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China Energy Update – strategic initiative into energy savings industries

30 May

China’s State Council reportedly approved a plan to promote seven strategic industries by 2015, as it seeks to both reform and boost the economy. Although the details are not extensive, the strategic industries include energy saving and environmental protection efforts as well as new energy sources. This follows on recent moves to fast track infrastructure investment and a consumption stimulus packaging targeting energy saving home appliances and smaller cars, amongst other areas.

Although the Chinese government is responding to recent economic slowing, at this stage it appears reluctant to substantially loosen monetary policy, and is instead focusing on targeted fiscal stimulus. It is important to keep in mind that it has substantial room to maneuver, as China ran a budget surplus over the first four months on 2012. In its 12th five-year plan, China aims to reduce the energy intensity of its economy by 20%, and several areas of proposed investment are aimed at attaining this goal.
Overall, the impact of the stimulus on oil demand could be mildly positive, to the extent that auto sales are supported and most of the energy-saving incentives are apparently focused on the power sector. Gasoline demand expanded by 8% yoy in 2011 and accelerated to 10% in 1Q 2012, while consumption of most other fuels slowed.

China’s Energy Demand

Over the next 25 years, 90% of the projected growth in global energy demand comes from non-core economies. China alone accounts for more than 30%, consolidating its position as the world’s largest energy consumer. In 2035, China consumes nearly 70% more energy than the U.S., which will be the second-largest consumer, even though by then per-capita energy consumption in China will still be less than half the level in the U.S. China is consuming a lot of energy, but it has nearly three times as many people to consume it, too.

The rates of growth in energy consumption in India, Indonesia, Brazil and the Middle East are even faster than in China in percentage terms, but definitely not in overall volume. For example, Brazil’s energy consumption is seen rising 2.2% by 2035 to 421 million tons of oil equivalent; India volume is seen rising by 3.1% to 1.46 billion tons of oil equivalent. Meanwhile, China consumption is seen rising less, by 2%. But that means 3.83 billion tons of oil equivalent.

By comparison, the U.S. consumption level is expected to rise marginally by 0.2% to 2.26 billion tons of oil equivalent. The EU demand for energy is expected to rise by about the same level to 1.9 billion tons of oil equivalent energy.

Source:  World Energy Outlook 2011 – IEA

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