Wednesday, July 21, 2010

China Overtakes U.S. in Energy Consumption

The International Energy Agency reported yesterday that China took the dubious honor of world's #1 energy consumer in 2009 (a claim that China now disputes).  As the chart below from the Wall Street Journal shows, The trend has been been in place for the past decade. 

The IEA suggests that the severity of the recession in the U.S. and its lesser impact in China is the main reason for the change in position, but looking at the chart above, even if the U.S. energy consumption had held pace last year, it would probably have been a tie score.

The differing economies of the U.S. and China lead to a much different type of energy consumption. The U.S. economy is more service-based, while the Chinese economy is more manufacturing-based.   China's economy has greater energy intensity.  Measured against gross domestic product, China has three times the energy intensity of the U.S. But the U.S. consumes much more energy per capita because of its use of oil-based vehicle fuels.  The light blue dotted line below represents U.S. per capita consumption versus the red dotted line, which represents China.

This energy intensity issue points to the biggest problem China faces:  approximately 2/3 of its energy consumed comes from burning coal, compared to about 22% in the U.S.  As the graphic from the Wall Street Journal shows, China is addicted to coal. 

Given that coal drives China's economy, it has been reluctant to agree to carbon reduction initiatives, instead promising to lessen its energy intensity, presumably through efficiency.  China became the number one emitter of carbon dioxide in 2007, and that trend does not seem like it will reverse any time soon.

China has shown a great deal of interest in natural gas of late, building a new pipeline to its east to tap into central Asian gas, embarking on new LNG ports and taking action to explore its own shale gas resource.  While coal is definitely king in China, there appears to be a strong opportunity for gas to gain market share.  Even if China is successful in lessening its energy intensity, what is for sure is that the country is going to continue to guzzle more and more energy over the coming years.

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