China fails to cope with rising energy demand

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Much is being made of Beijing’s efforts to meet its environmental emissions targets – the country says it will peak in emissions by 2030 and carbon neutrality by 2060 – and its restricted production of steel and aluminum . But a recent Reuters article by John Kemp suggest the output is affected more by a spreading electricity crisis than by forced shutdowns to meet environmental objectives.

China’s energy crisis

Kemp explains that China is in the grip of a severe shortage of coal and electricity. Coal production has not kept pace with the growing demand for electricity in a rapidly recovering economy.

China’s electricity production increased by 616 terawatt-hours (13%) in the first eight months of 2021 compared to the same period last year. The most significant increases came from the service sector and primary industries.

However, most of the increase was provided by thermal generators, mainly coal-fired power plants, Kemp explains. These generators increased their production by 465 TWh (14%) in the first eight months.

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Other energy sources, such as hydroelectric generation, actually declined slightly this year due to water shortages. Unfortunately, nuclear power in China represents only a tiny fraction of electricity production, eclipsed even by renewables like wind and solar.

Growing demand

While the desire of the authorities to meet provincial targets for reducing energy consumption is a contributing factor in reducing electricity production, demand exceeding the capacity of the electricity industry to supply leads to rationing. and forced outages.

The main culprit is the lack of coal supply. National mines have failed to increase production enough to meet growing demand. Domestic coal supply is up 6%, according to figures supported by Reuters by rail freight data. Meanwhile, power generation has grown by 14% so far this year, which has depleted coal stocks, pushing prices up to potentially deficit levels and sucking imports. Imports, however, are struggling.

Following a feud with Australia late last year, Beijing banned imports of coal from there. As a result, China is left with less than ideal alternatives.

Russia must first respond to contractual demand from Europe, Japan and South Korea. Indonesia’s export shipments have been hampered by wet weather over the past two months. Mongolian exports, mainly by truck, are low.

The Sydney Morning Herald speculate a U-turn on the ban is imminent as the only way to resolve the crisis.

Such pragmatism can transgress national pride. Following the announcement this month that Australia would join the United States and the United Kingdom in developing a fleet of nuclear-powered submarines, apparently to counter China, the climate is not conducive to early relaxation.

Beijing may choose to cut power generation, with all the consequences of lower GDP growth and output, rather than being seen as a decline.

As such, China’s reduced aluminum production appears to be a continuing feature for this winter, at least, supporting primary imports and reducing exports of semi-finished goods.

By Stuart Burns via AG Metal Miner

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