China, Coal, World Energy Peak, and the Economy

[David MacLeod]

Apologies in advance for the wonkish nature of this post.  I hope some will find it interesting...

 

Flashback to 5 years ago, the following comment on The Oil Drum was a bit of a revelation to me:

"The world economy was saved last year by the increasing World coal production. According to BP, World total energy production grew 2.4% in 2005, but oil only 1.0%. Coal production increased 5.0%, most of it in China (growth 10%, volume well over 30% of the total). Also Hydro grew significantly (4%). Natural gas grew only 2%. From all this we see that the Chinese coal production is the single most important factor keeping the World energy consumption and thus the World economy growing. This also explains, why the World economy did fairly well in 2005, despite of the plateauing oil.

 

...What we will see in the near future is an economic slow down, where the action is mainly in the financial sphere (forex, debt, stocks, real estate). But we might get the World Energy Peak surprisingly soon, may be in a time frame of 5 - 10 years, and steep decline after that. It is not realistic to think that the Chinese coal production can keep the 10% pace for long. Add to that Peak Gas and Oil and All Liquids...

 

Chinese coal is more significant to the World energy than the Saudi oil (1106 Mtoe vs. 540 Mtoe.). China is probably now the biggest fossile energy producer (not consumer) in the world just before the US (China coal+gas+oil in 2005: 1334 Mtoe, the US 1359 Mtoe, but considering the Chinese coal growth China is probably now the #1). Nuclear and hydro don't change this.

Here we see the secret of the Chinese economy. The energy production of China has risen 44% from 2002 to 2005, and this at absolute volumes comparable to the US! The Chinese total energy production growth has supplied almost half of the total World energy supply growth during that time (450 Mtoe of 1010 Mtoe growth). China has been literally the engine of the World energy and economy.

It is absolutely clear that low costs are not the main reason for production moving to China. The industrial growth there would have been impossible without this huge growth in domestic energy production. This is the biggest "energy surge" in the World history and the driving force of globalization.

And as Smekhovo noted, the rising share of domestic coal in the Chinese energy mix is the explanation for those missing symptoms of an oil crisis (no real supply problems, prices not really skyrocketing, economy not yet slowing) in face of slowing supply. The rising share of coal is an anomalous phenomenon - developing, modern economy would normally use relatively more of oil and gas, not less."

http://www.theoildrum.com/story/2006/6/14/25151/9885#more

 

And where are we today? Consider the following from analyst Tom Whipple.  You'll see why there is such a push for a Coal Export terminal in Whatcom County:

 

"After weeks of belt-tightening, China’s economy appears to be slowing a bit as a new survey shows manufacturing down with price increases falling as well as export orders. Overall, however, China’s GDP is still forecast to grow by 9.5 percent this year as compared to 10.3 percent in 2010. Meanwhile reports of power shortages in the industrialized coastal provinces continue to be received.

The major news of the week was the growing coal and power shortages that are reported in the eastern industrial provinces. In recent years, Beijing has closed thousands of smaller (and dangerous) coal mines, shifting the production to large government controlled operations. Coming amidst an annual 10 percent increase in coal consumption, this has been a hard order to fill and Chinese coal imports have grown markedly. Given that China must move in excess of 3.2 billion tons of coal long distances each year, strains on the rail and road network are a major bottleneck. New rail capacity is expected to be completed around 2013, but this does not help the current situation.

Electricity shortages usually develop during the hot summer months, but this year they have come 2-3 months early suggesting more trouble ahead. There are already reports of factories that are heavy users of electricity being closed two days a week in several southeastern provinces. As in the past, the larger more modern factories have their own power generators. Although power from emergency generators in very expensive, in many cases it is far cheaper than shutting and restarting elaborate production processes. This source of power, of course, will likely increase the demand for imported oil in coming months.

Another new development affecting China’s energy situation was the announcement that the small refiners, known as “teapots,” will be closed and replaced with increased refining by the large state-owned oil companies. The large refiners are scheduled to complete 3 million b/d of additional refining capacity in the next four years. As the teapots currently supply 10 to 15 percent of China’s oil products, unless the closures are managed carefully, fuel shortages are likely in some regions. The small refineries mostly use imported fuel oil as a feedstock as only the state oil companies are permitted to import crude.

With the first third of 2011 gone by, it still looks as if China’s oil and coal consumption this year will turn out to higher that that forecast by the IEA and EIA."

http://www.energybulletin.net/stories/2011-05-02/peak-oil-review-may-2

 

Final Point: Read Walter Haugen's Letter to the Editor in the Cascadia Weekly on Coal and Peak Oil. 

Minor quibble - Walter, you're not the only one putting "the coming coal train fiasco into a peak oil context."

[David MacLeod]

Interesting article Walter, thank you. This is the first time I've seen peak coal predicted this early.  And, as Dave Cohen wrote, "I should warn you that it is not valid to simply leap to the conclusion that Patzek & Croft's analysis is correct."  In our ERPSO report, we put a best guess on peak coal for both the U.S. and the world to occur sometime between 2020 and 2030. 

 

What I really like is your pointing out of the multiplier effect as we reduce consumption.  I like to tell people that for every efficiency upgrade you make, try to also reduce overall consumption as well.  For example, we have two lights above our bathroom mirror.  One of them I unscrewed just enough so it doesn't come on when I flip the switch...but it's there to screw in if I really "need" more light.  Immediate 50% reduction of consumption right in that spot.  The other light I switched to a cfl bulb. A big efficiency gain. 

Now at this point, I need to make sure I don't carelessly leave the light on longer, because I've already saved money on my energy bill.  So instead I make it my goal to use the light even less than I did before.  Now that there's some light coming through the window when I get up in the morning, I resist the habit of automatically turning on the light.  The combined effect of increasing efficiency while continuing to decrease consumption can have a real impact.

 

Now add the multiplier effect you speak of, which I hadn't really thought much about before, and which bears repeating.  Every time an energy source is upgraded in quality to a more usable form, a percentage of that energy is lost "up the smokestack" and becomes waste.  So there's a huge energy loss converting coal to electricity, and another huge loss in the electrical grid to get power to our homes.  So when we plug in an applicance or turn on a light bulb, we only get 12% of the total energy that was actually consumed to get that energy to be available for our use.

 

And on the other hand, when we don't plug in that appliance or turn on a light bulb, we're actually saving quite a bit more than what the Kill-A-Watt device tells us, because we're preventing the burning of just a little bit more coal.  And coal is still about 40% of our electricity here in the northwest i think. 

(We have solar panels that generate 40% of the energy we use, so i like to think they're replacing the coal portion of our energy use...but of course that doesn't take into account the coal and oil used in producing our solar panels).

[David MacLeod]

Forgive me Walter, I was being a bit light heartedly flippant as I was thinking about my previous short comment here that "Depletion of fossil fuels will likely lead to the end of our globalized economy in the near future, making this project a boondoggle."

 

The primary point is that your letter to the editor is a good one that fills out the argument:

1) the high price of crude oil has the power to drive us into recession.

2) when the price of oil rises, transportation distance becomes more of a factor in the price of a commodity than cheap labor.

3) At $150/barrel oil, how economical will it be to transport a raw commodity like coal several thousand miles over the ocean?

4) How stupid will it be to use high-price diesel to transport coal?

5) It is likely the coal terminal at Cherry Point would be used for a year or two before it is shut down.