Coal vs. Natural Gas: The Political Economy of Fuel Choice in China

Transcription

1 1 Coal vs. Natural Gas: The Political Economy of Fuel Choice in China David G. Victor Program on Energy & Sustainable Development Stanford University 17 September 27

2 PESD Research: The Political Economy of Energy 1. Energy Services for the Very Poor Shift from traditional to modern fuels and technologies 2. Electricity Market Reforms Five-country comparison (Brazil, China, India, Mexico, South Africa) Independent Power Producers (IPPs) 3. Global Natural Gas Markets Looking to 24 Looking at gasification of key new markets (China, India) 4. Climate Change Policy Beyond Kyoto Engaging developing countries Energy efficiency 5. The Role of National Oil Companies Causal relationship between strategies, political influence and performance Studies underway on 15 countries Program on Energy and Sustainable Development - 2

3 Gas Resources and Potential Demand White: where the lights are on, satellite imagery Blue Red : Gas resources, with increasing size (USGS) Program on Energy and Sustainable Development - 3

4 Critical time to estimate demand for natural gas in China Nascent gas market currently Uncertain demand projections which lead to huge implications for Carbon emissions Energy security Geopolitics Program on Energy and Sustainable Development - 4

5 Drivers of natural gas consumption in China Utilizing MARKAL least cost optimization energy modeling Environmental constraints SO2 emissions reduction Cost of capital for each sector Penetration of end-use demand technologies Pricing and availability of natural gas Program on Energy and Sustainable Development - 5

6 MARKAL model focuses on three major demand centers in China Beijing Shanghai Guangdong Source: ERI projections natural gas demand Program on Energy and Sustainable Development - 6

7 Environmental Controls Program on Energy and Sustainable Development - 7

8 Demand for natural gas in the three regions is highly sensitive to environmental constraint BCM Guangdong Beijing R= Reference case Shanghai 68 bcm P = Plausible scenario, imposed 4% decrease in SO 2 A = Aggressive scenario, 75% decrease in SO2 22 bcm R= Reference case P = Plausible scenario, imposed 4% decrease in SO 2 A = Aggressive scenario, 75% decrease in SO2 R P A R P A R P A R P A R P A Program on Energy and Sustainable Development - 8

9 Guangdong: Demand for gas is in power plants 3 25 Natural Gas Consumption Reference Plausible 1 4 TCE Residential Power plants Fuel switching occurs in peaking power plants that substitute heavy oil for natural gas, no piped natural gas supply, dependent upon LNG Program on Energy and Sustainable Development - 9

10 Guangdong: Nuclear plays big role Power Sector Fuel Consumption 25 Reference Plausible 1 4 TCE Wind, Hydro Nuclear Natural gas Petroleum Coal Program on Energy and Sustainable Development - 1

11 1 4 TCE Shanghai: Demand for gas is in industrial sector Natural Gas Consumption Reference Plausible Residential Power plants Industrial Commercial Fuel switch Coal, oil natural gas boilers Affected industries Petroleum and chemicals Processing heat (metal prod, textile, manufacturing ) Steel and iron Large number of inefficient coal boilers in energy intensive industries provides opportunities for fuel switching Program on Energy and Sustainable Development

12 Fuel consumption in Shanghai reveal effects of coal vs. gas competition tce Imported elec. Petroleum Coal Natural gas 1 5 R P A R P A R P A R P A R P A Program on Energy and Sustainable Development

13 Beijing: Little change in fuel consumption patterns until more stringent environmental constraints are applied Natural Gas Consumption Reference Plausible Aggressive TCE TCE Residential Power plants Industrial Commercial SO 2 reductions are met through installations of FGD units initially, then supplemented with additional fuel switching in the power and industrial sectors Program on Energy and Sustainable Development

14 Financial reforms Program on Energy and Sustainable Development

15 Low cost of capital for power plants spurs coal consumption Guangdong % lending rate for power sector 1% for industrial sector 25% for residential/commercial sector Ten thousand TCE Uniform cost of capital (1% for all sectors) Coal Natural Gas Differentiated costs of capital Program on Energy and Sustainable Development

16 Implications for coal vs. natural gas consumption The power sector will likely continue to be dominated by coal. However, for certain areas and sectors, fuel switching from coal to natural gas can be a costeffective option SO 2 controls could lead to more demand for natural gas Higher cost of capital for the power sector could promote the consumption of more natural gas Program on Energy and Sustainable Development

17 Implications for CO 2 : Do CO 2 emissions decrease? Guangdong CO 2 emissions by sector CO 2 emissions savings 4 35 Reference Plausible 3 Aggressive 25 Million tons kt 2 15 = Plausible Aggressive R P A R P A R P A R P A R P A Transportation Residential Industrial Power plants Program on Energy and Sustainable Development

18 Natural gas sourcing could potentially be a challenge 25 2 Demand projections by Chinese agencies Kazakhstan - China, Krachaganeak, Tengiz, Kashagan gas fields Kovytka natural gas fields, near Irkutsk Beihai LNG, Guangxi Dalian LNG, Liaoning Hebei/Tianjing LNG Rudong LNG, Jiangsu 15 Ningbo LNG, Zhejiang BCM 1 Demand projections by other agencies Qingdao LNG, Shandong Turkmenistan Bagtyiarlyk gas field, WEP #2 (29) Shanghai LNG Xiuyu LNG, Fujian Shenzhen LNG, Guangdong 5 Pugang gas fields, Sichuan Kela-2, Tarim basin, WEP #1 (24) Sinopec old fields CNPC old fields CNOOC old fields Source: PESD estimates 27, CNPC/Sinopec/CNOOC company reports 27, ERI, IEA 24, Chinese agencies: NDRC, China Energy Development Report 23, CNPC, CNOOC, Western sources: BP, EIA/DOE 23, AIE/WEO 22 Program on Energy and Sustainable Development