China's boom creating energy quandary with global economic reverberations

"When riding a tiger, it can be difficult to get off" is a Chinese proverb particularly appropriate for analyzing the economic boom-driven energy supply quandaries facing China today, according to a new report by Cambridge Energy Research Associates (CERA) presented at the CLSA China Forum in Qingdao, China.

"Blistering economic growth in China, and its surge effect on demand for energy (along with most other commodities), have pulled international energy markets onto the tiger's back," said CERA Chairman Daniel Yergin and Scott Roberts, CERA's director of China Energy, inRiding the Tiger: The Global Impact of China's Energy Quandary. Between 2000 and 2004, China accounted for an astounding 40% of the total growth in world oil demand, and its rapid economic growth has turned it into the world's second largest oil market.

"The global oil, gas, and coal industries – and increasingly power as well – are now coming to terms with China's emergence…as one of the most decisive factors in their markets," they noted, "and China's growing weight in world consumption virtually assures a heavy long-term impact on energy prices, trade and investment. In a decade, China has gone from self-sufficiency to being the most dynamic factor in the world oil market and one of the main elements in today's $40-plus per barrel price."

"Urgent action is required (in China) to ensure that energy supplies are adequate, lest shortages become a brake on the roaring economy," wrote Yergin and Roberts. They observe that widespread power shortages, rapidly increasing oil imports, and bottlenecks in coal are creating a pervasive sense of "energy crisis" within China.

The most important factor in Chinese energy demand growth is a surge in fixed asset investment – a 28% increase in 2003 and in early 2004 – that has rapidly expanded manufacturing activity in the most fuel- and electricity-intensive segments of the Chinese economy like steel, aluminum, cement, and chemicals production. Industry accounts for two-thirds of China's primary energy demand, and electric power sold to factories claims 75% of all power sales, they reported.

05-18-04