"A New Age in the History of Energy" as China Tops the U.S. in Consumption

China, powered by years of surging economic growth, is now the world's largest energy consumer, bumping the United States from the top spot for the first time in more than a century, according to new data from the International Energy Agency (IEA).

China consumed 2.25 billion tons of oil equivalent last year, or about 4% more than the United States, which burned through 2.17 billion tons of oil equivalent. China's total energy consumption was just half that of the United States a decade ago.

"The fact that China overtook the U.S. as the world's largest energy consumer symbolizes the start of a new age in the history of energy," IEA chief economist Fatih Birol told The Wall Street Journal. The United States had been the world's biggest overall energy consumer since the early 1900s, he said.

China was expected to become the biggest energy consumer in 2015, but the economic meltdown and green energy programs in the United States accelerated the transition, Birol said.

China will need to make total energy investments of some $4 trillion over the next 20 years to keep feeding its economy and to avoid power blackouts and fuel shortages, Birol told The Journal.

China is expected to build about 1,000 gigawatts (GW) of new power-generation capacity over the next 15 years. That's roughly the total amount of electricity-generation capacity in the entire United States.

"This demonstrates the major growth we are talking about in energy demand and capacity growth in China," Birol said.

The malaise plaguing the U.S. economy and China's continued growth is a key reason companies such as General Electric Co. (NYSE: GE) have increased their investments in the mainland.

The United States is still by far the biggest energy consumer per capita, with the average American burning five-times as much energy annually as the average Chinese citizen, Birol said.

The United States also is the biggest oil consumer by a wide margin, sucking up roughly 19 million barrels a day on average. China remains a distant second at about 9.2 million barrels a day. However, many oil analysts believe U.S. crude demand has peaked or is unlikely to grow very much in coming years because of improved energy efficiency and more stringent fuel-efficiency regulations.

China, on the other hand, still relies on coal to produce 80% of its power - which is double the world average. China will add 500GW of new coal-fired electricity generating capacity between now and 2020, according to the IEA.

Energy consumption in six of China's heavy energy-consuming industries leaped by almost 20% in the first quarter of 2010, calling into question the country's pledge to reduce its energy "intensity" by 20% of 2005 levels by the end of this year.

The biggest question is how China will be able to acquire enough coal to keep its steel mills and power plants humming.

China's growing appetite for coal, combined with a shake-up of the domestic coal mining industry that is taking some capacity out of play, will put increasing pressure on its domestic output.

New official forecasts from Beijing in June suggest that the country's annual primary energy demand will reach 4.2 billion tons of standard coal equivalent by 2015, compared to around 3 billion in 2009, when total fossil energy sources accounted for about 91% of the total.

China mines about 3.3 billion tons of coal a year domestically, which makes it the largest producer on the planet. China's net import total for 2010 could reach 114 million tons compared to 103 million tons in 2009, and 170 million tons when coking coal is included, making it the largest coal importer as well.

China plans to boost the output of some of its largest coalmines by up to 50% but the government is in the process of shutting down all mines with an annual capacity of less than 300,000 tons.

Also, Vietnam, which three years ago was the largest exporter of coal to China, is expected to become a net importer by 2015, putting further pressure on global supply in the medium term.

Demand from China, and other Asian nations including India, has some analysts forecasting imports to the region will continue to rise substantially in the coming years, leading to an inevitable increase in coal prices.

"Global coal prices will continue to be linked to Chinese demand. If demand picks up in other regions, it will put pressure on the supply chain," Brian Ricketts the IEA's coal analyst told Business Standard.

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