IEA: China Has Unseated US as World’s Top Energy Consumer
China is now the world’s #1 consumer of energy, and its hunger for oil, gas, and coal (to fuel power plants like this one) will continue to grow, according to the IEA. (image: cejournal.net)
On Monday, the International Energy Agency (IEA) reported an event that energy experts around the world have been predicting for years: China has officially overtaken the US as the world’s biggest consumer of energy.
The Financial Times reported (via cnbc.com) on Tuesday that the IEA’s just-released report on last year’s energy consumption data showed that
China last year consumed 2,252m tons of oil equivalent of energy from sources including coal, oil, nuclear power, natural gas and hydropower, about 4 per cent more than the US.
The announcement amounts to an important milestone in the shifting picture of how the world’s energy is used and who is consuming it. It also highlights two trends that have marked the last decade: rapid growth in China’s economy and thirst for energy and increasing energy efficiency in the US. More recently, the global recession curbed energy use in the US by slowing down the national economy while having less of an effect on China’s economic health and growth.
The effects of China’s ascendance to the top of the list of the world’s energy-consuming all-stars will be no less than transformative, the IEA said. As energy demand in China grows, so will its imports of oil, coal, and natural gas, which could lead to rising prices or even price spikes. Many believe that breakneck growth in Chinese oil demand was a major factor behind the crude oil price spike of 2008.
As the world’s biggest energy consumer, China will also have a major influence over how energy is used, “from the types of cars manufactured to the kinds of power plants built,” reported the Times. In doing so, China will help determine modes and methods of energy consumption in the rest of the world.
In a development that offers a glimpse at how energy-gobbling China might affect oil markets in the coming years, the Asian nation was also the top importer of crude from Saudi Arabia in 2009—a title that the US had held for decades.
While the IEA report confirms that the US saved money and reduced carbon emissions by consuming energy more efficiently over the last decade (efficiency increased by an average of 2.5 percent per year during that time), it also showed that China’s insatiable appetite for energy will more than offset any consumption reductions in the US or Europe.
The IEA’s finding does not come as much of a surprise to energy observers, but it did happen a bit more quickly than many expected. It’s now more clear than ever that if you want to know what the future of energy looks like, you should keep an eye on China.
Chinese Car Sales Could Explain Rising Oil Prices
Car sales in China have increased by a remarkable amount in the past year, even as the rest of the world struggled under a recession. (image: businessinsider.com)
Oil traders have struggled to uncover the causes behind the recent ramp-up in oil prices, which has occurred even as inventories of crude oil and all refined petroleum products are well above the normal range. When the traders themselves are puzzled, the rest of us may have even less of a chance of making sense of prices, but Joe Weisenthal of Business Insider says a quick look at car sales in China, as seen in the graph above, shows why oil prices are rising.
The year-over-year change in car sales, represented by the solid black line, shows that Chinese car sales have grown by 60 percent in the past year. That translates into a lot more consumption of transportation fuels in a country many observers think can all but single-handedly make up for faltering oil demand in the developed world. No less an authority than the executive director of the International Energy Agency (IEA), Nobuo Tanaka, has said that all future demand growth will come from the developing world, led by China and India.
Economic news from China has the power to move oil markets on a day-to-day basis, and a 60 percent increase in car sales shows that the Chinese economy has the potential for incredible growth—growth that will require vast amounts of oil and other energy sources. Even if Chinese oil demand wasn’t responsible for the latest oil rally, it will boost prices at some point in the future.
Rural China Pioneers Community Power from Biogas
The biogas-burning community of Fenghuang is in China's Sichuan Province. (image: z.about.com)
As China’s economy continues to grow at a breakneck pace, so does its thirst for energy. To meet this exponential increase in demand, China has turned primarily to coal, a dirty but cheap natural resource that the nation possesses in abundance. Coal powers the vast majority of China’s electrical plants, and is also used by millions of rural homes as a cooking and heating fuel. The industrial and residential burning of massive amounts of coal releases CO2 and other byproducts that contribute to global warming and adversely affect respiratory health.
For its part, one rural village in China’s Sichuan province has found a green energy source that replaces coal for its heating and cooking needs: biogas. As Reuters reported on March 4, the farming community has pioneered a system in which local plant waste is processed into biogas that is then piped into residents’ homes for heating and cooking. The biogas is similar to methane (which is the main component of natural gas) and is derived from the fermentation of biomass such as grasses or corn stalks. Combustion of biogas produces far fewer greenhouse emissions and none of the particulate emissions that come from burning coal.
While intense demand for electricity in China’s urban centers requires burning coal, wide availability of biomass and heavier reliance on gas fuel holds promise for expanding biogas use in China’s rural areas.
Perhaps if biogas proves to be a success throughout rural China, we could see biogas use growing in the rural US.
Watch a video of the Reuters report from New Tang Dynasty Television:
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Chinese Legislators Want Increased Strategic Oil Reserves
These oil tanks are part of China’s strategic reserves, but some legislators think they’re not enough. (image: wsj.com)
Some lawmakers in China are calling for an increase in the country’s stockpile of crude oil and refined oil products, Reuters has reported. As China’s energy consumption grows, these lawmakers are concerned that an increasing reliance on oil imports will jeopardize the country’s energy security.
China has already embarked on an expansion of its strategic petroleum reserves, adding 170 million barrels of capacity to preexisting reserves of 102 million barrels. However, Chen Geng, a member of the National People’s Congress, said that the “current state crude reserves are far lower than sufficient.” According to Chen, China will have to import 350 million metric tons of oil (roughly 2.5 billion barrels) by 2020, and Chen called for greater stockpiles to soften the threat that such reliance on imports poses to energy independence. Another member of China’s parliament called for the state to increase its reserves of refined oil products in addition to its crude reserves.
Energy policy in China has been dictated by an insistence on self-sufficiency since the rule of Deng Xiaoping in the 1980s, as HeatingOil.com contributor Jeff Jorve explained. China’s investment in green technology and in vast supplies of petroleum and petroleum products are each aimed at the same end—energy independence.
While China’s energy policy may be driven by longstanding domestic concerns, the country’s actions affect oil consumers around the globe. Whether China buys oil and oil products to use them or to store them, the market registers it as additional demand, which pressure the prices of crude oil and heating oil to rise.
China Now Imports More Saudi Oil Than US
China’s growing economy has made it the top importer of Saudi oil. (image: abc.net.au)
In a sign of China’s economic growth and its increasingly influential role in oil markets, China has now passed the United States as the top importer of oil from Saudi Arabia. Energy Secretary Steven Chu confirmed the news at a press conference on Wednesday, reports the AFP.
China’s new status as the leading importer of Saudi oil represents a milestone for measuring China’s oil consumption, but it also reflects different patterns of oil consumption in China and the US, the two largest oil consumers in the world. Like the rest of the industrialized world, energy demand in the US is leveling off as the nation tries to reduce its oil consumption, especially when it comes to foreign oil. China, on the other hand, like much of the developing world, has seen its energy demand increase dramatically of late—a trend that will continue as China’s economy grows.
As industrialized countries take steps to reduce their energy consumption, China will likely continue to be the top importer of Saudi Arabian oil.
Study: China’s Oil Demand Weaker than it Seems
An employee of Sinopec, China’s national oil company, at work. (image: daylife.com)
The world may expect China to drive a resurgence in oil demand and a subsequent rise in prices, but according to a new report from IIFL, its oil consumption growth is actually decelerating, said an article published on Monday in India’s Business Standard. IIFL wrote in its report on China’s quest for energy security that, “The importance of China’s oil consumption and growth to global trade, albeit undoubtedly significant, had been grossly overrated.”
The IIFL also mentioned that China imports much less oil than the “developed world.” The IIFL described China as a “price-taker, not yet a price-driver.”
Heating Oil Price Trend for January 12: -2¢
(image: heatusa.com and zimbio.com)
Weather continues to be the dominant factor affecting oil prices, but after lifting prices in recent weeks a warming trend gave heating oil consumers a break from rising heating oil prices yesterday. The Northeast is forecast to warm up for the next week, with temperatures at or above normal. Warmer weather will ease heating oil demand, and that has weighed down the price of crude and heating oil. Chinese economic growth continues but has been paired with monetary policy that aims to prevent inflation and slow the pace of growth, so even yesterday’s news that China’s crude imports hit a record high in December was not enough to push oil prices higher.
Today’s average retail heating oil price in the Northeast is 2 cents lower than Monday’s average price.
Saudi Arabia Invests in Future Oil Production and Refining
Saudi Finance Minister Ibrahim al-Assaf. (image: arabnews.com)
As reported Sunday by the Economic Times, Saudi Arabia will invest in oil production and refining to “achieve stability in the international oil markets.” According to the nation’s oil minister, Ibrahim al-Assaf, the goal is to “increase production and refining capacity to maintain balanced and acceptable prices by both producers and consumers.”
It’s a good story, but does it make sense? Saudi Arabia recently completed a huge expansion of its production capacity, bringing it to 12.5 million barrels per day. However, it doesn’t actually pump anything like that—it’s currently producing 8 million bpd, which means it already has more than 50 percent surplus capacity.
Second, Saudi Arabia has so much surplus because it, unlike such OPEC members as Nigeria and Qatar, honors the organization’s production quotas. If the kingdom is voluntarily pumping less than it could, why does it need yet more capacity that—by its past practices—it will not use?
Literally Singing the Praises of Gazprom
With the days of socialist marches and propaganda posters fading away, it seems that Russia has found a new way to whip up nationalist pride: an epic anthem extolling the virtues of the national gas company, Gazprom. In a YouTube video that can be described as inspiring, strange, comical, infectious and frightening (or all of the above), Gazprom presents its new theme song in music video form with English subtitles.
Sure, natural gas is an important commodity that’s “giving people warmth and light for office and for home,” but does it deserve three and a half minutes of exultation that borders on religious fanaticism? It’s clear that natural gas is one of the main (if not the most important) factors that maintain Russia’s political relevance in our global society, as then-president Putin showed when he cut off Russia’s gas supply to the Ukraine in the dead of winter last year.
Crucial domestic resource, chief export, invaluable revenue source, political weapon…you can see why the Russians love their gas. However, I doubt average Russians share the unconditional love and reverence for Gazprom that the anthem expresses, or if the song is even known in the country (or anywhere outside the snickering group of 67,950 YouTube viewers), but I do know that they’ll “never ever find a surer friend than Gazprom.”
So pour yourself vodka straight up so we can “drink to all the Russian gas, that it never comes to an end, though it’s so hard to obtain!”
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Economist Rubin, Who Predicted 2008 Spike, Sees $100 Oil in 2010
Rubin predicted the last spike in oil prices—will he be right about the next one? (image: ipsnews.net)
According to BusinessWeek, Jeff Rubin, the economist who correctly predicted 2008’s massive crude oil price spike, believes that petroleum prices are steadily headed toward the $100 mark. Asserting that oil prices will hover around $90 by the end of March, the former CIBC World Markets Inc. chief economist believes that “it’s safe to say that we’ll see triple-digit oil prices by the fourth quarter of this year.”
Rubin attributes rising oil prices to increased consumption by countries with rapidly developing economies such as India and China. This occurrence will in turn force the United States to rely on more expensive non-conventional sources of oil. Increased consumption, Rubin believes, will outweigh other factors that could cause price spikes, such as political disturbances in oil producing nations and production limits set by OPEC. Rubin’s prediction challenges recent forecasts made by Peter Cooper, who believes that oil prices will drop in 2010 and that factors such as rising Chinese demand are not credible because the strength of emerging market economies is questionable.
Lamentably, if Rubin again proves correct, consumers should expect to pay more for heating oil as he predicts crude prices could reach up to $160 a barrel in 2012, a level at which he asserts “the global economy becomes very challenged.”
Heating Oil Price Trend for January 8: -2¢
(image: treehugger.com and life.com)
Signs that China’s economic growth may be slowing knocked down oil prices on Thursday after a two-week rally in which crude and heating oil prices had surged. China raised its interest rates yesterday, which will limit credit and slow growth. Economic expansion in China has supporting climbing oil prices for the past year. This week’s inventory reports, which showed a surprising build in crude oil and a small drop in distillates, had little effect on Wednesday’s prices but played a role on Thursday, now that Chinese demand appears stable for the near future.
Today’s average retail heating oil price in the Northeast is 2 cents lower than Thursday’s average price.
China to Increase Pursuit of Oil and Gas Resources
The logo of the China National Petroleum Company could become a more common sight around the world. (image: 1.bp.blogspot.com)
Bloomberg reported Tuesday that China is stepping up its efforts to pursue and secure oil, natural gas, and mineral resources. As domestic demand grows, the world’s second-biggest energy consumer has said it will “actively” participate in global competition for these resources.
Though the intensity has been increased, these efforts by the Chinese are not new. The country walked away from an early December auction with lucrative deals in place to develop Iraq’s oil fields. And even earlier that month, the China National Petroleum Company made a less-favorable deal to work on the Iraqi Rumaila oil field, which holds 17.8 billion barrels.
Investments in Iraqi oil fields are notoriously risky in terms of stability, so the effects of these steps for heating oil prices remains to be seen. If the Chinese are successful in their bid to procure “stable energy supplies for economic growth,” however, it could bode well for heating oil and other energy consumers around the world.
Heating Oil Price Trend for January 5: +8¢
(image: s.wsj.net and zimbio.com)
A variety of factors combined to produce yesterday’s price spike in crude and heating oil. Sustained cold weather in the US Northeast and in Europe, two large heating oil markets, has encouraged some investors that the fundamentals—supply and demand—of the oil market are improving as freezing temperatures boost heating oil consumption. Positive manufacturing reports from the US, China, and India signaled that those economies were recovering, which would raise global energy demand and support higher oil prices. Lastly, a tariff dispute between Russia and Belarus led Russia to briefly stop its oil shipments to Belarus, through which Russia supplies much of Europe’s oil. Russian exports have returned to normal, but the threat to the global oil supply worried investors and lifted oil prices.
Today’s average retail heating oil price in the Northeast is 8 cents higher than Monday’s average price.
Another Forecast for Falling Crude Oil Prices in 2010
A strong dollar could keep oil prices down in 2010. (image: weakonomics.com)
Forces such as emerging market demand, speculation, and a weak dollar—all of which have supported higher oil prices in 2009, despite a recession—may not sustain oil prices in 2010, according to an article published on Seeking Alpha on Monday. First of all, signs exist of a global tightening of monetary policy, said author Peter Cooper. In addition, the true strength of emerging market economies, such as China, is being called increasingly into question.
Third, the US dollar is recovering after an extended decline against the euro. Cooper cited weak global demand caused by the recession as a fourth reason that oil prices might be lower in 2010, as demand could lag even as the global economy lurches toward recovery.
Analysts Lay Out Two Scenarios for 2010 Crude Prices
Bloomberg asks 2009’s best oil forecasters what they see in their crystal ball for 2010. (image: telegraph.co.uk)
Bloomberg asked the oil analysts who had been most successful in predicting the price of crude oil in 2009 where oil prices would be headed next year, and two divergent scenarios come to the fore: the first sees crude staying high and looming in the $88-$92 range for the fourth quarter of 2010, while the second has it dropping much lower, to $59 a barrel by the end of 2010.
The first scenario, the Bloomberg post notes, is supported by the two analysts who were the most accurate forecasters of crude prices in 2009; their predictions were “within 9 percent of market levels.” Mike Wittner of Societe Generale SA and Hannes Loacker at Raiffeisen Zentralbank Oesterreich AG think that oil will stay up in 2010, buoyed by increased demand and stagnant production.
Why OPEC’s “Perfect” Oil Price Could Backfire
Saudi Arabia’s oil minister, Ali Al-Naimi, called oil prices “perfect” but they may breed competition. (image: nytimes.com)
In the world according to OPEC, $75 is the magic number for a barrel of oil. According to Amy Myers Jaffe at the Houston Chronicle, OPEC’s thinking goes like this: seventy-five dollars is enough to maintain investments in difficult-to-reach oil such as deep water and tar sands oil, assures that oil producers can fund national budgets, and allows investors to profit. And since the global economy is currently recovering, albeit slowly, with $75 oil, OPEC figures that $75 is not that damaging to the recovery. American drivers are still driving with $75 oil, and Chinese drivers are buying cars.
But, Myers Jaffe says, this is wishful thinking. She says there are two reasons why $75 is, in fact, too high.
Heating Oil Weekly Roundup: Presidential Loopholes, Christmas in Copenhagen, and Green Tech in China
(image: Nick Anderson of the Houston Chronicle, via americanprogress.org)
Looks like the Copenhagen conference was kind of a bust, but what likelihood was there that the US could pass any international treaty, anyway? If President Obama can’t get 60 votes for any legislation, how could he get the 67 needed for a treaty? He might not have to, says <a href=”>Michael Livermore at the Vine, a blog of The New Republic. Livermore details some of the ways that Obama could use executive authority to bring the US into a binding international agreement. It might not come up after Copenhagen, but another set of talks is scheduled for Mexico City.
Christmas in Copenhagen might mean shopping for gifts at stores that keep their doors open, pumping heat out onto the cold street, but it also means a Christmas tree that’s green in more ways than one, says Spencer Schwartz at the Wall Street Journal’s Environmental Capital blog. At City Hall Square, a massive Christmas tree stays lit through the power of volunteers on bikes that generate electricity for the lights. At night, when the volunteers go home, wind power keeps the tree bright.
Denmark seems a likely place for environmentally friendly innovation. What about China? In the New Yorker, Evan Osnos details China’s 863 Program, the clean-technology program that could progress by such bounds that the US would not even be competitive in the clean-tech sector. And this from a country whose capital, Beijing, often has air quality that the US typically associates with forest fires.
Natural gas drilling has come under criticism recently for the pollution it can cause in air and water, and in response the industry has taken steps to curb emissions and remove toxins from its drilling. But according to Abrahm Lustgarten at ProPublica—which has extensively and often critically covered problems associated with hydrofracking—these practices are still underused in natural gas drilling. According to Lustgarten, this doesn’t do much good for gas companies or local communities, since many of these steps not only cut pollution but boost productivity and save money.
Copenhagen Day 12: President Obama’s Speech Leaves Many Disappointed
Copenhagen ends with a bust, with or without the U.S. President's closing speech. (image: washingtonpost.com and nazret.com)
In what could be the final nail in the coffin of the erratic Copenhagen negotiations, President Obama took the stage Friday, saying he was convinced the world could still act “boldly and decisively” on climate change, but offering little in the way of solid examples. The president proposed no further financial commitments of support beyond the $100 billion Hillary Clinton announced yesterday, nor any additional commitments on emissions reductions. He did say America would live up to its pledges to the international community, and hoped the world could walk away with at least something, anything, on paper.
As the Huffington Post pointed out, Obama’s speech was full of open frustration. “I think our ability to take collective action is in doubt,” he said. Even on this last day, the talks are in a state of disarray, with wide chasms still remaining between rich and poor nations, as well as China and the United States. Obama made it clear that the United States’ participation in any deal would be contingent upon accountability and transparency from other nations, specifically China. “Without such accountability, any agreement would be empty words on a page,” Obama said. And without such mechanisms in place, any pact “would be a hollow victory.” Read the full text of Obama’s speech here.
Shell to Slash US Workforce, Mostly in Houston
Shell, faced with falling profits, plans to cut 5,000 jobs. (image: memrieconomicblog.org)
According to an article published on Tuesday in the Houston Chronicle, Royal Dutch Shell has announced it will slash hundreds of jobs located in Houston and the surrounding region.
The primary departments affected by this decision are financial and other support divisions, with many of these jobs being shipped to India and the Philippines to cut costs. As we reported earlier, Royal Dutch Shell’s earnings dropped by 62 percent in the third quarter, a trend followed by other oil majors. The shrinking profits have been caused by the downturn in the worldwide economy, which has caused a drastic decline in oil demand.
Copenhagen Day 11: U.S. Makes Financing Pledge for Poor Nations, China Responds Favorably, Some Hope in the Talks Restored
Secretary of State Clinton made a huge financial commitment on the behalf of the US that helped moved stalled talks forward in Copenhagen today. (image: blog.nature.org)
Finally, some progress! With just over a day left in the Copenhagen climate talks, some momentum gathered Thursday, as the United States announced an aid package to help poor nations combat climate change. According to the New York Times, Secretary of State Hillary Rodham Clinton said the U.S. would help raise $100 billion a year by 2020, the first real financing commitment to come from the Obama administration.
While Clinton reiterated America’s stance that any such package would be contingent on assurances of transparency from China, the Asian nation responded with a surprising shift in posture. Not only did it signal that developing nations would move to limit their emissions, but also warmed to the idea of outside verification. Chinese Vice Foreign Minister He Yafei told reporters that his country was open to “dialogue and cooperation that is not intrusive, that does not infringe on China’s sovereignty.” As China has been vehemently opposed to international transparency requirements through the whole of the Copenhagen conference, this is definitely progress.
