With much of the energy world distracted by Ukraine, the Chinese have seen this as a strong opportunity to negotiate hard on Russian supplies of oil and gas.
“It’s always been assumed Russia reorienting its shipments toward China would be a long-term objective; originally it was considered something of a leverage point for Russia,” said Robert Kahn, a senior fellow at the Council on Foreign Relations in Washington. “Now people may see it as a reaction to the possible loss of a European market.”
Any sanctions against Russian energy could be futile as Europe will face higher gas prices if Russia is successful with long term energy contracts with Asia. To bet on China as a major importer of energy for the long term would also be naive. The Chinese are pressuring, and rightfully so, their own energy security agenda by trying to become as independent as possible.
China’s proportion of investment into renewable energy totalled $65.1 billion in 2012 becoming the largest investor by country, where the global investment was $269 billion. Of that $31.2 billion was invested into solar power, while the other $27.2 billion was invested in wind power. If we thought China was surging ahead in coal plants and oil and gas imports, its drive for long term sustainable energy is just as great.
Jiang Bo, an engineer with the manufacturer Goldwind, stated: “Seven years ago we could only do one wind turbine in about two days – but our current speed is that we can do two in one day.” Today China’s wind generation is more than all EU countries combined. The scale is also helping lower prices as well as innovation adding further growth to the market.
Gas and clean sources of energy are also a major driver to address China’s pollution crisis. Premier Li Keqiang “declared war” on pollution in a major policy address last month, but China has long struggled to strike a balance between protecting the environment and keeping up economic growth.
“The pace of restructuring and upgrading industries has slowed, the mode of development remains crude, and emissions of atmospheric pollutants have long exceeded environmental capacity,” were according to the Ministry of Environmental Protection, in explaining why air quality got worse.
Just three of the 74 cities studied fully complied with state pollution standards in 2013, the environment ministry said this month.
Nuclear power is also firmly on the radar. France and China signed a series of deals in the energy sector in March as part of a high-profile visit by President Xi Jinping aimed at building tighter business links between the two countries. EDF and China General Nuclear (CGN) signed a co-operation agreement relating to an existing strategic partnership between the two companies. The two companies are in a 70-30 joint venture to build two 1,600 megawatt nuclear reactors designed by France’s Areva in Taishan, southern China. The first is expected to be connected to the grid later this year or early next year.
French oil major Total signed a deal with the Chinese oil and gas producer CNOOC to extend an LNG supply contract until 2019 and to study a possible collaboration on LNG import infrastructure in China. In the South China Sea, the Liwan project began production last week, producing some 250 million cubic feet of gas per day and is expected to ramp up to 300 million cubic feet per day by the end of the year. CNOOC holds a 51% interest, with Canada’s Husky Energy the remaining 49% (of which a major Husky Energy shareholder is Chinese billionaire Li Ka-Shing).
China is clearly becoming focused on renewables, while the United States is becoming ever more dependent on fossil fuels, to make electricity. Of course, the trend does not mean that China will consume less oil, gas and coal in 10 years than it does now. It does mean that any company or investor betting on endlessly soaring hydrocarbon demand in China may be in for big disappointment.
Manufacturing your own energy security comes with a pleasant by-product in the form of jobs. Engineers have to design the products, factories have to build them. Importing hydrocarbons creates jobs in other countries.
