2013 January 25

The Master Resource Report  2013-01-25

Only in China

Only in a political system like the one in China could a position like this be taken. The government has placed a cap on imported oil at 61% of demand in by the end of the current five-year plan in 2015 according to a report by Platts.

The article went on to report “…foreign oil dependence will be an increase from 26% seen in 2000 and 57% in 2011, the government said in its 12th Five Year Plan (2011-2015) for energy development released late Wednesday. The country’s crude production capacity will still be 200 million mt/year (4 million b/d) in 2015, unchanged from 2010.”

The report also indicated that Chinese refining capacity will reach 12.5 million barrels per day in 2015 according to “the plan”. For some perspective the U.S. has about 17 million barrels per day of refining capacity. So China’s plan is to reach about 70% of the current U.S. capacity by 2015.

The real question is what happens if the Chinese economy needs to import more than 61% of demand to keep the wheels turning? Given that in 2011 the country was already importing 57% it seems likely that the only thing that will keep them from blowing through that 61% is an economic slowdown. Imports grew 6.8% in 2012 which puts them on a path to double in just over 10 years.

As a percentage of consumption China now has surpassed the U.S. It is only a matter of time and price before it will pass the U.S. in absolute import volumes.

Then there are China’s coal imports

Platts also reported that China’s coal imports jumped 58% year-over-year in 2012. “For the month of December 2012, China imported 12.98 million mt of thermal coal, up 62.25% from the 8 million mt imported in December 2011, data showed.”

The Platts article also indicated that the U.S. provided 4.24% of Chinese coal imports while Australia topped the tables at 38.18%.

While all eyes tend to be focused on China the real action in future coal imports will most likely be India. The IEA Medium-Term Coal Market Report 2012 put it this way. “Endowed with large coal reserves, a population of more than 1 billion, electricity shortages and the largest pocket of energy poverty in the world, India makes the perfect cocktail to boost coal consumption. Domestic industry’s performance will allow India to be the largest seaborne coal importer by 2017 with 204 mtce and the second-largest coal consumer, surpassing United States.”

From a climate perspective the IEA’s report paints a very grim picture for the years ahead.

“Even though coal demand growth is slowing, coal’s share of the global energy mix is still rising, and by 2017 coal will come close to surpassing oil as the world’s top energy source. The world will burn around 1.2 billion more tonnes of coal per year by 2017 compared with today. That’s more than the current annual coal consumption of the United States and Russia combined.

So there is plenty of good news for coal miners and exporters. It is also equally plentiful bad news for the rest of us.