Chinese Energy Crisis

Brian Hicks

Written By Brian Hicks

Posted July 29, 2013

Did you know that China is already consuming more energy than the entirety of the U.S.? Recently, the U.S. Energy Information Administration released the latest version of its International Energy Outlook (available here), and the summary is of dramatic importance to you as an investor. By 2040, it is estimated that China will be consuming nearly twice as much energy as the U.S. does today.

A continued reliance on fossil fuels means that we’re still burning fossil fuels like it’s the 1980s. Thus, as CNNMoney points out, global energy usage is projected to increase by as much as 56 percent by 2040.

china energyAlthough alternative sources of energy will find more traction in the markets (I’m talking mainly of nuclear and other renewable sources here), fossil fuels will be the clear leader and will continue to take up almost 80 percent of worldwide energy usage around that time. That means—somewhat worryingly—we should expect international energy-related CO2 emissions to rise by 46 percent.

Of these dramatic increases, the bulk comes courtesy of developing nations like India and China. This is, of course, not a bad thing—greater energy use implies greater urbanization and industrial development…and thus more opportunity for foreign investment. Nonetheless, the report anticipates oil prices will be around $163/barrel in 2040 (compared to 2011 dollars).

At the same time, however, China is expected to rapidly increase its nuclear capacity, coming in well ahead of projections for Europe and the Americas by 2040. This makes sense, since China has been gearing up for significant investments and development in the nuclear energy sector.

Although fossil fuels will remain a focal point, it’s expected that we will see a shift toward natural gas, the consumption of which is likely to grow faster than rates for oil or coal. This is a result of the success encountered by fracking supporters, which has led to a national gas glut and bountiful results from shale successes like that of North Dakota. As a result, it’s likely that industrial and power sectors will move further toward gas-driven infrastructure, while reducing their reliance on more conventional (and pollutive) fuels.

The Wall Street Journal also notes that despite the EIA’s expectation that fossil fuel usage will continue to increase, so will the pace of renewable fuels development. Of these, hydroelectric and wind power capacity is expected to increase the most. As far as nuclear power is concerned, China, India, Russia, and South Korea are likely to be the leaders.

Global Increases in Energy Consumption

In terms of numbers, the report indicates that the world’s energy consumption could go from 2010’s level of 534 quadrillion British thermal units to 820 quadrillion Btu in 2040. Let’s bear in mind that 172 million barrels of crude oil are roughly equivalent to one quadrillion Btu.

From the NY Daily News:

“Rising prosperity in China and India is a major factor in the outlook for global energy demand,” said EIA Administrator Adam Sieminski, adding that “these two countries combined account for half the world’s total increase in energy use through 2040”.

What’s interesting (and perhaps a bit troubling for certain parties) is that energy consumption is going to increase by almost 90 percent in nations not part of the Organization for Economic Cooperation and Development (OECD), but member-nations should expect an increase of just 17 percent. Aside from that, it’s expected that the world’s renewable and nuclear energy sectors should see increases of 2.5 percent annually.

As Bloomberg points out, China had already surpassed the U.S. for energy use back in 2010, when it consumed 3.4 percent more energy than the U.S. So it’s no surprise that its energy consumption will continue to rise sharply in contrast to the more stable trend here.

Whereas by 2040 we’ll see 107 quadrillion Btu being consumed, China will gobble up almost 220 quadrillion Btu. For liquids consumption, we should remain at around 19 million barrels per day, but China is expected to consume as many as 20 million barrels per day.

In the U.S., shale oil and gas operations are expected to continue growing, as the shale sector continues to push its boundaries and refine the technologies in use. For July 19, for example, the U.S. was producing 7.56 million barrels per day, which is a peak not reached since December 1990.

Clearly, the U.S. is more or less set for its energy needs. The real growth will occur in China. Growth needs capital, and that means opportunity for investment. Expect plenty of exciting news from China on that front.


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