China: post-industrial revolution

In this post I revisit the energy production and consumption data for China looking for clues about the future direction of global energy markets. China now consumes 23.2% of all energy consumed on Earth and clearly what happens in China will impact the whole world. Figure 1, lifted from the 2015 BP Statistical Review, shows how dramatically growth has slowed in China. Energy intensive steel and cement are barely growing as the era of industrialisation and building infrastructure comes to an end. So may this in part explain the 2014 oil price crash?

Figure 1 The dramatic slow down in energy intensive industries in China must surely impact demand for energy?

Figure 2 The “miraculous” growth of the Chinese economy has of course been underpinned and matched by growth in energy consumption. Looking at the top of the energy stack it can be seen that that growth in energy consumption is slowing. This has happened before and actually follows a surprising pattern (Figure 6).

Figure 3 The energy production chart is y-axis scaled the same as consumption to make it obvious that China now uses more energy than it produces and has growing import dependence (Figure 4). The x-axis is scaled from 1981 since this is the year that the BP coal production series begins. The most notable feature of this chart is the decline in coal production in 2014. Coal consumption continues apace hence it would appear that the production decline is not demand led but rather that China may be approaching peak coal. Only time will tell.

Figure 4 Deducting consumption from production gives the energy balance, a proxy for imports and exports. In the 1980s, China exported both oil and coal. Oil imports began in the 1990s and have grown steadily ever since. Gas imports began in 2000 and in 2011 China became a net importer of coal. This ballooning increase in energy imports seems set to continue and the OECD will find itself increasingly in competition with China for global energy exports. There is no slow down in China’s appetite for energy imports, hence the slowing of the Chinese economy is not obviously a contributing cause to the collapse of energy prices.

Figure 5 China’s coal production as a percent of the global total may have peaked four years ago at 47.9%. Production growth has stalled before in the 1990s, but this time I suspect that a production limit has been reached and it is easier now for China to import surface mined coal from Indonesia and Australia. It is somewhat miraculous that China has managed to mine 48% of global production from underground mines.

Figure 6 This chart plots the year on year (YOY) changes in China’s energy consumption (Figure 2) and reveals this somewhat surprising and interesting pattern. There appears to be a quasi 9 year cycle with growth lows in 1967, 74, 81, 90, 98 and 2008. The recent slow down in energy growth since 2010 is clear to see. It is tempting to speculate that this pattern is linked to the 5 year central planning cycle although it is not obviously so. If this pattern means anything, and it may not, then it may be 2017 before China’s energy consumption accelerates again.

Figure 7 China’s energy consumption is still dominated by fossil fuels and coal in particular. The last time I visited China’s energy was in 2012 when FF represented 91% of the total (Figure 8). This has fallen by 2% with the substitution being picked up by hydro and renewables. By way of comparison, renewables in Germany was 8% and hydro 2% (2012). Nuclear and gas are both surprisingly low. I find it hard to understand how a vast coal rich country like China can have so little natural gas production. China has 26 operational reactors with 24 large modern reactors under construction, nuclear output is expected to treble by 2020.

Figure 8 China’s energy mix as it stood in 2012.

Concluding thoughts

The scenarios I presented for 2015 – 2016 oil price outlook all included a component of near term weak demand to explain the precipitous fall in the oil price. While the BP data does not yet include 2015, there is little evidence to support the notion that weakening Chinese demand has played a role in the 2014 oil price crash. The slowing of GDP growth and pending collapse of energy intensive industries (Figure 1) are a tempting target to explain some of the fall and this is indeed recorded by a deceleration in China’s energy consumption (Figure 6). But stalled indigenous energy production, especially coal (Figure 3), means that China is dipping deeper into the global energy market that should support prices and offset the deceleration in consumption. It looks increasingly likely that the oil price crash is to be explained by over-supply alone.

[Note added 14:40: The last sentence is badly phrased. I do believe that third quarter 2014 the global economy experience a cyclical drop in oil demand that triggered the price crash. For years these cyclical events were absorbed by OPEC cutting production and maintaining price stability. It is the lack of OPEC intervention on the supply side that caused the price crash. For 2015, my anticipation was that both demand and supply would fall. In fact the opposite has happened. Low price has evidently stimulated demand but has yet to seriously impact supply.]

Data sources

All of the energy statistics come from the BP: Statistical Review of World Energy 2015

Economic statistics are drawn from the United Nations:

UN: National Accounts Main Aggregates Database

Countries in this series of 2014 posts

Egypt – energy, population and economy
Russian Power
Post-peak Algeria?
Libya – energy, population and economy
Turkey – on its way to a mature economy
Ukrainian Death Spiral
Does the UK Economy Run on Energy or Hot Air?
Portugal – renewables to the rescue?
Belarus grows while Ukraine withers
Goodluck Nigeria – a failed state?
Germany: energiewende kaput?
America energy independence
China – the coal monster
Brazil – Samba Energy

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15 Responses to China: post-industrial revolution

  1. Donb says:

    From China’s perspective, with outside sources of fossil fuel now being required and given their uncertain source and price, and China’s commitment to renewables not being obvious, China may turn heavily to nuclear. I suspect the recent increase in hydro was largely the Three Gorges dam and it is not clear many similar hydro options exist.
    Euan, do you have an opinion on this?

    • Euan Mearns says:

      The World Nuclear Association gives a good account of the future of nuclear in China:–nuclear-power/

      It will see major expansion – 3 fold by 2020. The trouble for China is that its energy consumption is vast and growing.

      Yes, recent expansion of hydro is mainly from Three Gorges. It is a mountainous country and so I imagine there will be other hydro options. But again the shear scale of energy demand will likely dwarf any new endeavours.

      I think we will see a major expansion of gas, both imports from Russia and LNG but also indigenous supply – China will frack with little push back from people.

    • Luís says:

      New installed capacity targets for 2020 in broad numbers are:

      . Nuclear: 70 GW
      . Wind: 100 GW
      . Solar: 80 GW

      In 2015 alone China will add 20 GW of PV; the present target for 2020 is now taken as a minimum.

      To put this in perspective: the yearly energy output of 70 GW of Nuclear equates to the yearly growth of electricity consumption during the strongest economic growth years.

  2. Willem Post says:


    China’s nuclear 1% in 2012 and 2014, and 3% in 2020, when its new nuclear plants will be on line.

    Gas will also increase, as about 68 bcm/yr will be flowing from west and east Siberia to China, which will more than offset any reduction in EU demand.

  3. Askja Energy says:

    There have been very strong arguments for demand shock being close to 50% factor in the oil price collapse. Note for example this thesis by Baumeuster and Kilian (I found this to be a very interesting and informative article):
    Understanding the Decline in the Price of Oil since June 2014 (revised version)
    Ketill Sigurjonsson,
    Reykjavik, Iceland.

    • Euan Mearns says:

      I guess my concluding sentence misses the mark. In my previous analysis of the oil price crash, I saw a significant component of weak demand combined with strong supply growth. What I should conclude here is that in China, weakening demand for energy is offset by even weaker growth in indigenous primary energy. Weak demand else where in the world could of course still account for part of the crash.

      • Roger Andrews says:

        Euan: We’re taking a short-term view here. I suspect a trend line drawn through your Figure 6 YOY growth data would be substantially flat.

  4. It doesn't add up... says:

    As I think I pointed out before, BP has made substantial revisions this year to the back history of the data in all sectors and across most countries. In the case of China, the adjustments to primary energy consumption are significant for all years since 1990, and (in mtoe) are:

    15.8 24.2 31.5 30.2 28.9 18.2 15.8 3.6 19.0 16.3 21.4 43.4 80.8 96.0 106.3 190.2 193.6 253.6 241.9 208.2 131.6 134.9 63.4 45.7

    These adjustments have the effect of substantially slowing recent growth compared with the previously released estimates. I don’t know the basis for the changes (especially since they go so far back in history), but it is possible that the Chinese wish to convey an impression that their consumption is maturing with the COP negotiations to play for later in the year. In short, the data revisions may be rather more political than real. Or perhaps BP really has got better information. Or they have chosen a different set of “official” data to report. Who is to say?

    • Euan Mearns says:

      IDAU – I spotted revisions to Global FF consumption when preparing my post on said topic. I didn’t have time to follow up. I was looking at global CO2 emissions. The revisions are quite substantial. And it takes a fair bit of time to find out what is going on – is it just China? Do the changes to CO2 emissions match changes to FF consumption.

      It is worrying that BP have joined the back-dated revisions crowd. They have a new Chief Economist. Christof Ruhl left to take up a position in UAE. New man Spencer Dale has a very brief CV. Upon graduation he moved to the Bank of England and from there to BP.

      • It doesn't add up... says:

        The revisions are all-pervading. If you look at primary energy consumption by fuel in 2013 the only countries with no revisions are New Zealand and Ecuador. Soviet consumption in the 1960s and 1970s has been sharply downgraded in favour of better tractor statistics. Across the primary energy history since 1965, the largest net revisions in mtoe are:

        2,012.3 China
        1,895.0 Total World
        -362.4 Former Soviet Union
        -131.7 Vietnam
        57.1 Qatar
        53.4 Republic of Ireland
        48.8 Mexico
        -45.2 Japan
        42.7 Brazil
        41.2 Thailand
        -39.6 France
        39.2 Finland
        37.4 Malaysia
        35.8 Indonesia
        30.3 Australia
        28.1 Pakistan
        -27.0 Other Asia Pacific
        26.2 Belarus
        -24.1 Kazakhstan
        -21.4 South Africa
        19.7 Slovakia
        -15.9 Singapore
        15.2 Austria
        13.9 Venezuela
        13.3 Turkey
        12.0 United Arab Emirates

        Many of those you would expect to have good and consistent official data

        • Euan Mearns says:

          Does the report offer any explanation? And what do you mean by this?

          Soviet consumption in the 1960s and 1970s has been sharply downgraded in favour of better tractor statistics.

          • It doesn't add up... says:

            The report only thanks the contributors including governments who provided official statistics and says that BP is unable to answer queries about the data – which is unhelpful. It mentions a team at Heriot-Watt led by Professor Mark Schaffer who helped with the preparation – which might offer another way to find out what has been going on.

            The Soviets were famous for producing statistics demonstrating their economic growth, many of which were in practice of rather dubious veracity – they became know as “tractor statistics”. The revisions in USSR primary energy consumption from 1965 to 1979 were in mtoe -30.7 -33.2 -32.5 -30.2 -19.3 -19.4 -20.7 -28.1 -24.4 -23.0 -25.9 -34.1 -35.0 -41.2 -36.4
            Later years were mainly revised upwards marginally, although there was a -9.1 downward revision to Russia for 2013.

    • Luís says:

      The BP Statistical Review has been largely useless for several years. I know better the petroleum dataset, and as you say, it does not add up. There are also issues with renewables, in particular Solar and Geothermal.

    • Luís says:

      Just to give an example: BP sits Solar consumption at 185 TWh in 2014. In the real world solar water heating alone was well over 300 TWh.

  5. Luís says:

    FIgure 1 is referring to what exactly? Energy consumption in those sectors or GDP output? The little information available in the western press points to a on-going blast furnace shut down programme. I would expect energy consumption for pig iron to be actually on the decline.

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