China’s next bet is on natural gas – by Peter Tertzakian (Globe and Mail – July 16, 2013)

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They say, “What happens in Vegas, stays in Vegas,” but not so in China. Affairs in the Middle Kingdom have huge global influence – at least the mundane affairs of economic activity, primary energy use and environmental impact (in that order of causation). After a dozen boom years, the impact of small changes in China’s gargantuan condition triggers repercussion around the world, not the least for major oil and gas exporters like Canada.

Here’s what’s going on: China’s economy is decelerating, which implies caution (but not alarm) for oil markets; but its energy diet is becoming leaner, which rings a positive tone for future natural gas use. A Chinese transition to more natural gas, much more than the International Energy Agency (IEA) is forecasting, reinforces the importance of Canada’s West Coast liquefied natural gas (LNG) prospects.

China’s annual GDP growth has cooled off from its historically supercharged 10 per cent or more, down to an annualized 7.5 per cent for the second quarter of this year. Other metrics suggest loss of economic momentum; its exports are down 3.1 per cent year-over-year; domestic wages are increasing; manufacturing is weakening; and credit is crunching.

Despite these negative indicators, growth in overall absolute energy consumption – barrels of oil, tons of coal, cubic feet of gas, and so on – is still robust and rising. That’s because China’s total energy use – now 20-per-cent greater than that of the United States – is compounding off of a much larger base of consumption. In other words, it doesn’t take as much economic growth on a per-cent basis to draw on greater amounts of energy in an absolute sense.

Recently released data in the BP Statistical Review of World Energy 2013 tabulates China’s energy use. Figure 1 shows consumption broken down by each primary source, normalized for energy content, collectively represented in terms of millions of barrels of oil equivalent (BOE) per day.

Total Chinese energy consumption remains on a ballistic trajectory. Continuing expansion of middle class wealth among 1.3 billion people should continue to drive top line growth of about 3 per cent per year. And although we can expect both GDP growth and the pull for energy as a function of wealth creation to moderate over the next decade, China’s energy consumption is on a course to exceed 75 MMBOE/d by 2025. For comparison, that level is almost double the current energy consumption of Europe.

From a societal perspective, the Chinese sub-trends supporting their total energy diet don’t look healthy, notably an unsustainable call on coal for power generation, paired against an insignificant diversification into cleaner alternatives. Shovelling megatons of coal into the economy is not surprising in hindsight, because it is the only primary energy source that is scalable enough to bring reliable and consistent electricity to hundreds of millions of people over a short period of time.

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