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Chinese natural gas, a great leap forward: part one

Hydrocarbon Engineering,

China has become a global powerhouse in so many ways that it now is difficult to recall the China of the past; a country that largely isolated itself from the rest of the world, and that was considered an underdeveloped economy. China has long held the title of the world's most populous country, but continuously claims new titles such as the world's leading manufacturer, the largest producer and consumer of coal, the largest contributor to carbon dioxide emissions, the site of the largest shale gas reserve, and now, the world's largest oil importer. China is now on the top 10 list in many other areas, for example, being the second largest economy after the US. Surprisingly, given the country's history as a communist nation, it also ranks second in number of billionaires, once again following the US. China is becoming a land of superlatives at a pace that is astonishing the world and, in some ways, itself.

This article will concentrate on China's energy use, focusing on the current push to expand natural gas usage as a substitute for both coal and oil. The Chinese State Council recently published its new Energy Development Strategy Action Plan, which is a precursor to the upcoming 13th Five Year Plan. The Action Plan calls for greater efficiency, cleaner fuels, increased domestic energy production (the goal is 85% of energy from domestic sources) and a number of goals continuing to promote natural gas as a substitute for oil and coal. The government's goal is to have natural gas supply 10% of its primary energy needs by the year 2020. BP reports that the share of natural gas was 5.1% in 2013, so there is much that remains to be accomplished.

Yet China has proven itself capable of rapid accomplishment in the energy sector when it sets its political will. Although there have been market based reforms and an increase in private sector and foreign participation in China's energy industry, it remains largely government run, which makes it possible to institute change more quickly than would be expected for such a large country. The years of direct state control of the energy sector, however, also led to a great deal of inefficiency. Figure 1 compares the energy intensity of the Chinese economy with the energy intensities in the UK and UAE, calculated by the US Energy Information Administration (EIA) and expressed in terms of energy consumption per dollar of GDP generated (in Btu/y and 2005 US$). The energy intensity of the Chinese economy was shockingly high in the 1980s, 25 times as high as it was in the UK in 1980 and 10 times as high as it was in the UAE. The UK and UAE have been chosen here to provide a range of comparison. The UK is a mature economy, an energy importer and a country with high energy prices. Its energy intensity would be expected to be low, and intensity would be expected to fall as energy grew more expensive after the oil price shocks. In fact, between 1980 and 2011, energy intensity in the UK fell by -2.4%/y. In contrast, the UAE is an energy rich country, an exporter and a country where the economy has grown because of inexpensive energy inputs. Energy intensity in the UAE grew at 5.5% between 1980 and 2011. China is relatively rich in fossil energy resources; however, it poured immense amounts of energy, mainly coal, into powering its economy. Efficiency has improved greatly as market reforms have been initiated yet, even in 2011, the Chinese economy consumed approximately one and a half times as much energy as the UAE did to generate each dollar of GDP, and it consumed 6.9 times as much energy as the UK did. Unfortunately, China's improvements in efficiency levelled off during the 2001 - 2011 period. In all of its future goals for the energy sector, increased efficiency will be critical for China. The country's goal is to reduce its energy intensity by 16% between 2010 and 2015. It also plans to reduce its carbon intensity by 17% during the same period, which will require a reining in of coal use.

Read part two of this article here.

Written by Nancy Yamaguchi. This is an abridged article taken from the April 2015 issue of Hydrocarbon Engineering.

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