A slightly different view of China

As I began this post I happened to glance outside and watched as a careful set of parents shepherded a young child down the hill as they, all three, cycled through the neighborhood. And I thought how such a simple picture responds to James Kunstler's rejection of suburbia. Not that it is an absolute answer, but I still have the bike that I bought in the 70's and used for travel to work when gas was last around $2 a gallon and it still works and since I paid for it in the gas that I saved back then it will be a free (pant! pant!) commute this time around.

Not of course that I envisage the whole country turning into an outsize version of Holland, Belgium or Denmark, but as an almost aside that points out that all our answers don't have to be that high tech. (In which regard it is apparently not that easy to get hold of a used Segway – which I had thought might be a less personally energetic way into the future).

There was an instructive article today in the Washington Post about China's changing policy. One part that was, I thought. intriguing, was
For China's leaders, however, buying foreign oil and gas fields in the name of energy security has become a central mission. Throughout the 1990s, China made deals to lock in long-term supplies and buy installations from Africa to Latin America. In 2002, CNOOC became the largest offshore oil producer in Indonesia when it bought a field from the Spanish firm Repsol YPF SA.
And just recently we read that Indonesia has a growing energy problem of its own.
Indonesia may raise electricity prices, impose automobile taxes and use more natural gas in power generation to combat its growing oil demand and ease budgetary pressures, officials said yesterday,

A cash squeeze at state oil firm Pertamina, due to heavily subsidised retail prices, and fuel shortages at power stations have heightened the urgent need for oil conservation in Asia's sole member of the Organization of the Petroleum Exporting Countries (Opec).
One wonders, given the oft-quoted fungibility of oil, whether Indonesia, as it runs out of oil, is still supplying China?

Then there is
This year, China began work on a strategic oil reserve in coastal Zhejiang province that would allow the country to operate without imports for as long as three months. But the biggest emphasis has been on securing new stocks abroad, particularly in neighboring countries such as Kazakhstan and Russia, to limit dependence on shipping lanes.
And in our continuing process of spreading gloom one then reads a report in which
Kyrgyzstan's ambassador to Russia said the United States must give up its base in the Asian republic, the Russian news agency Novosti reported……."The American base is losing its relevance, and this is an issue to be negotiated," Jumagulov said. "This was predictable."

He predicted the pullout would be gradual.

In 2000, China, Russia, Kyrgyzstan, Kazakhstan, Tajikistan and Uzbekistan joined in the Shanghai Cooperation Organization, which aimed to counterbalance U.S. power in the area.
Given their recent appearance in Colorado, Canada and elsewhere one cannot help but feel that the Chinese are possibly taking this whole question about the world running short of cheap oil a lot more seriously that some other governments.

And while Ianqui just reported on their immediate drop in demand there is a piece noted by the Energy Bulletin that cites a Planet Ark article that states
Searing temperatures across booming China have driven up energy demand, exposed an over-reliance on coal and are taking a toll on industry, Xinhua news agency said.

Power shortages this summer should be "much more serious" than last year -- when China faced its worst energy crunch in two decades -- a source from the State Electricity Dispatching Centre were quoted as saying.
China's unbalanced energy structure was also to blame, because excessive reliance on thermal power meant coal shortages could "immediately lead to a terrible power generation breakdown", Xinhua said.

China has poured billions of dollars into expanding its power transmission and generation capacity, but the national power system is forecast to struggle to meet demand until 2006-2007.

Generators nationwide are expected to crank out 25 to 30 gigawatts less power than consumers want to use this summer with no end to the crippling heatwave in sight.
The question of China's strategic reserve and the initial estimate that they would begin filling this at the rate of 650,000 bd beginning in August, now appears to be more in doubt, as the current prices are reported to be causing a bit of a rethink on this issue, at the time where that particular increase in demand would otherwise have a major impact on the demand:supply balance through the end of the year.
"Last year, China imported 45% of its total crude oil, and this percentage is likely to go beyond 65% by 2020," said ESAI oil analyst Wenchao Su. In addition, China's import sources are highly concentrated, with 50% of imports coming from the Persian Gulf and 30% from Africa.

"With political instability in the Persian Gulf, potential conflicts with the US over Taiwan, strategic competition with Japan and India over energy, and the instability of Russian government policies, it is vital that China build the SPR in order to protect itself from any potential oil supply disruption," Su said.

At current crude prices, the Chinese government remains cautious about filling the Ningbo base storage. Chinese government officials expect other storage bases in Dalian, Zhoushan, and Quingdao to be completed by 2007.
In closing I might point out that while I find little to argue with in Matt Simmons presentations, the latest one, which Prof G just referred to, contains the comment that we are still short of tankers (slide 10). That situation is now changed with a significant new capacity now coming on line and there is, at least short-term, more than sufficient capacity to go around. This has been reflected in the drop in tanker shipping rates recently.

edited to add: PG here...isn't it interesting that the last paragraph of this story reads:
"No matter if it's rogue's oil or a friend's oil, we don't care," said an energy adviser to the central government who spoke on the condition he not be identified, citing the threat of government disciplinary action. "Human rights? We don't care. We care about oil. Whether Iran would have nuclear weapons or not is not our business. America cares, but Iran is not our neighbor. Anyone who helps China with energy is a friend."
doesn't that last sentence also mean that anyone who hurts China with energy is an enemy? "May you live in interesting times..."

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HO--The Energy Bulletin/Planet Ark observation that China is facing power shortages is not inconsistent with the New York Times article that I posted below. It seems that because the government is controlling the prices, the "power-generating concerns and service stations" are not providing as much energy as they could since they'd be taking a massive hit if they did.

What's the relationship between the government (which controls the prices) and the organizations that dole out electricity? I assumed that they were gov't owned too, but perhaps they're not? (Otherwise, it would seem that this push-and-pull wouldn't be happening.)

FYI Its probably way to early to predict serious economic slowdown in China, and the relative lack of reaction by crude market today to the IEA estimates probably is a reflection that any slowdown in appetite is priced in given GDP news came out earlier this week:


China H1 GDP seen up 9.3 pct yr-on-yr at 6.72 trln yuan - NDRC
BEIJING (AFX) - China's gross domestic product is estimated to have expanded by 9.3 pct year-on-year in the first half to 6.72 trln yuan, according to a government research report published in the official China Securities Journal.

China's GDP grew 9.4 pct in the first quarter.

The GDP growth rate for the full year is expected to slow to 8.8 pct for 2005 compared with 9.5 pct for 2004, according to the report by the Macroeconomic Research Institute under the National Development and Reform Commission.

In the third and fourth quarter, GDP is expected to slow to 8.6 pct and 8.2 pct respectively.

Also bear in mind that official Chinese policy ([re]stated back in May of this year) is a doubling of their GDP by 2020 - that will require a fairly steady 9% growth in GDP each year to achieve.

Can they do it or is it rah rah talk? They can do it a lot easier than a fully grown up economy can!

Whatever the actual growth is its bound to be substantial and will of course use more energy per $ of growth during this rapid phase than a modern economy will use.

Also for all the talk about China we should not forget about India. They are incredibly active, signing deals here and there; and their GDP growth is double or triple that of most western economies. India jumped from 12th largest economy to 10 last eyar and is growing currently at over 6% annually.

There's a lot of western investment interest in India which is in part helping to fuel this.

agreed re: India. She will become the stronger of the two long-term...

re: China...the power system is government owned, but they are ill-prepared for the demand that those market/capitalistic reforms would lead to...ergo, they may be destroying their own demand for a little while to get a handle on things...? (they can do that much more easily in a command and control economy...)

Glad others have their eye on India! Don't forget (posted this already, but what the hell) that they've just started work on their first carrier - their aim is to have three carrier battle groups. Indian designed; with Indian designed strike aircraft and support ships.

There will be an Indian carrier battle group in the Pacific probably within 10 years. An Indian carrier battle group will change the shipping balance of power through the Malaccas in very interesting ways...

Maybe port calls and military exercises with countries like Indonesia and Australia?

China's not the ony Asian giant playing a long game.

Excellent links and excerpts re: China.

I keep trying to stress to people that there's a fundamental problem with how the West, especially the US, views China. Too many of us have this weird notion that the Chinese are exactly like us in how they see the world, themselves, and the intersection of the two, namely foreign relations.

Here's a clue: They're not exactly like us. They are a vastly older culture with very a different value structure and philosophical underpinning than the West. This is in no way to say one is superior to the other, just an acknowledgment of what I think is clearly a basic, objective truth.

The problem is that this belief has caused Western leaders to assume that if we could just get China to "open up", they would turn into just another Western-style industrialized, democratic nation that would be far easier to work with. To those people I say: Think again. China has indeed opened up, but they're not about to abandon central planning of key industries any time soon, democraqcy isn't even on the radar screen, and they will prove to be far more capable, ferocious, and unpredictable competitors than we ever feared the Japanese would be in the 1980's.

A friend just e-mailed me a link to an article on Slate.com about China that I thought might help shed a little more light on China's worldview, even if it's not about energy.

The Filtered Future: China's bid to divide the Internet

I heard this on npr this morning. Rifkin seems to link hydrogen fuel cells with the abundant energy of hydrogen fusion:


Hydrogen Economy Needs Serious U.S. Commitment

Morning Edition, July 14, 2005 · "Commentator Jeremy Rifkin thinks it's time to get the hydrogen economy into high gear. He says that in order for the United States to rid itself of its fossil fuel dependence, it needs to launch a program similar to President Kennedy's space race, where science, commercial interest and the federal government combine their efforts to accomplish a grand vision."

AFAIK, hydrogen fuel cells are just clean carriers of energy produced from other fuel.

This quote says a lot:

"No matter if it's rogue's oil or a friend's oil, we don't care," said an energy adviser to the central government who spoke on the condition he not be identified, citing the threat of government disciplinary action. "Human rights? We don't care. We care about oil. Whether Iran would have nuclear weapons or not is not our business. America cares, but Iran is not our neighbor. Anyone who helps China with energy is a friend."

Where are all your commenters who think that only the US bases foreign policy on oil and is the main culprit in human rights violations around the world? Reality is making that claim less tenable every day.

radicalwatch -

Dude, we are all so very skeptical after what we have learned researching and convincing ourselves about petroleum depletion...well, let's just say that we would be surprised to find a government that is NOT ready to forego honesty or moral imperatives in the face of no petroleum.

If you read back, you will see that we hammer the US because we think this policy extremely short-sighted. It only puts off the issue a decade or two, and most of us feel we should be aggressively working to develop very long term alternative energy sources.

If I'm wrong, then I am sure the others will no doubt inform me...*grin*

"No matter if it's rogue's oil or a friend's oil, we don't care," ....

Finally, an honest statement. Now, let's get an off the record Richard Perle quote.

There is a new Great Game over oil in Asia. The original 19th century conflict pitted the British against the Russians for control of central asia. But now the stakes are much bigger. Has anyone read The New Great Game: blood and oil in Central Asia by Lutz Kleveland? Looks like it focuses on the Caspian region.

Oil Prices Fall Amid Hurricane Forecasts

''At some point, the oil market will abandon the fiction of endless Asian or Chinese demand,'' [Morgan Stanley analyst Andy] Xie said in a research note Wednesday. ''China's economy is beginning to slow down due to overcapacity ... I have never seen people buying something on what I believe is so much misinformation.''

Oil prices may tumble as demand from Asia in decline, says Morgan Stanley From Xie again:

This is why I believe that the days for the oil bubble are numbered. As the weak economic data and oil demand data pour in from Asia, some speculators could run, which could, in my view, trigger a stampede.


Well, it is in China's interest with respect to the Unocal deal for oil prices to fall, and they put out the numbers for their own economy. It is their interest as they seek to acquire long term oil deals that the price of oil decline. That's one small thought.....

It is in the interest of the US and the Federal Reserve Bank to lower oil prices by any means necessary in order that "business as usual" may continue, and consumers do NOT feel constrained in their spending. Energy costs are the inflation they have been hiding all year. That's thought number two...

This is just the correction anticipated for a spec bubble created by the first wave of shortage in the Peak Oil stairway upwards. Every market movement in the past few decades has been bubble driven, nothing new here. That is thought three...

It is in every single players interest that the price of oil recede, even OPEC, who cannot boost production. That simply doesn't change the picture at all, except in terms of prices for the immediate future. We are still facing the same thing - this will simply remove it from the radar screen and make it a sideshow. For a little while...