CCM believes that China’s energy structure today is almost the same as the structure of the world 100 years ago. For the energy revolution in China, it is a key task for the government to form an energy pricing system through market regulation itself.
Before we talk about how China’s energy structure gets lagged behind the world’s structure 100 years, it’s important to understand what is happening in the world’s energy system.
The Shale Gas Revolution
A worldwide significant energy transition is happening right now. It is the revolution of nonconventional oil and gas pushed by shale gas revolution in US, which has brought great impacts on the whole world.
Firstly, the Shale Gas Revolution has increased the supply of gas and oil and it has prolonged the service time of gas.
In 2010, the production of oil in the US fell into the doldrums, with only about 5 million barrel per day. But after 2011, thanks to the occurrence of nonconventional oil and gas, this production has risen to 50 million barrels per day, which shows that such a revolution has largely changed the current supply and demand pattern of the world energy.
Secondly, the US shale gas revolution brings new understandings of oil and gas resource.
Before the occurrence of nonconventional oil and gas, digging for the oil and gas depended on the structure of the reservoir. If the structure of the reservoir is considered as impossible to produce gas or oil, the gas or oil will always be hidden inside the reservoir. However, the shale gas revolution has made the impossible reservoir into possible production layers.
It is calculated that 80%~90% of oil and gas are still contained in the shale. US digs holes in shale to transform the production layers through advanced technology, in order to let out the oil and gas that hid in the rock source. That extends people’s understandings on oil resource.
What’s more, the ecology of oil and gas industry will be transformed. The shale gas revolution shortens the production cycle of oil and gas, and allows capital to flow in or out at any time.
In the past 10 years, it is calculated that the total capital from China to the shale gas industry in the US has reached USD50 billion. 1/5 of the million was from China National Petroleum Corporation（CNPC）, Sinopec Group, China National Offshore Oil Corporation, while 4/5 was from China privately-owned enterprises, private capital and fund.
Besides, it will be a reality that the price of natural gas is unhooked with the price of oil.
Currently, the natural gas price is hooked with the price of oil. In the future, natural gas will become a global independent bulk commodity thanks to unhook of natural gas and oil prices and the transportation of LNG. That will bring a golden age of natural gas.
The energy transition
Let’s go back to the beginning of the passage and have a look at how China’s energy structure gets lagged behind the world’s structure 100 years.
In 1850, the major global energy source was wood. In 1881, coal replaced wood to be the major world’s energy resource. Then in 1913, coal had reached its peak, accounting for 70% of the total energy consumption.
Currently in China, coal has accounted for 67% of the total energy consumption. That’s why we say the energy structure in China is still the same as 100 years ago and it may also be the reason for the fog and haze in Beijing.
It is in 1965 that oil replaced coal to be the world’s major energy, with the cross point of 37%. The consumption rate of oil peaked at 45% in 1973, and then went down.
Energy revolution: reforming the pricing system is the core in China
China’s oil industry enjoys 4 stages, starting from 60 years ago, thanks to the planned economy.
The second stage was in 1968-1993. At that time, China merely exported oil and earned a lot of foreign currency.
The third stage was from mid- and late 90’s till now. At this stage, China has transformed into the largest oil import country, which has changed the global energy structure. Because of oil demand, China has the most overseas investments in the world.
These three stages can be concluded into one sentence: getting rid of tight oil supply and guaranteeing supply.
Currently, China has entered the fourth stage, changing the goal from guaranteeing sufficient supply to adjusting energy structure and enhancing efficiency.
As for the energy revolution in China, the pricing system should be the core. Currently, the natural gas price in China is 4 times higher than the price of coal. For many years, the price of energy in China has been aligned with the price changes of every single fuel.
Actually, there comes the time when energy items can replace each other, for example, gas can replace electricity, and electricity can replace coal, which consequently forms an energy system.
With the price system being fixed already, the energy structure cannot be changed if the government still continues to just adjust the price of every single energy item.
The next step is to form an energy price system through market regulation, as to get the price and quality of energy hooked with the efficiency in the energy structure adjustment.
About CCM:
CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.
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The article is a re-edited and translated version by CCM. The original article comes from Jiemian.com and is written by Chen Weidong, a researcher from Economy Research Institute of Ocean and Oil Energy in China.