energy system will have major implications for global supply and demand trends for coal, as well as oil and natural gas. The policy approach taken in China will also play a key role in global action on climate change.
With the World Coal Association (WCA) holding its Annual General Meeting in Beijing in June this year and with WCA's recent membership growth, with both Shenhua Group - China's largest coal producer - and the China National Coal Association joining the WCA, we take a look at the current status of coal in China and consider what the future might hold.
Demand Outpacing Supply
China has the world's third largest coal reserves at 114 billion tonnes, which in any economic environment would likely make it one of the world's major coal producers. However, in an environment of rapid economic growth, China's coal production has grown markedly in recent years - between 2000 and 2010 Chinese coal production is estimated to have tripled.
Importantly, this growth has occurred in an environment where the government has sought to improve safety in coal mining by shutting down many smaller, unsafe and often illegal mines. In fact, safety in coal production has been a significant focus of the Chinese government in recent years. According to the State Administration of Work Safety, deaths per million tonnes of coal produced have decreased by more than 85% between 2000 and 2009.
The massive increase in domestic production, however, has not been sufficient to meet the demand created by rapid economic growth. In 2008 China become a net importer of coal and by 2010 net imports were estimated to be around 170 million tonnes, which has been a fundamental turnaround from net exports of around 90 million tonnes in 2001. Australia, Indonesia and Vietnam have been major beneficiaries of the change in the market, becoming significant suppliers to China.
Steel in the Ground
Several years ago China became the world's largest steel producing nation and now produces more than half of the world's steel. Even at this level the steel industry in China continues to expand at a significant rate. Steel is also playing a key role in supporting China's economic development and industrial growth.
In this context, increasing demand for coking coal is expected to be a long-term trend for China. While China has significant reserves of coal, only a relatively small proportion of this is coking coal (around 28%) and only around 10% of China's coal reserves are estimated to be high quality hard coking coal. These figures mean that Chinese imports of coking coal, which were very small only a few years ago, are now growing significantly. Estimates are that for 2011 China will import around 50 million tonnes of coking coal, up from 30 million in 2008.
Coal-fired Electricity Generation by Region
Source: IEA World Energy Outlook 2010
Despite the importance of coking coal in steel production in China, it is thermal coal in electricity production that has been the powerhouse of the Chinese coal market.
The IEA estimates that in 2008 coal accounted for almost 80% of Chinese electricity production. Hydro makes up much of the remaining 20% of electricity generation in China. While growth rates in renewable energies are high, they are starting from a very low base. According to the IEA, China will add an additional 600GW of new coal-fired power generation by 2035, this exceeds the current coal capacity of the USA, EU and Japan combined. It is this level of consumption and projected growth that makes China key to the future look of the global coal industry.
Earlier this year the Chinese government released its next five-year plan. Issued before the Japanese nuclear crisis, the plan projected a four-fold growth in nuclear power to 40GW along with 63GW of new hydroelectric capacity, a growth of 22GW in gas-fired generation and 48GW of new wind power to more than double current capacity. Solar capacity is expected to reach 5GW of electricity by 2015. However, in an economy expanding at a rate of at least 8% a year this increased capacity is expected to be dwarfed by an estimated additional 260GW of coal-fired power generation needed to fuel economic growth.
This growth in Chinese coal capacity often comes in for criticism, but importantly, part of this new capacity is being deployed to offset the closure of many smaller and older coal-fired power plants. The National Energy Administration recently reported that between 2006 and 2010, 70GW hours worth of plants closed and in 2011 it plans to close another 8GW hours of generating capacity. These older, less efficient plants are being replaced by modern, high efficiency, low emission plants that produce significantly less CO2, transforming China's coal fleet to among the most modern in the world.
Cleaning up Coal
China is among the world's leaders in the development of advanced coal technology, including the development of carbon capture and storage (CCS). Many of the new coal-fired plants planned for China are designed with future deployment of CCS in mind.
Around 20-100GW of the new coal power plants being built by 2020 are set to be IGCC plants, which should drive down the price of those plants globally and therefore make CCS- ready plants more economically viable in other developing countries.
In its assessment of China's recently released new five year plan, The Climate Group stated that CCS research and development is likely to benefit from new ambitions, with R&D funding set to increase dramatically as China aims to become a global technology innovator.
According to The Climate Group, the Chinese Ministry of Science and Technology has included capturing CO2 from coal to oil projects and demonstration of oxy-fuel combustion capture projects, among other CCS related technologies, in its 12th five year plan. "The focus of most research efforts is encapsulated by the Chinese use of the acronym 'CCUS' instead of CCS, or 'utilising' any captured CO2 for commercial purposes," The Climate Group says. Importantly, this work may help spur future developments in CCS elsewhere in the world where a major challenge is financing and deployment of CCS where CO2 is not a valuable commercial product.
According to the journal "Foreign Policy" Xiao Yunhan, a leading energy thinker at the Chinese Academy of Sciences, argued that: "even if China utilises every kind of energy to the maximum level, it is difficult for us to produce enough energy for economic development. It's not a case of choosing coal or renewables. We need both". Given the continual expansion in the Chinese economy, which is helping to address poverty challenges, it is difficult to argue with him.