The final workshop of the Energy Talk Series on “Changing Political and Economic Dynamics of Global Energy Flows”, conducted by the European Centre for Energy Resource Security’s (EUCERS) together with the Institute for Strategic Dialogue and the Konrad Adenauer Foundation (KAS) in the UK dealt with the topic of “How will China’s Energy Hunger Affect the World?”. The event took place on November 6th, 2014 at King’s College London and was attended by members of academia, the media, state governments and relevant businesses.
In his welcome address, Prof Dr Friedbert Pflüger, director of EUCERS, described the topic of Chinese economic growth and the consequent growth in energy demand as one of hope and fear. The trend entailed both chances and challenges for businesses and increasingly so when considering that the IEA expects 80% of global energy demand growth by 2030 to come from developing Asia alone. Further stressing the magnitude of this outlook, Hans Hartwig Blomeier, director of the KAS Office in the UK, also reiterated the geopolitical and –strategic dimensions of these developments, going beyond mere technicalities. As such, the workshop represented an important final piece of this year’s Energy Talk Series that had already covered global energy developments in the Mediterranean, the U.S., Kurdistan and Iran.
As the first speaker of the panel, Tim Yeo MP, Chairman of the Energy and Climate Change Committee of the UK Parliament, outlined five important drivers of contemporary Chinese energy policy. Firstly, Chinese energy demand is slowing down, although still high by Western standards. Secondly, Chinese policy makers are increasingly concerned with climate change as a threat to water security and the economy, represented in the 13th Five Year Plan and the initiation of an Emissions Trading System. This was also related with, thirdly, rising air pollution levels and a growing and vocal middle class. Fourthly, energy and carbon intensity remains high in China, yet growing at a decreasing pace. Finally, from a security perspective, China is eager to cut energy imports and utilise own indigenous resources. This has also shown that despite its political system, public opinion is not neglected, with renewables the main beneficiary. There remain, however, high inefficiencies of the economy due to a lack of a competitive market and high corruption levels. Regarding the Chinese coal demand, Mr Yeo raised several influential factors that would lead to its decline in relative terms. Gas demand is growing, however faster than its production, resulting in increasing import levels via LNG. He also referred to the recent pipeline deal with Russia. At the same time, Chinese investments in renewable energies is increasing with benefits for the global renewables market as prices of solar are decreasing. A similar effect for wind power could be next. Considering the Chinese issue of air pollution levels, Mr Yeo forecasted China to be at the centre of the automobile industry’s shift towards electrical cars. Overall, Mr Yeo therefore considered coal demand in decline and saw great potential in China becoming a leader in climate change action. He stressed that the key for success was adaptability, a point also important for Europe, which he encouraged to make use of all its indigenous energy resource potentials.
Professor Dr Keun-Wook Paik, associate fellow of the Energy, Environment and Resources department at Chatham House and senior research fellow at the Oxford Institute for Energy Studies, continued the discussion by coming back to several already raised points. He pointed out that the LNG hub at Singapore would not reach anticipated levels due to lower Chinese LNG demand. This stands in relation to Chinese gas projects in Thailand, imports from Turkmenistan as well as the mentioned Sino-Russian pipeline deal. The shift from coal to gas in China was therefore primarily a matter of prices rather than climate change ambitions. Professor Paik stressed that observed gas prices of $18 per Million btu in Japan would not be acceptable in China, where natural gas, although having seen massive expansion over the past two decades, still only accounted for 5% of the energy mix. Nonetheless, the Asian gas market was bound to see growing geopolitical and economic competition as increased gas from Australia and new gas from the U.S., Canada and Eastern Africa enter the market. The Sino-Russian gas deal, according to Professor Paik, was in part a consequence of the Ukrainian crisis which pressured Russia to look for new export markets. China, in this respect, has been the great winner, as he assumed that it was primarily Russian concessions that enabled the deal following years of intense negotiations.
Finally, Dr Frank Umbach, Research Director at EUCERS, also picked up on already mentioned points of the discussion by stressing that from his point of view climate change was not considered a main issue for China, despite the fact that without China, no successful actions tackling global emissions could be taken. China remains the largest CO2 emitter and has recently even surpassed the EU’s in per capita emission. In this respect, he stressed that this trend is likely to continue as China will be fuelled by coal for years to come. Current plans to reduce coal’s share in the energy mix from 70% to 50% by 2030 were firstly highly optimistic, and secondly, would still mean two times today’s consumption levels. Hence, Dr Umbach reiterated the importance of clean coal technologies. Referring also to the Sino-Russian gas deal, he added that another important factor is the steadily declining demand for natural gas in Europe that could be observed in all recent IEA World Energy Outlooks. Although the gas price agreed in the deal with Russia had not been published, analysts expect prices to be below those of the European market, while building costs of the “biggest deal ever”, according to Dr Umbach, have not been included yet. This would beg the question whether the Russians are truly willing to subsidise the Chinese consumer. However, Dr Umbach pointed out that China had the greater leverage in this respect, aiming at a high degree of diversification from various pipelines and through spot priced LNG. From a geopolitical perspective on China’s energy hunger, maritime chokepoints and conflict with Japan and Vietnam in the South and East China Sea continue to be important issues. Also Chinese relations with Iran and its involvement in African energy projects had to be taken into consideration. The latter have been directly undermining Western policies. To stress the point of the interdependence of issues, Dr Umbach finally also raised the matter of Chinese investments in European critical infrastructures, such as the electricity grid and telecommunications, and the consequent vulnerability of Europe to cyber-attacks.
Following the panel discussion, as always, attendees had the chance to comment, ask questions and debate the matters at hand further. Going back to the earlier breakfast buffet also provided ample opportunity to network. Overall, the workshop once again proved to be very insightful, raising many points and perspectives and giving everyone present an in-depth overview of the connected issues. It was therefore a befitting closing of the 2014 Energy Talks Series on the important topic of shifting global energy flows, as well as an excellent preparation for next year’s Series on (re)emerging energy super powers.
By Jan-Justus Andreas, KAS Fellow 2013-14