Yesterday Beijing announced that it would ban coal by 2020, and it’s easy to understand why…
The Municipal Environmental Protection Bureau in the city plans to use natural gas for heat and electricity as it tries to wean itself off of dirty – yet cheap – coal-fired power.
Over the last year the Chinese government has raised the ire of citizens in large cities plagued by thick, polluted air. Nearly one-quarter of the smog is directly related to coal-fired power plant and heating facilities in and around the city of 21 million people.
The ban in China’s capital may be a step in the right direction, but let’s not forget that the ban doesn’t take effect for another six years. By that time, China’s coal consumption will have already surged to record highs.
Even though the Central Government has made environmental protection a priority along with economic growth, there simply is too much at stake and too many people in China to incentivize the government to dramatically cut coal use.
Remember, 69% of China’s electricity consumption comes from coal…
In fact, you can see above that coal and oil account for 87% of China’s total energy consumption!
And as China’s GDP has grown dramatically over the last decade, their economic success can be attributed to coal. It’s cheap, abundant, and easily distributed throughout China’s large cities.
Now, the smog problems plaguing those densely crowded municipalities have pushed the government to alter its grid.
You’ll also notice in the chart above that natural gas represents only 4% of China’s consumption, but with the new ban on coal in Beijing and more coming by 2015, it looks as though China – like the U.S. – could be the transitional fuel they’ve been looking for.
This comes after news broke at the end of May that China and Russia agreed to a $400 billion gas deal. Once the deal takes effect, China stands to receive 38 billion cubic feet of gas per year for the next three decades.
Of course, that will only cover a small portion of their gas consumption, which stands to explode as more bans on coal like the one announced yesterday become law in other cities.
Luckily, China has plenty of natural gas reserves they could use as a bridge away from coal…
Unfortunately, developing these gas resources will take some time. The country only recently began drilling its first shale gas wells, and the economics just aren’t there yet. It takes roughly $14 million for one shale gas well in China which translates into $11.20 per MMBtu.
But as the United States prepares to export natural gas – as soon as December 2015 – China could find relief from the smog and the costs of their own reserves by way of Louisiana, Texas, and the rest of the U.S.’s shale gas which costs less than $4 per MMBtu.
In any event, the ban on coal is a major surprise, especially in the capital city of Beijing where the economic growth at all costs strategy has held sway for years. And this new transition which is expected to cost up to $13 billion shows that China is serious about pollution.