Current Chinese Economic Report Series
Fang Cai
Yongsheng Ma
Zhijun Jin Editors
Annual Report
on China’s
Petroleum, Gas
and New Energy
Industry (2021)
Current Chinese Economic Report Series
The Current Chinese Economic Reports series provides insights into the economic
development of one of the largest and fastest growing economies in the world;
though widely discussed internationally, many facets of its current development
remain unknown to the English speaking world. All reports contain new data,
which was previously unknown or unavailable outside of China. The series covers
regional development, industry reports, as well as special topics like environmental
or demographical issues.
Fang Cai · Yongsheng Ma · Zhijun Jin
Editors
Annual Report on China’s
Petroleum, Gas and New
Energy Industry (2021)
Editors
Fang Cai
Chinese Academy of Social Sciences
Beijing, China
Yongsheng Ma
Board of Sinopec Corp
Chinese Academy of Engineering
Beijing, China
Zhijun Jin
Sinopec Petroleum Exploration
and Development Research Institute
Peking University Energy Research
Institute
Beijing, China
ISSN 2194-7937
ISSN 2194-7945 (electronic)
Current Chinese Economic Report Series
ISBN 978-981-19-6075-8
ISBN 978-981-19-6076-5 (eBook)
https://doi.org/10.1007/978-981-19-6076-5
Jointly published with China Economic Publishing House
The print edition is not for sale in China (Mainland). Customers from China (Mainland) please order the
print book from: China Economic Publishing House.
Translation from the Chinese language edition: “中国油气与新能源产业发展报告” by Fang Cai et al.,
© China Economic Publishing House 2021. Published by China Economic Publishing House. All Rights
Reserved.
© China Economic Publishing House 2022
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Singapore
Editorial Committee
Editors in Chief
Cai Fang
Ma Yongsheng
Jin Zhijun
Associate Editors
Li Xuesong
Chen Gang
Yang Lei
Members of Editorial Board
Wang Pei
Wang Qia
Wang Yuan
Wang Zixing
Wang Hanyue
Bai Jun
Ren Na
Liu Dan
Liu Qiang
Liu Xinghong
Liu Shutong
Zhu Xingshan
Zhang Hongmei
Li Han
Chen Rui
Shi Lei
Hu Di
Hu Anjun
Zhao Jishi
v
vi
Xia Xiaoyuan
Qin Zhiyuan
Huang Xiaoying
Dong Huimei
Cai Yi
Editorial Committee
Research and Innovation Company Profile
Institute of Quantitative and Technological Economics,
Chinese Academy of Social Sciences (IQTE)
The Institute of Quantitative and Technological Economics, Chinese Academy of
Social Sciences (hereinafter referred to as IQTE) is one of the eight economic research
institutes of the Academic Division of Economics in Chinese Academy of Social
Sciences, and it is also the only national studying institution focusing on quantitative
economics and technological economic theory and methodology as an important part
of the think tank of central government. The institute has good studying groups on
economic modeling, energy and environment, technical innovation and productivity,
information society, and has fulfilled a number of research projects from local and
central governments, companies and international organizations.
IQTE has a profound research foundation in energy economics theory and
policy, low-carbon and circular economy, environmental impact assessment, regional
economy, industrial research, etc. It has maintained academic cooperation and
exchanges with international organizations such as the United Nations (UN), the
World Bank, the International Energy Agency (IEA), the International Energy
Charter (IEC) and foreign think tanks in various aspects, participated in the drafting
of many relevant national policies and plans, and undertook the formulation of many
local government and enterprise development plans.
Since 2012, IQTE, together with The Institute for the Analysis of Global Security (IAGS) and The United States Energy Security Council (USESC), has jointly
launched the Global Forum on Energy Security, held annually during nine successive
years. The aims of the forum are to promote research and academic exchanges on
energy security among think tanks, to spread the idea of sustainable development,
and to facilitate global collaboration on energy security.
Since 2017, IQTE held the International Seminar for Belt and Road Initiative
(BRI) and Global Energy Connectivity every year to provide policy and project
training for participants from relevant countries, and promote investment and trade
exchanges under BRI framework.
vii
viii
Research and Innovation Company Profile
China International United Petroleum & Chemicals Co., Ltd.
Established in February 1993, China International United Petroleum & Chemicals
Co., Ltd. (hereinafter referred to as UNIPEC) is a wholly-owned subsidiary of China
Petroleum & Chemical Corporation (Sinopec Corp.), and its headquarters is located
in Beijing, China. At present, UNIPEC is one of the largest international oil trading
companies, and it operates in nearly 100 countries and regions around the world.
With an operating scale of 400 million tons, UNIPEC has become the largest trading
company in China and is in a leading position in the global energy trade field.
As an energy-based trading enterprise, UNIPEC has done a good job in global
energy supply in a highly responsible way, and its business activities mainly include
four business segments, namely crude oil trade, products trade, natural gas trade and
logistics warehousing. At present, the company imports nearly 200 million tons of
crude oil, accounting for about 40% of China’s crude oil imports, making positive
contributions to ensuring national energy security. Today, UNIPEC has molecular
companies in Shanghai, Ningbo, Qingdao, Erenhot and other places in China, and
overseas institutions in the United States (the US), the United Kingdom (the UK),
Singapore, India and Hong Kong of China. UNIPEC is committed to relying on its
professional advantages in oil and gas products and trade to serve the international
oil and gas energy supply and achieve common growth with customers.
Institute of Energy, Peking University
As an independent scientific research entity under Peking University, the Institute
of Energy (hereinafter referred to as the Institute of Energy of Peking University)
aims at meeting the needs of national energy development strategy. It, based on
the overall situation of energy field and the international frontier, makes full use
of the advantages of various disciplines in Peking University and focuses on major
strategic and technological issues that restrict the development of China’s energy
industry. In accordance with the principle of demand orientation, discipline guidance,
combination of soft and hard strength, cross-innovation, highlighting key points and
forming characteristics, the Institute promotes the progress of energy science and
technology, accelerates the clean transformation of energy, and conducts professional
and public education, striving to build an international-level energy think tank and
energy science and technology research and development promotion platform.
The Institute of Energy takes energy strategy and policy, smart energy, shale oil
and gas, geothermal energy, new energy and international cooperation in energy, etc.
as the main research directions, which initially formed the discipline characteristics
of “combining soft and hard strength”. At present, research on carbon neutrality
and energy transition path, technology of clean exploration and development on oil
and gas, smart oilfield, natural gas market reform policy, global energy governance
and so on has been carried out in the institute. In addition, an energy research and
Research and Innovation Company Profile
ix
development platform composed of academicians, professors, researchers, part-time
professors, specially-invited researchers, and postdoctoral and doctoral students has
been gradually set up.
Preface
As we speak, major changes unseen in a century, compounded by a once-in-a-century
pandemic, are posing serious challenges to the global efforts of growing the economy
and bettering people’s lives. Under the combined impacts of changes and a pandemic
both unseen in a century, the global energy transformation has ushered in a critical
turning point. In the context of this, this book, focusing on the development and
changes of the world oil and gas industry and new energy industry, has deeply
analyzed the global economy, oil industry, natural gas industry, hydrogen energy
industry, wind power industry, and low-carbon market in the post-pandemic era, with
a view to observing the general trend, seeking for new opportunities, and providing
more professional insights for professionals, researchers, and practitioners in the
energy industry.
In 2020, the COVID-19 pandemic wreaked havoc around the world, and the world
economy thus experienced the worst recession since the Great Depression in the
1930s. Under such a situation, China is the only country among major economies
that has achieved positive economic growth. Looking ahead, the 14th Five-Year
Plan will be a crucial period for China’s economy to achieve its modernization
goal, during which opportunities and challenges coexist. On the one hand, with 40
years of reform and opening-up, the dual-cycle development pattern of our country’s
economy has enhanced its development momentum, thus it possesses the economic
ability to constantly absorb new technologies and new impetus; on the other hand, the
aging process quickened, the production of science and technology and the supply of
new technologies are externally dependent, and the external political and economic
environment is increasingly unstable and uncertain.
Owing to the pandemic, the global oil industry suffered unprecedented challenges
in 2020, with oil prices falling to a 16-year low. What’s worse, WTI once hit an
unprecedented extreme negative price, and oil companies suffered from heavy losses.
Since 2021, driven by abundant global liquidity, overall improvement of the pandemic
situation, and large-scale production reduction by OPEC+, the global oil industry
has gone out of the trough. Not only did oil prices once again reach $70/bbl, but the
oil market has gradually ushered in a new balance range. Over the longer term, the
oil demand gradually reaches its peak value. Since the substitution of the oil industry
xi
xii
Preface
is speeding up, oil companies are accelerating their energy transformation, and the
global oil industry pattern will usher in important changes.
Besides, the growth of China’s natural gas consumption slowed down under the
influence of the pandemic in 2020. The growth rate of major gas industries such as
urban gas, industrial gas, power generation, fertilizer, and chemical industry slowed
down to varying degrees. Affected by the rapid growth of domestic gas and the
slowdown of demand growth, the growth rate of China’s natural gas imports dropped
significantly, among which pipeline gas imports showed negative growth for the first
time. Looking forward to 2021, under the influence of economic recovery and rapid
low-carbon energy transition, the growth rate of China’s natural gas consumption
will rebound. The domestic natural gas grows rapidly, and the growth rate of natural
gas imports picks up. During the 14th Five-Year Plan period, China’s natural gas will
continue to grow rapidly, but the growth rate will slow down.
The sustainable development of green and low carbon has been globally recognized. In September 2020, President Xi announced the goal of carbon peak by 2030
and carbon neutrality by 2060, which demonstrates China’s active participation as
a major country in global climate governance. Achieving the goal of carbon peak
and carbon neutrality is not only a great responsibility but also a profound revolution
for the energy and chemical industry. In 2021, China’s carbon market moves from
the regional pilot stage to the new stage of the establishment of the national carbon
market, with great development potential. Meanwhile, the value of hydrogen energy
in energy transformation has gradually become prominent. Industrial policies, standards and laws and regulations have been continuously improved, and technological
independent innovation has achieved remarkable fruit. The promotion of fuel cell
vehicles and infrastructure construction has been accelerated. During the 14th FiveYear Plan period, the industrial development is about to usher in the critical point
of marketization. Furthermore, the leading enterprises will speed up the reshuffle of
the industrial chain or change the existing competition pattern, and the development
scale is expected to exceed the trillion level.
Overall, the COVID-19 pandemic has accelerated the pace of global low-carbon
energy transformation, and the traditional oil industry is facing greater pressure and
challenges. However, natural gas will continue to grow rapidly in the future at a
slower rate of increase. Besides, hydrogen energy, sustainable jet fuel and offshore
wind power station will usher in new development opportunities, and new energy
will enter a new round of rapid development.
Beijing, China
Fang Cai
Yongsheng Ma
Zhijun Jin
Contents
Part I
Macro Trends
Prospects for China’s Economic Development During
the 14th Five-Year Plan Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qiang Liu
3
China’s Energy Transition with the Scenario of Carbon Neutrality,
Outlook by 2060 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Qiang Liu, Qia Wang, and Qianqian Hong
25
Economic Growth and Energy Consumption: Four-Dimensional
Comparison of Aggregate, Elasticity, Intensity and Structure
Among Economies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Anjun Hu and Yuqi Jing
Part II
45
Petroleum
In-Depth Analysis on International Oil Market in Post-pandemic
Era . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lei Shi, Pei Wang, and Yuan Wang
85
Analysis and Prospect on Global Oil Supply Under the Production
Reduction of OPEC+ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Ren Na and Zhang Hongmei
Review and Medium- and Long-Term Prospect of Global Oil
Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
Yi Cai and Zhiyuan Qin
Development Status and Prospect of World Oil Refining . . . . . . . . . . . . . . 129
Li Han and Hu Di
Analysis on the New Pattern of Global Crude Oil Trade . . . . . . . . . . . . . . . 145
Xiaoyuan Xia and Xiaoying Huang
xiii
xiv
Part II
Contents
Petroleum
Production and Consumption of Natural Gas in China and Its
Prospects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
Rui Chen and Wenyu Sun
Progress and Prospect on Market-Oriented Reform of Natural
Gas Industry in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173
Jun Bai
Positioning and Prospect of Natural Gas Power Generation
in Energy Transformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
Xingshan Zhu, Rui Chen, Hui Fan, and Boqi Zhu
Part IV New Energy
Promotion of China’s Low-Carbon Transformation with Carbon
Price Mechanism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
Xinghong Liu and Zixing Wang
Offshore Wind Power: An Important Opportunity for Traditional
Oil and Gas Industry to Realize Low-Carbon Transformation . . . . . . . . . 231
Qia Wang
Development Trend and Prospect of Hydrogen Energy Industry
in China . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 247
Jishi Zhao, Zier Jin, Juan Gong, Xianzhi Dai, Ziyuan Wang,
Zhongjun Zhang, and Wenfeng Chen
Development Prospect of Sustainable Aviation Fuel . . . . . . . . . . . . . . . . . . . 265
Shutong Liu
Part I
Macro Trends
Prospects for China’s Economic
Development During the 14th Five-Year
Plan Period
Qiang Liu
Since the 13th Five-Year Plan, we act according to the new development philosophy for making steady progress, and carry out supply-side structural reform. We
accelerate high-quality development and respond coolly to the complicated situation
of rising risks and challenges both at home and abroad. Besides, various effective
measures have been taken to fight against the serious impact of the COVID-19 on
the economy. As the 13th Five-Year Plan was successfully implemented, the main
indicators were generally achieved on schedule, and the objectives and tasks identified in the plan were successfully completed. What’s more, the achievements in
economic and social development during the 13th Five-Year Plan period provide a
solid foundation for the building of a moderately prosperous society in all respects,
and, ultimately, a great modern socialist country.
1 The Economic Development During the 13th Five-Year
Plan Period Laid a Good Foundation
During the 13th Five-Year Plan period, China’s economic and social development
has made all-round historical achievements. The GDP maintained an average annual
growth rate of 6.7% from 2016 to 2019. According to the statistical bulletin of
national economic and social development in 2020 issued by the National Bureau of
Statistics, China’s total economic output exceeded 100 trillion yuan in 2020. China
was the only major economy in the world to register positive growth in 2020, with
its GDP expanding 2.3% to hit 101.6 trillion yuan in the year. Moreover, per capita
GDP has exceeded $10,000 for two consecutive years (Xinhuanet 2021).
Q. Liu (B)
Institute of Quantitative & Technological Economics, Chinese Academy of Social Sciences,
Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_1
3
4
Q. Liu
We have also scored decisive successes in the three critical battles against poverty,
pollution and potential risks. Since the 18th National Congress of the Communist
Party of China, the final 98.99 million impoverished rural residents living under the
current poverty line have all been lifted out of poverty. All impoverished counties have
also been removed from the poverty list, marking the end of absolute poverty in China
for the first time in history (National Bureau of Statistics 2021). The construction of
ecological civilization has been unprecedented, and major ecological protection and
restoration projects have been further promoted. In 2019, the energy consumption
per unit GDP (Gross Domestic Product) decreased by 13.2% compared with that in
2015. Air quality in the country continued to improve, with 337 cities at and above the
prefecture-level recording good air quality on an average of 82% days last year. And
the proportion of surface water quality reaching or better than Class III water bodies
reached 74.9%. The staged goals of pollution prevention and control were successfully achieved, and the ecological environment quality was generally improved. In
addition to these, positive results also have been achieved in preventing and defusing
major risks. Financial chaos has been effectively curbed; the shadow banking scale
has been greatly reduced; robust permanent mechanisms to promote the steady and
healthy development of real estate markets have been put in place; potential risks in
financial and other fields have been effectively controlled (Xinhuanet 2020).
Chinese industries steadily move up to the medium–high end of the global value
chain. The transfer of labor and capital to advanced manufacturing industries such as
equipment and high-tech manufacturing has accelerated. According to China’s fourth
national economic census, at the end of 2018, the proportion of employees in hightech and equipment manufacturing in manufacturing industries above designated
size increased by 3–5% points and the proportion of total assets increased by 6–7%
points compared with those in 2013. Strategic emerging industries have accumulated
and become the new engine of manufacturing development.
The cultivation of new growth drivers is accelerated. China’s “Three New
Economies” in new industries, new formats and new business models have developed rapidly. From 2016 to 2019, the average annual growth rate of the added value
of industrial enterprises of designated size (enterprises with a turnover exceeding
RMB20 million per annum) reached 10.5%, which was 4.4% points faster than that
of industries above designated size in the same period; the annual growth rate of
business income of strategic emerging service industry was 15.2%, which was 3.9%
points faster than that of service industry in the same period. In 2019, the added value
of China’s strategic emerging industries accounted for 11.5% of GDP, 3.9% points
higher than that in 2014, and strategic emerging industry has become an important
power source to promote the transformation and upgrading of industrial structure
and high-quality economic development.
The balance in development between rural and urban areas and between regions
has continuously improved. The rural revitalization strategy was accelerated, the
rural production and living conditions were significantly improved, and the rural
living environment was greatly improved. In addition to these, the quality of new
urbanization has steadily improved, and the population gathering capacity of central
cities and urban agglomerations has gradually improved. At the end of 2019, the
Prospects for China’s Economic Development During the 14th Five-Year Plan Period
5
urbanization rate of permanent residents rose to 60.6%, 4.5% points higher than
that in 2015, and decisive progress was made in the settlement of about 100 million
agricultural transfer population and other permanent residents in cities and towns.
People’s living standards have been improved in an all-round way, and residents’
quality of life has been significantly improved. With the initial establishment of a
basic public service system covering the whole people, the level of equalization of
basic public services has been steadily improved. In 2019, Engel coefficient dropped
to 28.2%, down 2.4% points from 2015, and household appliances were widely used,
with 35.3 cars per 100 households. The construction of a multi-tiered social security
system has been accelerated, and the number of people participating in pension,
medical care, unemployment, work injury and maternity insurance has continued
to increase. The construction of social housing has been accelerated. From 2016 to
2019, a total of 21.57 million housing units were rebuilt in rundown urban areas. In
2019, the per capita housing construction area of urban residents and rural residents
reached 39.8 m2 and 48.9 m2 respectively. In terms of educational modernization,
positive progress has also been made. In 2019, the completion rate of nine-year
compulsory education reached 94.8%, the gross enrollment rate in tertiary education
exceeded 50%, and the average number of years of schooling among the workingage population was 10.7. People’s health and medical care has been continuously
improved, and great strategic achievements have been made in the prevention and
control of COVID-19. The average life expectancy of residents reached 77.3 years
in 2019, nearly 5 years higher than the world average life expectancy.
We accelerate the establishment of new institutions of the open economy. We have
achieved solid progress in promoting “Belt and Road” cooperation, successfully held
two BRI international cooperation summit forums, signed 200 documents for Belt
and Road cooperation with 138 countries and 30 international organizations, and
made positive progress in major projects such as the Jakarta-Bandung High Speed
Railway, the China-Laos Railway and Gwadar Port. By the end of August 2020,
nearly 29,000 trains had been operated between China and Europe. We have achieved
stable and improved performance in foreign trade. China’s total imports and exports
of goods surged 31.54 trillion yuan in 2019, ranking first in the world. The export
of high value-added products such as integrated circuits and knowledge-intensive
services maintained rapid growth. With the accelerated construction of new system
for an open economy, 21 pilot free trade zones were set up. Hainan becomes the
first free trade port in the mainland. Furthermore, the level of bringing in and going
out is further deepened. In 2019, the actual foreign direct investment (FDI) reached
$138.1 billion, which hits record high, and non-financial FDI reached $110.6 billion.
China’s equipment, technology, standards and services went out steadily.
Foreign trade and economic relations have changed from the flowing-type
opening-up of goods and factors to the institutional opening-up that covers rules
and standards. Since 2018, China has implemented the negative list on the market
access of foreign investment. Three revised “Negative List for Foreign Investment
Market Access” have been issued successively, and 2020 revised negative list has 33
listed items for foreign investors in terms of “restriction” and “prohibition”, down
from 63items in the guidance catalogue of 2017. In the piloted free trade zones (FTZ),
6
Q. Liu
the negative list system began to be implemented as early as 2013. During the 13th
Five-Year Plan period, China successively launched four revised “Negative List for
Foreign Investment Market Access in Pilot Free Trade Zones”, and the items were
reduced from 190 in 2013 to 30 in 2020, which was more open than the national
version with 33 listed items.
2 During the 14th Five-Year Plan Period, We Are Faced
with a Complex New Situation, with Opportunities
and Challenges Coexisting
Looking forward to the 14th Five-Year Plan, China will face a complicated new
situation. On the one hand, on the basis of 40 years of reform and opening up, the
growth momentum of China’s economy is still strong, and China’s economy has
the economic vitality of constantly consuming new technologies and new growth
drivers, and the economic development is unstoppable; on the other hand, the population growth stall accelerates the aging process, and the shortage of basic research
and primary innovation leads to the fact that the production of science and technology
and the supply of new technologies rely on the outside. What’s worse, some disharmonious phenomena appear in the international political and economic environment.
Generally speaking, China’s economic opportunities and challenges coexist during
the 14th Five-Year Plan period, which will also become the key period for China’s
economic modernization.
2.1 China’s Economic Development Momentum is Still
Strong
1. The advantages of ultra-large-scale market economy continue to emerge, and
consumption power is further enhanced
In terms of market size, China has become the second largest consumer market
in the world, and the sales volume of household durable consumer goods such as
automobiles and household appliances ranks first in the world. However, compared
with developed countries, there is still a gap in per capita ownership, and there is
still huge room for growth in related consumption. China has the largest middleincome group in the world, which constitutes the main consumer of high-end goods
and services in China, promotes the expansion and upgrading of goods and services
consumption, increases the proportion of service consumption, and thus provides
a solid foundation for continuously exerting super-large-scale market advantages.
Middle-income groups are large in scale and have great potential for growth, and
their consumption demand for high-end products and services is growing rapidly.
Prospects for China’s Economic Development During the 14th Five-Year Plan Period
7
From the perspective of ultra-large-scale economy production, China’s scale
economy has prominent advantages, comprehensive cost advantages and strong
synergy between supply and demand. As we all know, China has a vast territory
with a population of 1.4 billion, large-scale factor supplies and large-scale market
capacity, which makes it possible to lay out production capacity on a large scale.
With positive progress made in building a unified domestic market and improving
the business environment, the advantages of scale economy have been consolidated.
Although the general labor cost has indeed increased in recent years, China still has
advantages in the cost of middle and high-end talents, because the number of college
graduates exceeds 7 million every year. Meanwhile, China has a complete industrial
system and is the only country in the world with all the industrial categories in the
UN industrial classification, which has laid a good foundation for China’s supply
system to effectively organize large-scale-low-cost production, and can facilitate the
formation of a situation in which supply and demand promote together and further
expand the market boundary.
2. The new dual-circulation economy development pattern enhances the development momentum and improves the anti-impact ability
In the “Recommendations of the Central Committee of the Communist Party of China
for Formulating the 14th Five-Year Plan for Economic and Social Development and
Long-Range Objectives through the Year 2035”, it is clearly put forward that “We
should accelerate the new development paradigm featuring dual circulation, in which
domestic and overseas markets reinforce each other, with the domestic market as the
mainstay”. In the dual circulation strategy, the domestic market is the mainstay, and
the strategy gives full play to the advantages of ultra-large-scale market to promote
high-quality economic development. The domestic and overseas markets reinforce
each other, so that two markets can be better connected, and a series of new industries,
new formats and new models can be cultivated, thus promoting the transformation
of China’s economy from “super-large” to “super-strong”.
The new development paradigm featuring dual circulation clearly points out that
“The domestic market is the mainstay”, which requires us to give priority to the
promoting the sustained and healthy development of the national economy in China;
since domestic and overseas markets reinforce each other, we should actively participate in and actively lead international exchanges and cooperation at a higher level
while relying on the domestic market. It points out the direction for China to form
a new system for an open economy at a higher level during the 14th Five-Year Plan
period.
3. Further opening up will bring broader economic development space
On April 27, 2020, Xi Jinping chaired the 13th meeting of the Commission for
Further Reform under the CPC Central Committee. He pointed out that for the institutional issues related to high-quality economic development, it is necessary to grasp
important aspects such as stabilizing the industrial and supply chains and expanding
opening up to the outside world, and make overall arrangements for advancement.
8
Q. Liu
China promotes trade and investment liberalization and facilitation, opposes trade
protectionism, supports the multilateral trading system, and promotes international
capacity cooperation. China also participates in international cooperation at a higher
level and in a wider space, forms a global trade, investment and financing, production
and service network, and accelerates the cultivation of new advantages in international economic cooperation and competition. On October 24, 2019, the World Bank
published the “Business Environment Report 2020”, and the ranking of China’s
business environment rose from 46th to 31st, up 15 places. China has held “China
International Import Expo” since 2018, which is the first national-level exhibition
with the theme of import in the world, and is a great innovation in the history of
international trade development.
“Belt and Road” cooperation will drive the opening up of the western region, and
realize the direct integration of inland with the vast markets of Europe and Eurasia
through the construction of the China-Mongolia-Russia, China-Central Asia-West
Asia, China-Pakistan Economic Corridor and Eurasian Continental Bridge (China–
Europe freight train). “Belt and Road” cooperation has set up a new platform for
China’s opening up, and is also conducive to promoting world economic growth and
deepening regional cooperation.
On March 22, 2021, the Ministry of Commerce of China announced that China
has officially ratified the Regional Comprehensive Economic Partnership (RCEP)
agreement and became the first country to ratify it. All RCEP member countries
have indicated that they will ratify this agreement before the end of this year, so as
to push it into effect on January 1, 2022. The RCEP member countries have a total
population of 2.27 billion, a GDP of $26 trillion, and a total export of $5.2 trillion,
all of which account for about 30% of the global total, making it the largest free trade
agreement in the world at present. On December 30, 2020, after 35 rounds of negotiations during seven years, the leaders of China and Europe jointly announced that
they had completed the China-EU Comprehensive Agreement on Investment (hereinafter referred to as China–Europe Agreement) negotiations as scheduled. When
the agreement comes into force, it will replace the 26 effective bilateral investment agreements between China and European countries, and then provide a unified
legal framework for China-EU two-way investment, which will bring greater market
access, a higher level of business environment, stronger institutional guarantee and
brighter cooperation prospects for China-EU two-way investment.
In order to further expand opening up, China not only actively promotes the transformation from flowing-type opening-up of goods and factors to the institutional
opening-up that covers rules, but also promotes the construction of a fair, reasonable
and transparent international economic and trade investment rules system to maintain
and develop an open world economy. What’s more, it will, together with other countries, jointly create an environment conducive to open development, and promotes
orderly flow of production factors, efficient allocation of resources and deep market
integration. China also repeatedly emphasizes that it adheres to win–win opening
rather than zero-sum mentality.
Prospects for China’s Economic Development During the 14th Five-Year Plan Period
9
2.2 Risks and Challenges
China’s economy is also facing some structural problems, such as the imbalance
of population structure, the shortage of subsequent labor supply, the rising cost of
domestic labor, land and environment, and the intensification of foreign trade friction.
We have to be prepared for the worst and respond proactively to these problems.
1. The population situation is complex, the new born populations drop dramatically,
and the pension accumulation is weak
Population and labor force are the primary factors of economic development, but
the one-child policy implemented for more than 40 years and the rapid increase of
parenting costs have led to the rapid reduction of the new population and the peak of
China’s population aging ahead of schedule. In 2020, the data of the birth population
according to the Ministry of Public Security was 10.03 million, which is a cliff-like
decline compared with the 14.65 million birth population in 2019. According to the
data from the Ministry of Public Security and the National Bureau of Statistics, in
2009, the number of elderly people aged 60 and above in China was 167 million,
accounting for 12.5% of the total population. However, in 2019, it has rapidly climbed
to 254 million, accounting for 18.1% of the total population, including 176 million
elderly people aged 65 and above, accounting for 12.6% of the total population.
According to the China’s population forecast made by the UN (See Table 1), the
low plan shows that China’s population will reach its peak in 2025. In terms of current
data and social situation, the low plan of 65% urbanization rate scenario is closer to
China’s actual situation, that is, the peak population in 2025 is 1.396 billion. Even
if the medium plan is adopted, the population will reach its peak in 2030, while the
forecast in the high plan is unlikely to appear. Compared with the population growth
rate, the decline of the economically active population and the working population
will be faster.
2. Domestic land, labor and environmental production costs continue to rise
Since 2016, the cost of land and real estate in China has increased greatly. According
to the data monitored by China Index Academy, the annual growth rate of land
transfer fees in Sanya, Lanzhou and Dalian in 2019 exceeded 100% on a yearly
basis. According to the data of Centaline Property, the total land transfer fees of the
top 50 cities in China in 2019 was 4.41 trillion yuan, up 19.3% year on year. Among
them, the land transfer fees of 16 cities exceeded 100 billion yuan, and the total
land turnover in Hangzhou was 283.6 billion yuan, ranking first, followed by that
in Shanghai, Guangzhou and Suzhou closely, with 199.2 billion yuan, 186.4 billion
yuan and 185 billion yuan respectively.
In the land market in 2020, returning to the first- and second-tier cities has become
the mainstream. Wind data shows that the land market total turnover of first-tier cities
is about 830.5 billion, up 36.6% year-on-year. In fact, according to Wind data, among
the top 30 large and medium-sized cities in terms of land transaction scale in 2019,
the land transaction scale of 19 cities increased positively compared with that of
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Table 1 China’s population forecast made by The UN (100 million people)
Urbanization level I (60%)
Urbanization level II (65%)
Year
Low
Medium
High
Low
Medium
High
2020
13.95
14.07
14.18
13.92
14.04
14.16
2025
14.00
14.24
14.45
13.96
14.19
14.42
2030
13.94
14.32
14.66
13.88
14.26
14.63
2035
13.77
14.31
14.81
13.70
14.24
14.78
2040
13.51
14.22
14.90
13.42
14.13
14.87
2045
13.14
14.04
14.93
13.02
13.92
14.89
2050
12.65
13.75
14.87
12.51
13.60
14.83
Note Medium plan: TFR will increase from 1.5–1.65 in 2000 to 1.8 in 2030. Urban families give
birth to 1.5 children on average, while rural families give birth to 2 children on average. According
to the current birth policy, the couples, both of whom are an only child, can have a second child.
Considering that the only child born in 1980s has entered the age of marriage and childbearing in
the twenty-first century, some women of childbearing age in cities and towns may have two children
Low plan: TFR will reduce to 1.4 in 2030 and remain unchanged from 2030 to 2050. This fertility
level is close to the current survey fertility level, and it is also a low fertility level in developed
countries
High plan: TFR will return to the replacement level of 2.1 in 2030. It is assumed that in the next
40 years, in order to avoid the population development problem caused by low fertility level, the
fertility policy will be adjusted in the future, and each couple is allowed to have two children.
Considering the development of urbanization in the future, only when the total fertility rate in cities
and towns reaches the replacement level can the total population be kept constant
Source United Nations website, https://unstats.un.org/unsd/demographic/meetings/wshops/China/
2013/list_of_docs.htm
2019, and cities in the Pearl River Delta and the Yangtze River Delta still performed
strongly. Under the special circumstances of the pandemic, the value of the land
market in the core cities was re-recognized, and both the supply and demand sides
exerted their strength at the same time, bringing the market attention back to the
first-and second-tier cities.
Labor shortage and rising labor cost are two sides of the same issue. Data show
that after 2009, China’s labor cost has greatly increased. According to a study by the
Rabobank based on the data in 2018, the labor cost in China has been significantly
higher than that in Southeast Asian countries such as Thailand and Malaysia. And
the difference in labor cost between China and Vietnam, which decreases rapidly in
recent years, is greater (See Fig. 1).
With the construction of ecological civilization and the improvement of environmental standards in China, the corresponding costs of enterprises have also been
greatly increased, and some manufacturing enterprises have been forced to turn to
inland provinces farther away from coastal ports and markets. Although it is necessary
to improve the environmental standards, it is bound to pay corresponding costs.
Prospects for China’s Economic Development During the 14th Five-Year Plan Period
11
Fig. 1 Comparison of real annual average manufacturing wage level among countries (areas)
3. The global industrial chain has been reconstructed, and some manufacturing
enterprises have moved out of China, increasing the pressure on domestic
industrial upgrading
In 2019, the manufacturing GDP reached $4.23 trillion in China, $2.45 trillion in the
US, $0.85 trillion in Germany and $1.02 trillion in Japan. It shows that China’s manufacturing GDP approaches to the sum of manufacturing GDP of the US, Japan and
Germany. However, with the rising cost of China’s manufacturing and the competition with other emerging market economies, some manufacturing enterprises have
begun to make new layout in China and other countries, and the momentum of
attracting manufacturing investment in China is not as good as before. Study of
Rabobank (from the same source) released an index of destination (See Table 2) of
manufacturing enterprises moving out of China, which shows that Southeast Asia
pose challenges to China in competing for the manufacturing industrial chain.
The study of Boston Consulting Group shows that China’s integrated manufacturing cost has risen sharply in recent years. The manufacturing cost index of its labor,
electricity and natural gas costs indicate that the manufacturing cost between China
and the US is very close (See Fig. 2). China, as a manufacturing giant, is not only
challenged by Southeast Asian countries, but also threatened by the revitalization of
manufacturing in developed countries.
4. With the change of international economic and political environment, the risk of
technology decoupling in Europe, America and Japan increases, which brings
new challenges to China’s economic development
12
Table 2 Destination index of
manufacturing enterprises
moving out of China released
by Rabobank (Highest index
= 1)
Q. Liu
Country (Area)
Destination index
Thailand
0.62
Malaysia
0.61
Taiwan, China
0.55
India
0.31
Singapore
0.30
Philippines
0.18
South Korea
0.17
Indonesia
0.17
Japan
-0.03
Sri Lanka
-0.07
Mongolia
-0.27
Combodia
-0.36
Laos
-0.39
Pakistan
-0.43
Myanmar
-0.59
Bangladesh
-0.67
Data source Rabobank, https://economics.rabobank.com/public
ations/2019/august/leaving-china-countries-might-benefit-fromrelocation-production/
Fig. 2 Comparison of manufacturing cost indices between China, the US, Japan and Germany (US
= 100)
Prospects for China’s Economic Development During the 14th Five-Year Plan Period
13
With the economic and trade frictions between China and developed countries such
as the US and Europe in recent years, there have been some voices to contain
China in the political field. Technical decoupling is the most frequently mentioned
means of economic containment, which has caused great problems during the Trump
administration.
Decoupling suggestions in the “Understanding Decoupling: Macro Trends and
Industry Impacts” proposed by Chinese Chamber of Commerce in U.S.A in 2021
includes the following policy tools:
● Review the trade and technology policies among market economies with similar
ideals and beliefs to better coordinate the response to China;
● Implement proactive “Run Faster” agenda to promote the innovation and
competitiveness of American industry;
● Take urgent action to ensure the resilience of American supply chain;
● Rationalize defense measures to protect American technology, market and other
assets from foreign threats.
According to the policy tools during the Trump administration, semiconductors,
that is, chips are the most likely policy tools adopted by the US. As China is highly
dependent on imports of high-end chips, China’s economy will be greatly affected
if the semiconductors are adopted as the policy tools by Trump administration.
3 Analysis on Economic Development Trend During
the 14th Five-Year Plan Period
3.1 The Economy Continues to Maintain Moderate Growth
The most remarkable feature of the Outline for the 14th Five-Year Plan for Economic
and Social Development and Long-Range Objectives through the Year 2035 (Draft
outline) is that only directional qualitative regulations are given, without a specific
growth of average annual GDP. It requires that we must “keep GDP growth within
an appropriate range, and set annual targets for economic growth in light of actual
conditions”. In addition, in accordance with the draft Outline, we must ensure that
the overall labor productivity grows faster than GDP, and R&D spending is expected
to account for a higher percentage of GDP than that during the 13th Five-Year Plan
period. We must ensure that the digital economy account for around 10% of its
newly added economic output by 2025 from the 7.8% in 2020, the surveyed urban
unemployment rate is within 5.5%, and per capita disposable income will generally
grow in step with GDP growth, in order to remain the rapid development of economy.
At the Fifth Plenum of the 19th CPC Central Committee held last month, “the
Recommendations of the Central Committee of the Communist Party of China for
Formulating the 14th Five-Year Plan for Economic and Social Development and
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Long-Range Objectives through the Year 2035” was adopted. The socialist modernization will be basically realized by 2035, a giant stride toward will be made in
the growth of the economy and the per capita income of urban and rural residents,
and per capita GDP will reach the level of moderately developed countries. We will
double the GDP by 2035 from then on, and the economic growth will be about 4.5%
in following 15 years. The average annual GDP of the economic growth rate will be
ranged from 5% to 5.5% during the 14th Five-Year Plan period.
3.2 The Household Registration and Population Policies Are
Gradually Relaxed, Driving a New Round
of Agglomeration Effect and Urbanization Upgrading
With the accomplishment of the one-child policy implemented for many years and
the loosening of the household registration management policy, there will be a new
round of population gathering in China. The 14th Five-Year Plan proposes that we
must further promote the strategy of new, people-centered urbanization, and promote
the coordinated and characteristic development of small, medium, and large cities and
small towns based on city clusters and metropolitan areas. Specific measures include:
we must move faster to grant permanent urban residency to people who move to cities
from rural areas (Chapter XXVII), improve the space layout of urbanization (Chapter
XXVIII), and promote urban quality (Chapter XXVIV). Among them, the measures
to deepen the reform of the household registration system point out that we should
ease and relax the restrictions on settlement except for some megacities, and pilot
the household registration system with the habitual residence. We will completely
remove the restrictions on urban settlement with a permanent resident population of
less than 3 million, and ensure the equal treatment for foreign and local agricultural
transfer population to settle in cities. We will also comprehensively remove the
conditions for settling in I-type large cities with a resident population of 3 million to
5 million, and improve the points-based household registration policy in megacities
with more than 5 million permanent residents in urban areas.
According to the policy of improving the spatial layout of urbanization, we
must “develop and expand city clusters and metropolitan areas, classify and guide
the development direction and construction key tasks of small, medium, and large
cities, and form a spatial pattern of urbanization with proper distribution, coordination and distribution of responsibilities and perfect function.” Measures are as
follows. ➀ Promoting the integrated development of city clusters. We will develop
city clusters and form polycentric, multi-level, and multi-node urban agglomeration networks, optimize and upgrade city clusters in Beijing-Tianjin-Hebei, along
Yangtze River Delta and Pearl River Delta, around Chengdu-Chongqing and along
the middle reaches of the Yangtze River, develop city clusters in Shandong Peninsula, Guangdong-Fujian-Zhejiang coastal areas, Central Plains, Guanzhong Plain and
Beibu Gulf, and cultivate and develop city clusters around Harbin and Changchun, in
Prospects for China’s Economic Development During the 14th Five-Year Plan Period
15
south-central Liaoning, central Shanxi, central Guizhou and central Yunnan, around
Hohhot, Baotou, Erdos and Yulin, along Lanzhou-Xining, in Ningxia, along the
Huanghe River and in northern slope of Tianshan Mountain. ➁ Building a modern
metropolitan area. Relying on the central cities with strong radiation driving ability,
we will improve the coordinated development of the one-hour commuting circle, and
cultivate a number of modern metropolitan areas with high degree of urban integration. We will promote the effective connection between urban and external traffic
and the “four networks integration” of rail transit with rail traffic such as intercity
railway and urban (suburban) railway as the backbone, and improve the connectivity
of infrastructure in metropolitan areas. ➂ Optimizing and upgrading the function
of the central city of Megacities. We will orderly relieve the functions and facilities of general manufacturing, regional logistics base and professional market in
the central city, as well as excessively concentrated public service resources such as
medical care and higher education, and reasonably reduce the development intensity
and population density. We will enhance the leading role of global resource allocation, the source of scientific and technological innovation and high-end industries,
take the lead in forming an industrial structure with modern service industry as the
main body and advanced manufacturing as the support, and improve the comprehensive energy level and international competitiveness. We will adhere to the integration
of industry and city and improve the function of suburban new town to realize polycentric city clusters. ➃ Improving the function of large and medium-sized cities
to be suitable to live and work in. We will make full use of the advantages of relatively low comprehensive cost, take the initiative to undertake industrial transfer and
function relief in Megacities, and consolidate the foundation of real economy development. Based on the characteristic resources and industrial base, we will establish
the differentiated positioning of manufacturing, promote the large-scale and cluster
development of manufacturing, and build advanced manufacturing base, trade logistics center and regional professional service center according to local conditions.
We will also optimize the layout and function of municipal public facilities, support
the layout of tertiary hospitals and colleges and universities in large and medium
cities, increase the supply of cultural and sports resources, and create a modern and
fashionable consumption scene, in order to improve the quality of urban life. ➄
Promoting the urbanization with the county as an important carrier. We will
speed up to remedy deficiencies and strengthen weak links of the county, promote
the upgrading and expansion of public services, environmental sanitation, municipal
utilities and industrial facilities, and enhance the comprehensive carrying capacity
and governance capacity. We will support the construction of county towns with good
foundation in the eastern region, focus on supporting the construction of county towns
in the central and western regions and northeast urbanization areas, and reasonably
support the construction of county towns in major agricultural production areas and
key ecological function areas. The investment and financing mechanism of county
construction will be improved for giving full play to the role of financial funds and
guiding financial capital and social capital to increase investment. We will steadily
and orderly promote the establishment of cities in eligible counties and towns with
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Q. Liu
a permanent resident population of over 200,000. According to the location conditions, resource distribution and development foundation, we will develop small towns
according to local conditions, and promote the standardized and healthy development
of characteristic towns.
At the beginning of 2020, the Central Committee of the Communist Party of China
and the State Council approved “The Opinions Concerning Market-based Allocation
of Factors of Production” (hereinafter referred to as the Opinions), and the National
Development and Reform Commission (NDRC) also issued important documents
like “Key Tasks for New Urbanization Construction and Integrated Urban–rural
Development in 2020” (hereinafter referred to as the Tasks). The Opinions puts
forward that we have to deepen the market-oriented reform of factors, promote
regional coordinated development and promote the transformation of economic
development to high quality. In the next decade, with the deepening of marketoriented reform of factors, the mobility and matching capacity of population, capital,
and information will be gradually improved, and the industrial agglomeration and
catalytic effect will rise again, which will give birth to new opportunities for the
economic development of central cities and node cities.
There will be a new trend in the high-quality development of new urbanization.
Unreasonable barriers hindering the free flow of labor will be gradually removed,
the population will be further concentrated in dominant areas, and the population
agglomeration effect of large cities and city clusters will be further enhanced. Core
cities and key cities will enter the era of metropolitan area construction, and the pace
of integrated urban–rural development in developed areas will accelerate.
With the development of new urbanization, the formation of metropolitan area is
the result of two-way flow of resources between central city and surrounding areas.
For Megacities and large cities, the most fundamental economic foundation in the
future is the business service and financial sector, while the traditional manufacturing
and industrial sectors will gradually disperse to lower-level regions. With the disruption and regrouping of urban industry and population, the value of land and real estate
in first-and second-tier cities become more prominent, while the downward pressure
on land and real estate value of third-and fourth-tier cities, counties and towns in
population outflow areas is increasing, making it more difficult to regulate the real
estate prices.
3.3 The Application of Digital Technology Comprehensively
Promotes the Upgrading of Industrial Technology
and New Infrastructure
The report of the 19th CPC National Congress points out that we have to speed up to
build China’s strength in manufacturing and cyberspace and to build a digital China,
and accelerate the integration of Internet, big data, AI and real economy. Besides,
we must seize the opportunity of industrial revolution and accelerate the layout of
Prospects for China’s Economic Development During the 14th Five-Year Plan Period
17
industrial Internet around core standards, technologies and platforms to build a new
digital-driven industrial ecology. At present, China is in a critical period when it is
transforming from a major country of Internet development to a country with strong
Internet development, and becoming a leader in global Internet development, and also
in a period of integrating digital technology and economic society and transforming
and upgrading the digitalization of traditional industries.
With the extended innovation and application of technologies such as Internet,
big data and AI, the digital transformation of traditional industries has more new
features. At the macro level, it promotes the optimization and upgrading of economic
and social resource allocation and reshapes the economic and social development
paradigm under the support of innovative digital technology. At the industry level, it
uses the deep integration of digital technology and industry in digital transformation,
realizes the integration of all elements, links and life cycle of the industry, and drives
capital flow, material flow, talent flow and technology flow with information flow and
significantly improves the efficiency, quality and value of the industry, thus realizing
profound changes in production modes, business models and organizational forms.
3.4 The Policies of Peaking Carbon Emissions and Achieving
Carbon Neutrality Have Been Gradually Implemented,
and Energy Transformation Has Promoted New
Economic Growth Drivers
On September 22, 2020, President Xi Jinping announced at the United Nations’
Conference that China will strive to peak carbon dioxide emissions by 2030 and
achieve carbon neutrality by 2060. On December 12, further emission reduction
target for 2030 was released: China will lower its carbon dioxide emissions per unit
of GDP by over 65% from the 2005 level, increase the share of non-fossil fuels in
primary energy consumption to around 25%, increase the forest stock volume by
6 billion cubic meters from the 2005 level, and bring its total installed capacity of
wind and solar power to over 1,200 GW. During the 14th Five-Year Plan period, the
annual installed capacity of photovoltaic in China will be guaranteed to be 70–90
GW, and the annual installed capacity of wind power will be guaranteed to be 50 GW.
We will strive to achieve the goal of carbon neutrality by 2060, which will promote
renewable energy into a stage of rapid growth.
With technological progress, there are basic conditions for renewable energy
represented by photovoltaic and wind power to replace fossil energy, and people
in local areas have been able to access the Internet at a low price. Moreover, the cost
of renewable energy power generation continues to decline, and now no subsidy is
needed. Its efficiency can already be comparable to thermal power. According to the
data of International Renewable Energy Agency (IRENA), the cost of photovoltaic
power generation has decreased by 82%, and the cost of onshore wind power has
decreased by 39% since 2010.
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Q. Liu
In the past few years, China’s installed capacity of photovoltaic and wind power
has maintained the first place in the world, with a high level of the use of domestic
components in the equipment manufacturing industry and complete industrial chain.
For example, by the end of 2019, the percentage of production capacity of polysilicon,
silicon wafers, cells and components of China’s photovoltaic industry remained at
69.0–93.7% of all production capacity globally.
Undoubtedly, the goals of peaking carbon dioxide emissions by 2030 and
achieving carbon neutrality by 2060 will bring unprecedented opportunities to the
new energy industry, and will also drive the development in fields of related materials, devices and equipment. In addition to photovoltaic and wind power, we also
face new opportunities in various emerging energy such as hydrogen energy, energy
storage and biological energy.
4 Policy Recommendations on Promoting the Benign
Interaction of Economic Dual Circulation
and Maintaining the Healthy and Stable Development
of Economy
After more than 40 years of rapid development, the industrialization and urbanization
has been initially completed for our economy, and is moving from rapid development
to normal development. For these reasons, the expansionary fiscal policy and monetary policy used in the past also need to be transformed into normal macro-economic
policies focusing on fine-tuning. The main goal is to maintain stable economic growth
and full employment, and provide good social security and medical security for all
citizens. For industrial policy, we will promote technological innovation and maintain
long-term competitiveness of enterprises.
4.1 Shifting from Investment-Oriented Fiscal Policy
to Security-Oriented Fiscal Policy, Focusing Efforts
on Elderly Care and Protection of Disadvantaged Groups
In recent years, an overall effective socialized social security system has been established in China, and the system of overall medical care for serious diseases and
rural cooperative medical service has played an important role in safeguarding the
basic security of the people. However, the speed of aging in China’s population is
obviously faster than expected, and there may be an extremely difficult situation in
the social security if we don’t make overall arrangements in the medium and long
term. At the same time, fiscal expenditure will be weighted towards the protection
of disadvantaged groups, so as to maintain the social stability.
Prospects for China’s Economic Development During the 14th Five-Year Plan Period
19
Now, China has become the second largest economy in the world. Although the
per capita GDP level is lower than that of developed countries, an effective socialized medical care and old-age security system may be established with reasonably
distributing the total accumulated wealth.
4.2 The Macro-economic Regulation and Control Will
Return to Neutral Monetary Policy to Promote Asset
Prices to a Reasonable Space and Reduce Financial Risks
Monetary policy is the basic tool of macro-economic regulation and control. Since
the “4 trillion investment plan” in 2008, China’s currency circulation has increased
rapidly in successive years, and in fact, it is an expansionary monetary policy. With
the initial completion of urbanization, monetary policy will be neutral to restrain the
excessive growth of money supply and control financial risks in the bud.
The real estate regulation and control policy has shown this tendency since 2019.
The percentage of real estate loans to the total outstanding loans in 2020 is lower than
that in 2019, but it is still at a high level (see Fig. 3). In order to effectively control
financial risks, we should take effective measures to reduce the dependence of urban
finance on the real estate industry, and increase financial transfer payments from the
central government to local governments to reduce the expenditure pressure of local
finance and the financial income anxiety of local governments.
Fig. 3 Percentage of real estate loans to total outstanding loans. Data source: Rabobank, China’s
Five-Year Plan: Ambitious aims meet tricky trade-offs. https://economics.rabobank.com/publicati
ons/2021/march/chinas-five-year-plan-ambitious-aims-meet-tricky-trade-offs/
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Q. Liu
4.3 The Focus of Industrial Policy Will Be Shifted
to Promoting Industrial Technology Upgrading,
and the Focus of Policy Tools Will Be Shifted
from Subsidy to Tax Reduction
China’s industrial policies have played a positive role in promoting economic growth
and structural adjustment. Among these industrial policies, however, market choices
were replaced with government choices excessively. Special preferential and strong
incentives such as tax reduction and exemption, financial subsidies, low-interest
loans, low-cost land supply, energy and resources prices lower than market prices,
and administrative measures such as market access restrictions, project approval and
forced elimination were taken for choices of technology, industry and enterprise
scale, which changed the rules of market allocation of resources to a certain extent.
This has also brought many negative effects, such as the stimulation of excessive
investment to some extent, the promotion or aggravation of overcapacity, the reduction of the efficiency of resource allocation, and the weakening of the principle of fair
competition. Especially, the power of industrial technological innovation has been
inhibited, which indirectly led to the situation that China relies on foreign countries in
technological innovation. Later industrial scale has been neglected at the beginning
of the design of some subsidy policies, which led to the misplace of the implementation of the subsidies promised at the initial stage and the industry is unsustainable.
The prominent example is the photovoltaic industry.
It is suggested that for the future industrial policies, we should carefully make
financial subsidy policies with focusing on the improvement of industrial technology
upgrading, energy efficiency and environmental performance, and adopt more structural tax reduction policies. For example, we can reduce a certain percentage of valueadded tax for carbon–neutral industries, and R&D expenditure can be deducted from
value-added tax.
4.4 Taking Comprehensive Measures to Reverse
the Downward Trend of Population Growth and Optimize
the Age Structure of the Population
In recent years, the number of people who are not married and do not have children
has increased rapidly in China. Apart from the fact that the population of childbearing
age born in the 1980s after the family planning policy has a small base, the rapidly
rising cost of living and parenting is also an important influencing factor. Therefore,
in order to reverse the declining trend of population growth, it is an important factor
and the most effective policy to reduce the burden on the population of childbearing
age. Specific policies include providing low-interest or even negative-interest loans
for the first house loan, providing tax deduction for enterprises employing women in
Prospects for China’s Economic Development During the 14th Five-Year Plan Period
21
lactation period, reducing or remitting personal income tax for lactating women and
their spouses, extending breastfeeding holidays, and effectively reducing education
costs.
4.5 Focusing on Carbon–neutral Industry to Promote Energy
Transformation and Ecological Civilization Construction
Under the Prospect of Carbon Neutrality
We will accelerate the energy revolution, develop low-carbon and clean energy,
achieve the goals of carbon peak by 2030 and carbon neutrality by 2060, and promote
ecological civilization are important missions entrusted by the time to the energy
sector. This commitment is initiated by China as a developing country, and it also
represents China’s new understanding and new actions on climate change. This also
means that in China, a super-large economy that is highly dependent on fossil energy
such as coal and oil, it is necessary to carry out drastic transformation of industrial
structure and energy structure to achieve this goal. This is not only a challenge to
the energy field, but also a challenge to the whole national economy. Meanwhile, we
should realize that this challenge is also an important development opportunity for
energy and industrial economy. We should also realize that energy transformation is
not at the expense of slowing down development, but to promote better, faster and
greener economic development by innovating new energy technologies and creating
new energy formats.
Attention must be given to promoting the transition from carbon-intensive fossil
fuel energy to carbon–neutral energy, low-carbon energy and non-carbon energy
in energy system on the premise of meeting the energy demand of economy and
people’s livelihood and being economically reasonable, safe and stable. Specific
measures mainly include: ➀ saving energy; ➁ developing low-carbon and non-carbon
energy and reducing the proportion of high-carbon energy; ➂ recycling carbon-based
energy, which is the only way to neutralize carbon in China, and ➃ fixing carbon
ecologically, which is an important way and is one of the important meanings of
building ecological civilization.
4.6 Continuing to Improve the Construction of Infrastructure
Networks Such as Transportation, Telecommunications
and Energy, and Effectively Reduce Economic Costs
5G infrastructure, ultrahigh-voltage power transmission, intercity high-speed railway
and intercity rail traffic, charging station, big data centers, AI and industrial Internet
have been identified as “new infrastructure constructions” at the Central Conference
on Economic Work held at the end of 2018. According to the “Report on the Work of
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the Government” delivered at the Two Sessions of 2019, “We must accelerate the pace
of 5G commercialization and IPv6 (Internet Protocol Version 6) scale deployment,
and strengthen the construction of new infrastructure such as AI, industrial Internet
and Internet of Things and their integration and application”.
The combination of traditional infrastructure and new infrastructure will greatly
improve the flexibility, pressure resistance, security and controllability of China’s
economic infrastructure, which will inject new vitality into the overall economy
and create trillions of new industries. The combination of 5G with AI, big data and
cloud computing will bring more abundant application scenarios, such as unmanned
driving, smart cities, Internet of Things and intelligent medical care, which will bring
more convenience to people’s life.
4.7 Improving the Scientific and Technological Innovation
Mechanism and Promote the Research and Development
Investment of Basic Research, Industrial Technology
and Civil-Military Integration Technologies
The fifth plenary session of the 19th CPC Central Committee emphasizes that innovation must remain at the heart of China’s modernization drive. We should strengthen
our science and technology to provide strategic support for China’s development, and
regard the improvement of scientific and technological innovation system and mechanism as the important content of persisting in innovation-driven development and
shaping new development advantages in an all-round way. The problems that hinder
the development of China’s economy are not due to the lack of funds for science
and technology in China, but to the fact that in the existing system of scientific and
technological innovation, basic research, military technology and industrial technology research and development are not connected and promoted with each other,
the economies of scale and scope of scientific and technological innovation are not
realized, and effective mechanisms for knowledge sharing and industrial application
are not established.
Referring to the scientific and technological innovation mechanism of developed countries, we should change the current technological research and development system with state-owned academies as the main body, and establish a set of
scientific and technological innovation system relying on enterprises and markets.
Specific policy recommendations are as follows. We should adopt enterprise-oriented
bidding system for major applied technology innovation. Its task assessment is not
only to provide technical packages, but also to provide commercialized product
lines. Through this model, scientific research institutions and enterprises can be
urged to closely integrate and jointly promote industrial technology progress and
achieve major industrial technology breakthroughs. Specific industrial technology
systems include: new key materials, complete sets of numerically-controlled machine
tools, automotive and aerospace industry engines, integrated circuits, integrated
Prospects for China’s Economic Development During the 14th Five-Year Plan Period
23
energy systems and related manufacturing technologies, intelligent system related
technologies, etc.
4.8 Continuing to Promote Reform and Opening up, Reduce
Market Access Restrictions, and Build a Fair and Orderly
Market Competition Atmosphere
We will open domestic circulation around the production, distribution, circulation and
consumption. In terms of production environment, we will promote the construction
of new infrastructure; in terms of distribution link, we will promote the marketoriented reform of production factors, promote the free flow of factors and improve
the efficiency of resource allocation; in terms of circulation link, we will accelerate the
construction of infrastructure such as communication and transportation, and reduce
the circulation and transaction costs of enterprises; in terms of consumption sector,
we will accelerate the integration and development of online and offline consumption,
reduce the burden on consumers and expand domestic demand. Through this series of
measures, the domestic circulation will be unblocked, the advantages of economies
of scale will be brought into play, and the huge potential of the domestic market will
be released.
We will accelerate the formation of interconnected development pattern of
domestic and international circulation. Facing the reform of the global governance
system, we will actively integrate into the globalization process, lead the deep interactive development of the dual circulation, and optimize the transnational allocation
of resources by using the domestic and international markets, so as to promote highquality economic development. Moreover, we will continue to adhere to the highlevel policy of opening to the outside world, promote “the Belt and Road” cooperation, actively participate in global governance, and form an all-round, multi-level
and wide-ranging new open economic system, thus injecting inexhaustible energy
for the dual circulation.
5 Summary
Looking back at the 13th Five-Year Plan period, under the influence of multiple
factors at home and abroad, such as the impact of the COVID-19 and the turbulent
changes in the world, we faced unprecedented challenges in realizing high-quality
and sustainable development of China’s economy. On the whole, breakthrough has
been made in all aspects of economy and society in China, and the economic operation was in good condition. Looking forward to the 14th Five-Year Plan period,
we will still face many difficulties, risks and uncertainties. We should have a deep
understanding of the new contradictions and challenges brought by the complicated
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Q. Liu
international environment, speed up the new development paradigm featuring dual
circulation, in which domestic and overseas markets reinforce each other, with the
domestic market as the mainstay, and firmly grasp the strategic basis of expanding
domestic demand and enhancing industrial competitiveness. At the same time, we
will accelerate the green transformation, continuously improve the ecological environment, reduce the emission of carbon dioxide and major pollutants, deeply adjust
the industrial structure, and build a modern energy system. In addition, we will
increase support for scientific and technological innovation, speed up the reform of
scientific and technological mechanism and system, and truly ensure the independence of science and technology by the domestic market, and move from “opening
up the domestic market to obtain foreign advanced technology” to “strengthening
technology through market”.
References
National Bureau of Statistics (2021) Statistical blletin of national economic and social development
of the People’s Republic of China in 2020 [EB/OL]. http://www.gov.cn/xinwen/2021-02/28/con
tent_5589283.htm
Xinhuanet (2020) Achievements and experiences of China’s economic and social development
during the 13th five-year plan period [N/OL]. People’s Daily. http://www.xinuanet.com/politics/
2020-09/22/c_1126524866.htm
Xinhuanet (2021) China’s per capita GDP has exceeded $10,000 for two consecutive years [EB/OL].
http://www.xinhuanet.com/fortune/2021-03/01/c_1127150974.htm
China’s Energy Transition
with the Scenario of Carbon Neutrality,
Outlook by 2060
Qiang Liu, Qia Wang, and Qianqian Hong
1 Introduction
Responding to climate change is a major issue for all countries. Climate change,
characterized by global warming, has become a severe challenge faced by the whole
human society, so coping with climate change requires the joint efforts of all countries. For a long time, China has made great contributions to coping with global
climate change. Both its investment in renewable energy and the cumulative reduction
of carbon dioxide emissions rank first in the world. On September 22, 2020, during
the 75th session of the United Nations General Assembly, President Xi Jinping once
again made a commitment to the world on behalf of China that “China will uphold the
concept of a global community of shared future, continue to make arduous efforts,
improve China’s nationally determined contribution, and adopt more powerful policies and measures. In addition, China will strive to peak carbon dioxide emissions
by 2030 and achieve carbon neutrality by 2060, and make efforts to achieve the goals
set by the Paris Agreement on climate change.”
China previously promised to peak carbon dioxide emissions by 2030 [1], and the
new commitment on carbon neutrality will greatly enhance China’s nationally determined contribution (NDC) in “the Paris Agreement.” These commitments actually
mean that China needs to realize great economic transformation in a short time.
According to the report released by the Energy Foundation (2020) [3], China’s
commitment to achieve carbon neutrality by 2060 has made great contributions to
the world’s efforts to limit the temperature rise to within 1.5 °C.
This commitment is initiated by China, a developing country, which represents
China’s new understanding and new actions on climate change. China is a super-large
economy which is highly dependent on fossil fuels such as coal and oil. In the event
Q. Liu (B) · Q. Wang · Q. Hong
Institute of Quantitative & Technological Economics, Chinese Academy of Social Sciences,
Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_2
25
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Q. Liu et al.
of achieving the goal of peaking carbon emissions and achieving carbon neutrality in
such a short time, China shall drastically upgrade our industrial and energy structures.
This is not only a challenge to the energy field, but also a challenge to the whole
national economy. Meanwhile, it is also an important opportunity for energy and
industrial economy development. Energy transition is not at the expense of slowing
down development, but to promote better, faster and greener economic development
by innovating new energy technologies and creating new energy formats. To achieve
this, attention must be given to promoting the transition from carbon-intensive fossil
fuel energy to carbon–neutral energy, low-carbon energy and non-carbon energy
in energy system on the premise of meeting the energy demand of economy and
people’s livelihood and being economically reasonable, safe and stable. Specifically,
coal and oil are typical carbon-intensive fossil fuel energy, natural gas and alcohol
ether fuel can be regarded as low-carbon energy sources, biological energy (such as
biodiesel fuel, bioethanol fuel, biomass power, biogas), waste recovery energy, and
fuel produced by carbon dioxide recycling can be regarded as carbon–neutral energy,
while wind power, hydropower, solar energy and nuclear power can be regarded as
non-carbon energy.
In this paper, CEMS developed by IQTE was adopted to integrate various technological paths and their development scenarios into the overall energy system to
conduct a directive analysis on how to achieve the goal of peaking carbon emissions by 2030 and achieving carbon neutrality by 2060. Moreover, the economically
and technically feasible paths of peaking carbon emissions and achieving carbon
neutrality were put forward, based on which China’s energy prospects by 2060 were
predicted.
2 Foundation and Path Analysis of Realizing Carbon
Neutrality
2.1 Present Situation of China’s Energy Structure
and Difficulties in Realizing Carbon Neutrality
Essentially, China’s energy system is characterized by high carbon and high coal. If
the coal-based energy structure fails to undergo fundamental changes, Chinese emission is hard to be effectively suppressed. According to the data of energy consumption structure in 2019, the coal accounts for 57.7% of total energy consumption,
oil accounts for 18.9%, natural gas accounts for 8.1%, and non-fossil fuels such as
hydropower, nuclear power and wind power account for 15.3%. Fossil fuel accounts
for 84.7%, accounting for the vast majority of total energy consumption. Meanwhile, coal-fired thermal power also plays a dominant role in China’s electric power
production. In 2019, the total power generation in China was 7.33 trillion (kWh), the
total thermal power generation was 5.05 trillion (kWh), the coal power generation
China’s Energy Transition with the Scenario of Carbon …
27
was 4.56 trillion (kWh), and the national non-fossil fuel generation was 2.39 trillion (kWh). According to the data of energy installed capacity, the installed capacity
reached 360 million kW in hydropower station, 1.19 billion kW in thermal power
station (including 1.04 billion kW in coal power station and 90.22 million kW in gas
power station), 48.74 million kW in nuclear power station, 210 million kW in gridconnected wind power station (204 million kW in onshore wind power station and
5.93 million kW in offshore wind power station), 200 million kW in grid-connected
solar power station and 22.54 million kW in biomass power station.
In recent years, in order to promote low-carbon energy development and energy
transition, China has implemented a series of policies in energy production revolution, consumption revolution, system revolution, scientific and technological revolution and foreign cooperation. The main production-side policy is to promote the
transition from coal-fired power to low-carbon and renewable energy power such as
natural gas, wind power and photovoltaic, while the consumer-side policies include
promoting the development of new energy vehicles (NEVs) such as electric power,
natural gas and alcohol ether fuel, and promoting the replacement of coal by natural
gas and alternative energy. Among them, electric vehicles have developed rapidly
and become the largest market in the world. By the end of 2018, the global cumulative
sales of NEVs exceeded 5.5 million, with China accounting for more than 53%.
From the perspective of achieving carbon neutrality, however, there is a paradox
in the current energy transition policies represented by alternative energy, that is, if
the proportion of carbon-intensive fossil fuel energy in total consumption exceeds
50%, the alternative energy will increase the overall carbon emissions. Therefore,
when the carbon-based energy is dominant, we should not promote the development
of alternative energy such as electric vehicles too quickly, because the rapid development of electric vehicles will put forward higher requirements for power supply,
and will increase the demand for fossil fuels, especially coal, which is not conducive
to the realization of coal and carbon reduction targets.
In general, to achieve carbon neutrality, we must solve three key issues first. First,
the proportion of carbon-based energy in China is too high, and most of them are coal.
The use of carbon-intensive fossil fuels will cause high carbon emissions, so accelerating the use of non-carbon energy is the focus of achieving carbon reduction goals.
Second, though it is easy to achieve carbon reduction for various non-carbon energy,
no carbon neutrality or carbon fixation effect will be made. Various carbon fixation
methods should be supplemented while we reduce the use of carbon-containing fuels,
so as to put carbon dioxide back into the energy system cycle. Only in this way can
we get closer to the realization of carbon neutrality. Third, the cost of various technologies to achieve carbon neutrality is still high, and technological breakthroughs
need to be achieved.
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2.2 Achieving Emission Reduction Through Energy Saving
is the Most Economical and Direct Way
Energy saving for emission reduction can be divided into two kinds: one is direct
energy saving, that is, improving the energy efficiency, especially the carbon-based
energy efficiency, such as reducing the coal consumption of coal-fired power generation, improving the energy efficiency of electrical appliances and other energy-using
equipment, and improving the fuel economy of automobiles; the other is generalized
energy saving, which means reducing the demand for energy by reducing the demand
for end products, building construction and travel distance.
We should endeavor to transform the growth model, so as to make the economy
shift from relying on large-scale investment of resources and energy to innovationdriven growth, and form a new high value-added manufacturing industry and modern
service industry, which is not only the requirement of China’s economic development
and industrial upgrading but also the inevitable requirements of building ecological
civilization and achieving carbon neutrality.
2.3 Developing Low-Carbon and Non-carbon Energy
and Reducing the Proportion of Carbon-Intensive Fossil
Fuel Energy to Reduce the Pressure for Achieving
Carbon Neutrality
By developing low-carbon and non-carbon energy, part of carbon-intensive fossil fuel
energy (mainly coal) in total energy consumption can be replaced, thus effectively
reducing carbon dioxide emissions. The main low-carbon fossil fuel is natural gas,
including coalbed gas, shale gas, petroleum gas and other unconventional fossil fuels.
Restricted by their own characteristics, the development of hydropower and nuclear
power is limited to some extent.
In the future, renewable energy, including photo-thermal power generation, cellulose ethanol and biodiesel fuel, the cost of which should be reduced, besides welldeveloped wind power, photovoltaic power generation, biomass power generation
and ground source heat pump, will be the main force to reduce high-carbon energy
and carbon dioxide emissions. The development of renewable energy will greatly
reduce the pressure of carbon neutrality in the later period by reducing the overall
carbon emissions.
China’s Energy Transition with the Scenario of Carbon …
29
2.4 Carbon-Based Energy Recycling is Essential for Carbon
Neutrality
Chemical carbon cycle adopts the chemical industrial technology, which can capture
the carbon dioxide emitted from industrial processes and synthesize them into liquid
alcohol ether compounds, generally methanol, ethanol, and dimethyl ether. These
alcohol ether compounds can be used as energy, among which methanol can also be
used as the carrier of hydrogen energy because it has more hydrogen atoms. Through
such a carbon circulation, carbon neutrality or partial carbon neutrality of fossil fuels
can be realized. If the energy used in this process comes from green power, such
as wind power and photovoltaic power, this process can reduce the overall carbon
emissions and become a feasible path of carbon neutrality.
2.5 Ecological Carbon Fixation
To achieve the goal of carbon neutrality by 2060, besides energy saving, energy
transition and industrial carbon neutrality, ecological carbon fixation is an important
way, which is also one of the important meanings of building ecological civilization.
Ecological carbon fixation refers to the absorption and fixation of carbon by
vegetation and water in forests, grasslands and wetlands. For every 100 million cubic
meters increase in forest stock volume, 160 million tons of carbon dioxide can be fixed
correspondingly. According to the relevant forestry planning, the forest coverage
rate reached 23.04% in 2020 and the forest stock volume exceeded 17.5 billion
cubic meters. By 2035, the forest coverage rate will reach 26% and the forest stock
volume will reach 21 billion cubic meters. In the circumstances, about 370 million
tons of carbon dioxide will be fixed by the newly added forest every year. In 2020,
China’s total carbon dioxide emissions was about 8 billion-14.4 billion tons (the data
estimated by different institutions are quite different), indicating that it is unrealistic
to rely solely on ecological improvement to achieve carbon neutrality. However,
large-scale forest restoration and construction is also very necessary, because forests
can not only absorb and fix carbon dioxide, but also greatly reduce various gas
pollutants, improve air quality, conserve water sources, reduce climate disasters and
geological disasters, and indirectly improve the overall carbon fixation capacity of
the environment.
3 Path Selection for Peaking Carbon Emissions
and Achieving Carbon Neutrality
Technological progress and industrial development of low-carbon and non-carbon
energy provide a variety of technological routes for carbon neutrality. Meanwhile,
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by grasping the law of technological progress, we can expect that the cost of some
new energy will fall to the level where they can compete with high-carbon energy in
the future, thus providing a new path of carbon neutrality.
3.1 Model and Scenario Design
In order to simulate the carbon emission and carbon neutrality effects of various
energy options, CEMS developed by IQTE was adopted to integrate various technological paths and their development scenarios into the overall energy system, and
scenario analysis was conducted. CEMS is a comprehensive energy scenario analysis
and prediction simulation model system established by using the system dynamics
modeling method. According to the industry classification of the National Bureau of
Statistics, it selects the base year (currently taking 2016 as the base year) and sums
up some similar industries. After forecasting the industry’s demand and production
and the industry’s technological progress prospect, it takes fuel substitution into
consideration and forecasts the industry’s demand for various fuels. The addition of
the end-use energy and fuel demand of various industries leads to the demand for
energy and fuel production, as well as the energy and fuel demand for primary energy
conversion, and finally obtains the total demand for energy and various fuels.
Meanwhile, according to the research and judgment of the resource guarantee
capacity, production capacity, environmental capacity and technological progress
characteristics of each energy form, the production and supply forecast of various
energy can be calculated. After they are matched with the energy demand, the total
demand, total supply and import and export of various energy and fuels can be
calculated.
The total carbon dioxide emissions in China can be obtained after the carbon
dioxide emissions corresponding to various energy consumption and non-energy
industrial processes are calculated. In addition, CEMS also builts a macroeconomic
module, which takes into account factors such as population, labor supply, investment, consumption, international trade, international energy prices, etc., and can
conduct scenario analysis on macroeconomic growth.
According to the policies and research results of various countries, the main energy
options for coping with global climate change and reducing carbon emissions include:
(1) improve energy efficiency and energy production efficiency, and reduce carbon
dioxide emissions under total energy consumption and the same energy consumption.
The former involves improving the fuel economy of automobiles, that is, reducing
fuel consumption per kilometer, while the latter is to reduce the coal consumption in
coal-fired power generation departments; (2) replace carbon-intensive fossil energy
with clean low-carbon fossil fuel, such as natural gas and clean electricity instead of
coal; (3) develop carbon–neutral energy, such as nuclear power, hydropower, nonwater renewable energy power, bioethanol and biodiesel fuel, urban waste energy,
and biogas; (4) develop hydrogen energy, which can be used for transportation power
source and power source; (5) develop unconventional carbon-containing gas energy,
China’s Energy Transition with the Scenario of Carbon …
31
such as shale gas, coalbed gas and oilfield gas; (6) develop unconventional carbonaceous liquid fuels, such as methanol, ethanol and dimethyl ether; (7) capture, store
and recycle carbon dioxide, in which carbon capture and storage is to collect carbon
dioxide from the waste gas of power plants and other factories and store it in specific
facilities, while carbon recycling is to use carbon dioxide as raw material to react
with water to prepare synthesis gas (carbon monoxide and hydrogen), and further
prepare methanol and alcohol ether fuel based on methanol, thus realizing carbon
dioxide recycling using.
Among these technical options, renewable energy such as wind power and photovoltaic, and hydrogen energy have received extensive attention and high hopes in
recent years. China, however, has an energy structure dominated by high-carbon
energy (coal and oil) and a huge energy production and consumption volume, which
makes it obviously unrealistic to meet the goal of carbon neutrality based on this,
because the instability of renewable energy power requires keeping a certain share of
stable power sources. The blackout in Texas in January and February 2021 reminded
us once again that the stable operation of the power grid cannot be ignored. In order
to achieve the goal of carbon neutrality in a short period of about 30 years, we must
rely on two other measures, namely, (1) the transformation from high-carbon energy
to low-carbon, which will reduce the total pressure of carbon cycle; (2) the carbon
cycle of carbon-based energy, which can really achieve the goal of carbon neutrality
by realizing the carbon cycle.
Based on the above analysis, the energy selection scenarios considered in this
paper include the following six aspects: (1) the development combination of different
hydrogen energy, including gray hydrogen (industrial by-product hydrogen), blue
hydrogen (hydrogen produced by fossil fuel) and green hydrogen (hydrogen
produced by green electricity); (2) the scenario of preparing methanol based on
carbon dioxide emitted from carbon-based fuels and fuel substitution; (3) the energy
conversion: the substitution of methanol and hydrogen energy for coal, fuel oil and
electric energy, that is, the mutual substitution of various fuels; (4) the development
of primary energy power (nuclear power, hydropower, wind power, photovoltaic
power and other forms of renewable energy power); (5) the substitution of clean
electricity and natural gas for coal in end-use energy consumption; (6) the energy
saving potential of various industries.
Specific consideration of these six aspects will be discussed separately below.
3.2 The Combination of Different Hydrogen Energy
Hydrogen energy is a new energy source which has attracted much attention in recent
years. As an energy source, hydrogen has two very competitive characteristics: it has
high energy density, and the calorific value per unit mass is about 4 times that of coal,
3.1 times that of gasoline and 2.6 times that of natural gas; it is storable and carbonfree. Compared with electricity, hydrogen can be used flexibly across time and region.
Hydrogen has a wide range of sources and can be produced from hydrogen-containing
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substances such as water and fossil fuels. However, hydrogen also has some shortcomings. The technical route that can provide carbon-free hydrogen production in
the whole process is limited. Meanwhile, due to its light density, hydrogen is difficult to store and transport. In addition, it should be noted that in most applications,
hydrogen is not burned directly as a gas fuel, but is used as a raw material for fuel cells
for electrochemical reaction. In other words, hydrogen is used mainly by providing
electricity, so it is mainly adopted in transportation and electricity.
Green hydrogen can be produced by using renewable electricity or nuclear energy,
but the cost of power generation by renewable energy is greatly reduced; according
to the current definition, blue hydrogen is made from fossil fuels such as coal or
natural gas, and carbon capture, utilization and storage (CCUS) of carbon dioxide
by-products is used to realize carbon neutrality; grey hydrogen can be produced from
industrial by-product gas represented by coke oven gas and chlor-alkali tail gas.
Japan started early in hydrogen energy, and has made great progress in the automotive field. In May, 2013, “Japan’s Rejuvenation Strategy” promoted the development
of hydrogen energy as a national policy. In 2014, the Fourth Energy Basic Plan was
formulated, which positioned hydrogen energy as the core secondary energy alongside electricity and heat energy, and clearly proposed to accelerate the construction
and development of “hydrogen energy society”. On December 26, 2017, Japan issued
“the Basic Strategy for Hydrogen Energy”, which determined the goal of building a
hydrogen energy society by 2050 and the specific action plan before 2030. Japan’s
strategic objectives include commercializing hydrogen power generation by 2030 to
reduce carbon emissions and improve energy self-sufficiency➀.
The US ranks first in the research and utilization of hydrogen energy around the
world. At present, the total length of hydrogen transmission pipelines in operation in
the world is about 4,500 km, of which about 2,600 km are located in the US. Although
more gray hydrogen is transported in the US hydrogen transmission pipeline, it
can also give us a glimpse of the maturity of hydrogen energy utilization in the
US. In November, 2019, the American Fuel Cell and Hydrogen Energy Association
(FCHEA) released American hydrogen economic roadmap, which made short-term,
medium-and long-term plans for hydrogen energy development. In its short-term
plan, the US will realize the application of hydrogen energy in small passenger cars,
forklifts, distributed generation, household cogeneration, carbon capture and other
fields from 2020 to 2022. The medium-term plan is that by 2030, American hydrogen
economy will generate about $140 billion in revenue every year, providing 700,000
jobs in the whole hydrogen value chain. According to the long-term plan, by 2050,
the US will make hydrogen account for 14% of the total energy demand, which can
promote economic growth by generating about $750 billion in annual income and
accumulating 3.4 million jobs➁.
The practice in the US and Japan shows that hydrogen energy has the prospect
of commercialization. At present, China’s industrial hydrogen production (gray
hydrogen and blue hydrogen) has an annual output of about 19 million tons. If
the existing hydrogen produced by electrolysis is regarded as green hydrogen (in
fact, it is not completely green hydrogen at present, because coal-based electricity is
still the main power), the annual output is about 1 million tons at present. Referring
China’s Energy Transition with the Scenario of Carbon …
33
Fig. 1 Hydrogen production scenario
to the practice at home and abroad and the reduction of the cost of renewable power,
it is predicted that the output of industrial hydrogen will decrease with the peak of
China’s chemical industry in the future, but the output of green hydrogen, that is,
hydrogen produced by using green renewable energy power, will increase rapidly
after the introduction period (around 2028). The scenario is that by 2060, the output
of industrial hydrogen and green hydrogen will be about 15 million tons, and the
total output will be about 30 million tons (see Fig. 1).
3.3 Scenario of Preparing Methanol Based on Carbon
Dioxide Emitted from Carbon-Based Fuels and Fuel
Substitution
In 1990, chemist George Andrew Euler, a Nobel Laureate, began to advocate
methanol economy. In fact, methanol was used as fuel earlier. Methanol is the fuel
for heat engines and fuel cells. Because of its high-octane number, flexible fuel vehicles (including hybrid electric vehicles (HEV) and plug-in HEVs) directly using
methanol fuel can use the existing Internal Combustion Engine (ICE). Methanol can
also be used as fuel in fuel cells, either as Direct Methanol Fuel Cell (DMFC) or as
hydrogen fuel cell after being reformed into hydrogen. Meanwhile, methanol as a
chemical raw material has been applied on a large scale to produce various chemical
products and materials.
Methanol production has a wide range of raw materials, including fossil fuels
(natural gas, coal, oil shale, oil sands, etc.), agricultural products and municipal
wastes, wood, and various biomasses. More importantly, it can also be produced
by using carbon dioxide recovered by chemical industry, which has been proved
by Carbon Recycling International (CRI) in its first commercial scale factory➀.
Carbon dioxide can be recovered from flue gas of power plants or exhaust gas from
cement plants and other factories. If carbon dioxide can be captured and recovered
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Q. Liu et al.
Fig. 2 Methanol production scenario
from industrial waste gas and atmosphere at low cost to produce methanol, carbon
neutrality in the true sense of fossil fuel can be achieved.
Just like hydrogen production, the production path of methanol is divided into that
of chemical methanol and that of green methanol. In addition to production, China
also imports a large amount of methanol. Chemical methanol is not always used as
fuel methanol, but many of them return to the chemical process as raw materials.
In the scenario simulation, we set 20% of chemical methanol to enter the fuel, and
the other 80% to return to the industry as chemical raw materials. Green methanol is
synthesized from carbon dioxide and hydrogen by using green electricity. In scenario
setting, the electricity used comes from some abandoned wind and light power in
wind power and photovoltaic power generation, which is not involved in the power
production statistics. For convenience, imported methanol is used as fuel in this
simulation. Since there is no large-scale green methanol production in the standard
sense at present, all simulations assume that the existing scale is about 10,000 tons.
As the technology gets matured and the market is introduced, the production scale
will reach about 380,000 tons by 2030 and 6.18 million tons by 2060 in the medium
scheme. Meanwhile, about 34.13 million tons of methanol will be imported in 2030
and 80.04 million tons in 2060. Accordingly, the production of chemical methanol
is about 63.07 million tons in 2030 and 61.81 million tons in 2060 (see Fig. 2).
3.4 Energy Conversion: Substitution of Methanol
and Hydrogen Energy for Coal, Fuel Oil and Electric
Energy
After two unconventional fuels, hydrogen energy and methanol, are involved in the
energy system, the substitution relationship between them and the original fuels will
be a problem to be solved by the energy model system.
China’s Energy Transition with the Scenario of Carbon …
35
Methanol, as a liquid energy source, can be used as fuel for vehicles to replace
gasoline and diesel oil, and can be used as industrial and civil liquid fuel for various
boilers and technological processes. In the model, each of these three uses is given
a weight of 1/3.
The uses of hydrogen energy are grouped into three categories: the first one is to
be taken as a transportation fuel; the second one is to be taken as a hydrogen fuel
cell, to replace gasoline and diesel oil respectively; the third one is as an energy
storage device to output electricity, which will become a part of the power source
of domestic and commercial facilities in the future, and will reduce the demand for
fossil fuel power. In the model, we also give 1/3 weight to these three uses.
In recent years, great progresses have also been made in terms of electric vehicles.
Tesla in the US, various electric vehicles in China, and HEVs represented by Toyota
in Japan, have brought huge business opportunities. In order to simplify the model,
the trend of electric vehicles in the future is not simulated, but the proportion growth
of alternative fuels is given as a prospect. It is predicted that by 2060, 20% of gasoline
(including transportation departments and family cars) in transportation fuel demand
will be replaced by electric vehicles. In addition, some gasoline and diesel oil will
be replaced by hydrogen energy and methanol fuel of hydrogen fuel cell (see Fig. 3).
Fig. 3 Substitution of hydrogen fuel and methanol fuel for coal and refined petroleum products
36
Q. Liu et al.
3.5 Development of Primary Energy Power and Substitution
for Fossil Fuel Power
From the perspective of China’s economic characteristics, it is easy to achieve carbon
peak before 2030, but very difficult to achieve carbon neutrality from carbon peak in
the next three decades. To realize the energy transition from high carbon to carbon
neutrality in 30 years will undoubtedly has a huge impact on the economic structure.
Especially, the petroleum and petrochemical power based on carbon-intensive fossil
fuel energy will have a large amount of production capacity to be abandoned or
transformed. Therefore, it is necessary to find a carbon recycling path of carbon-based
energy to avoid the negative impact on the economy. For the purpose of achieving
carbon neutrality by 2060, it is better to achieve the carbon peak as soon as possible.
If we cannot achieve it now, we’d better make it at least around 2025. Only in this
way can the difficulty of economic adjustment and the impact on economic operation
be reduced.
Therefore, in order to achieve the goal of carbon neutrality before 2060, we should
make the proportion of non-carbon energy and carbon neutral energy over 50% before
2030, so as to create conditions for carbon neutrality in the future. Otherwise, it is
impossible to achieve carbon peak by 2030, and the carbon emissions will increase
later instead.
In recent years, the cost of primary renewable energy, mainly wind power and
photovoltaic power generation, has dropped rapidly. In some areas, it is even equivalent to or even lower than the cost of coal-fired power. In this context, countries
all over the world have high hopes for renewable energy power, and many institutions have raised their forecasts for wind power and photovoltaic power generation.
For example, “the Energy Outlook GERO 2020” issued by the Institute of Energy
Economics of State Grid in 2020 holds that by 2050, the global installed capacity of
renewable energy will exceed 80%, reaching 25.1 billion kW, which is 2.3 times that
of 2019. Among them, by 2025, the installed capacity of renewable energy power
generation will be about 50%, and the power generation will exceed 50% in 2035
and 70% in 2050.
On Saturday, December 12, 2020, President Xi Jinping attended the Climate
Ambition Summit and gave a announcement. He further announced that by 2030,
China will lower its carbon dioxide emissions per unit of GDP by over 65% from
the 2005 level, increase the share of non-fossil fuels in primary energy consumption
to around 25%, increase the forest stock volume by 6 billion cubic meters from the
2005 level, and bring its total installed capacity of wind and solar power to over
1,200 GW.
Therefore, after comprehensive evaluation of nuclear power, hydropower, primary
renewable energy power and hydrogen power, some suggestions on the growth
scenario of China’s power were made (See Fig. 4, see Tables 1, 2 and 3 for specific
data). Among them, it is suggested to greatly reduce coal-fired power generation but
rapidly increase renewable energy power other than hydropower and nuclear power
to fill the decline of coal-fired power. In addition, natural gas power generation also
China’s Energy Transition with the Scenario of Carbon …
37
Fig. 4 Power production scenario
Table 1 Energy demand forecast under substitution scenario of coal with high energy efficiency
and high renewable green methanol in end use
Year
Total crude oil
demand (10,000
tons)
Total natural gas
demand (10,000
tons)
Total coal demand
(10,000 tons)
Total power demand
(100 million kWh)
2025
56,401.7
3791.1
396,844.0
85,643.3
2030
52,506.9
5652.5
294,299.0
89,462.6
2040
41,997.1
7441.5
167,883.0
89,572.6
2050
32,731.4
7839.5
108,725.0
87,844.7
2060
25,043.5
8035.2
54,030.2
86,795.7
needs a certain growth as an alternative to coal-fired power generation and used to
maintain the stability of the entire power system; it is suggested that no new nuclear
power projects should be built beyond the currently planned nuclear power projects,
which is in response to public concerns about nuclear power safety; hydropower is
limited by natural conditions, so it will draw at a low speed. In the future, natural gas
power generation, nuclear power generation, hydropower generation and coal-fired
power generation will serve as the base load of the whole power system, and together
with renewable energy, undertake the power supply.
3.6 Trade-Off of Clean Electricity & Natural Gas for Coal
in End-Use Energy Consumption
As the main energy source of China’s energy consumption, coal, high-carbon energy,
is the main reason for the high total carbon emissions. Therefore, in addition to
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Q. Liu et al.
Table 2 Power production forecast under substitution scenario of coal with high energy efficiency
and high renewable green methanol in end use
Year
Coal-fired
power
generation
(100 million
kWh)
Power
production
of other
primary
energy (100
million
kWh)
Natural gas
power
generation
(100 million
kWh)
Nuclear
power
production
(100 million
kWh)
Hydropower
production
(100 million
kWh)
Hydrogen
energy
generation
output (100
million
kWh)
2025
48,979.1
16,368.4
2030
40,323.9
25,522.9
5060.8
5614.3
13,623.8
32.5
6156.8
7512.8
14,121.3
2040
25,579.5
40.3
36,909.9
8539.2
7888.5
14,791.8
84.505
2050
2060
13,536.2
44,959.6
10,346.9
7888.5
15,037.6
215.2
1873.2
54,342.4
11,290.3
7888.5
15,037.6
453.6
Table 3 Forecast of green hydrogen and green methanol under substitution scenario of coal with
high energy efficiency and high renewable green methanol in end use
Year
2025
Fuel methanol
output (10,000 tons)
3913.6
Green hydrogen
output (10,000 tons)
108.2
Green methanol
output (10,000 tons)
3.2
Imported methanol
(10,000 tons)
2281.1
2030
5058.9
134.2
16.2
3413.7
2040
7515.9
281.7
200.1
5719.5
2050
9635.2
717.3
792.1
7246.7
2060
11,023.3
1511.8
1422.0
8004.9
reducing the proportion of coal-fired power generation in power production departments, it is also extremely important to reduce the proportion of coal in end-use energy
consumption. In this paper, a scenario of coal substitution in energy consumption
of end-use departments (other departments except energy conversion departments)
was set. During the period of 2026–2035, coal consumption in end-use departments
will be gradually replaced by renewable energy power and natural gas, in which from
2025 to 2035, the replacement ratio of natural gas to coal will increase from 0 to 40%,
and that of renewable energy power to coal will increase from 0 to 30%. Moreover,
the proportion of coal based on original technical routes will decrease from 100%
(in 2025) to 30% (in 2035).
3.7 Energy Saving Potential of Various Industries
Energy conservation has always been the biggest energy source. While China’s
economy is growing at a high speed, the energy efficiency has also been greatly
improved. According to the analysis on China’s historical data, the average energy
China’s Energy Transition with the Scenario of Carbon …
39
intensity in China has increased by about 3.7% every year since the reform and
opening up 40 years ago, saving a lot of energy. However, in order to achieve the
goal of carbon neutrality in 2060, the speed of energy efficiency improvement needs
to be further strengthened. Meanwhile, China has initially completed the process of
industrialization and urbanization, and the industrial upgrading speed is accelerated.
In addition to these, the rapid application of the integration technology of intelligent
manufacturing and information industrialization also provides technical support and
feasibility for improving energy efficiency.
Therefore, a new assumption was made for the future energy efficiency improvement rate, that is, the major manufacturing industries are 10% higher than the historical average level, and the average annual energy efficiency improvement rate is
4.1%, while that of mining industries, agriculture, life and commerce is still 3.7%.
4 Recommended Routes: High Renewable Energy, High
Energy Efficiency, End-Use Coal Substitution and Green
Methanol
From the above analysis and simulation results, it can be seen that neither the
development of green hydrogen energy and green methanol nor the substitution
of coal in the end-use sector can be done without the development of green power.
This is because both hydrogen production by electrolysis and methanol synthesis
from carbon dioxide and hydrogen need green electricity. Otherwise, the use of
high-carbon electricity will increase the overall fossil fuel consumption and carbon
emissions.
From the results of carbon dioxide emission, by 2060, the carbon emission level
will drop to 1/4 of the current level. Although there are various data results for
the calculation of China’s carbon dioxide emissions, it is inclined to believe that
the current carbon dioxide emission level in China is basically the same as that in
2016, and has not increased significantly. This can also be verified by the decrease
of haze weather in recent years. Despite the controversy of inconsistent basic data,
the reduction rate of greenhouse gas emissions given in this scenario is reasonable
and can be achieved through efforts.
Although we cannot achieve zero emission by 2060 in China, the emission level
of more than 3 billion tons has greatly exceeded the expected decline rate and can
adapt to the consumption level of the environment. It can be said that if we follow
this path, China’s ecological civilization construction and environmental quality will
be greatly improved.
High renewable energy scheme does not necessarily bring less energy consumption demands, because its conversion efficiency is often lower than that of fossil
fuel. However, it can greatly reduce the consumption of fossil fuels and the resulting
carbon emissions (see Figs. 5 and 6). Figure 6 demonstrated that the coal demand is
greatly reduced under the scenarios.
40
Q. Liu et al.
Fig. 5 Total primary energy consumption and carbon dioxide simulation under the scenarios of
high renewable energy, high energy efficiency, end-use coal substitution and green methanol
Fig. 6 Total coal demands under the scenarios of high renewable energy, high energy efficiency,
end-use coal substitution and green methanol
In addition, Tables 1, 2 and 3 give the prospect simulation of the main energy
demand, power production and green hydrogen and methanol.
Compared with other institutions, this scheme is undoubtedly the one that
would suit China’s national conditions the best, and it is not too radical. In this
scheme, various energy demands and routes are comprehensively considered, and
the cooperation and substitution among various energy and fuels are considered.
5 Policy Recommendations
Without considering making a new strategy for the goal of carbon peaking by 2030
and carbon neutrality by 2060, China’s carbon dioxide emissions are expected to be
reduced to half of the current level by 2060 according to the existing development
China’s Energy Transition with the Scenario of Carbon …
41
path of energy revolution and the conventional development prospect. The research
report of Rhodium Group, an independent research institution, indicated that China’s
total greenhouse gas emissions in 2019 are estimated to be equivalent to 13.92 billion
tons of carbon dioxide. In the substitution scenario of coal with high energy efficiency
and high renewable green methanol in end use, China’s carbon peak will appear in
the period from 2022 to 2025, with a peak value of about 14.7 billion tons of carbon
dioxide, an increase of 5.6% over 2019. After that, it will gradually decline to about
3.33 billion tons by 2060, a decrease of 76% compared with 2019. This scale has
entered the range where natural ecology can be neutralized, and the goal of carbon
neutrality is basically achieved. Based on the above analysis, we put forward the
following policy recommendations.
5.1 Promoting Energy Transition and Developing Carbon
Neutral Technology and Industrial System
(1) Carbon neutral technology of industrial energy resources
At present, the key points of energy transition work should include: (1) to promote
the substitution of low-carbon clean fossil fuels such as natural gas and methanol
for carbon-intensive fossil fuel based energy such as coal and oil with great environmental impact; (2) to accelerate the development of smart grid, and realize the rapid
increase of the proportion of non-carbon energy, especially renewable energy, in total
energy consumption and total power production. Only when the proportion of noncarbon power exceeds 50%, will alternative energy bring about a decline in carbon
emissions, otherwise it will increase carbon emissions; (3) to step up the construction
of renewable energy such as wind power and increase its proportion in total energy
consumption and power consumption; ➃ to enhance the basic research and industrial
technology research of hydrogen energy, and master the core science and technology
as soon as possible, so as to seize the opportunity of future hydrogen energy development; ➄ to strengthen the research and commercial application of energy storage
materials and technologies; ➅ to speed up the adjustment of industrial structure and
reduce the demand for high energy-consuming products such as steel, cement and
nonferrous metals; ➆ to reinforce the energy conservation of buildings and the use
of renewable energy such as wind power in winter; ➇ to strengthen the utilization of
biomass energy. Through these efforts, it is possible for us to achieve carbon peak
as early as 2025.
(2) Carbon neutral technology of transportation energy
Transportation energy is an important aspect of energy transition. In addition to traditional fuels, various technologies such as electric vehicles, hybrid power, hydrogen
fuel cells, biodiesel fuel, alcohol ether fuels, automatic driving, intelligent traffic
management and so on are emerging one after another. In the transportation power
technology, the research on methanol utilization technology should be strengthened,
42
Q. Liu et al.
including the industrial technology application research of methanol as hydrogen
fuel cell medium, and the R&D and industrialization of methanol HEV technology.
We do these because methanol application is an important node of carbon neutrality,
which effectively combines hydrogen energy, carbon cycle, alternative energy and
fuel oil substitution technologies. Meanwhile, it has the advantages of convenient
transportation and high efficiency, avoiding the constraints of large-scale pipeline
network infrastructure construction.
(3) Carbon neutral technology of architecture energy resources
The energy in the building is huge. Although it is mainly supplied by electricity,
it can be combined with renewable energy power, energy storage facilities, smart
meters, microgrid, intelligent temperature control technology, geothermal heat pump
technology, renewable electricity heating, LNG aftercooling and other technologies
to promote energy-saving architecture. In this model, the scenario of using hydrogen
energy to provide energy storage for buildings is designed.
(4) Agriculture, distributed and mobile energy technologies
Rural agricultural energy represents a typical contradiction between non-point source
energy resources and distributed point utilization. In terms of total amount, there are
1.7 billion tons of agricultural biomass wastes in China every year, but they are widely
distributed and it is difficult to collect and dispose. Rural energy utilization used to
count on the technological breakthrough of bioethanol, especially cellulose ethanol.
Even if a breakthrough is achieved, it now appears that there are cost obstacles in
the collection, storage and transportation of scattered raw materials. A small-scale
treatment equipment is a more suitable technology, in which straw and other biomass
materials are processed into high-heat biomass solid fuel, which can directly replace
the burning of loose coal in rural areas and achieve better results. In Europe and
Japan, this technology is relatively mature, so it could be promoted in China.
In addition, there is also a large amount of energy demand in remote areas along
the border sea, outdoor operations, unmanned aerial vehicles and other mobile point
energy utilization scenarios. In the past, this kind of energy demand was not large
and often ignored. However, with the technological progress and lifestyle changes,
it grows increasingly and has become a new energy market, and even a wearable
renewable energy system has been developed.
5.2 Increasing the Proportion of Non-carbon Energy
and Carbon Neutral Energy
When carbon reaches its peak, non-carbon energy and carbon neutral energy (green
alcohol ether fuel produced by carbon dioxide) should account for more than 50%
of total energy consumption. To this end, it is necessary to accelerate the following
tasks: First, to speed up the construction of renewable energy such as wind power and
photovoltaics. When the carbon reaches the peak, wind power will account for 30%
China’s Energy Transition with the Scenario of Carbon …
43
of the total power generation, and the proportion of total renewable energy (including
water and electricity) will exceed 50%; second, to develop nuclear power moderately,
so that nuclear power projects under construction can be put into production on
schedule; third, to realize the commercial utilization of hydrogen energy technology
and energy storage technology. The best hydrogen production site is near the largescale power generation base, and the electricity that cannot be connected to the grid,
such as abandoned wind, abandoned light and abandoned water, shall be reasonably
used to produce hydrogen; fourth, to realize the commercialization of green alcohol
ether fuel, that is, to make alcohol ether fuel by capturing industrial (thermal power
and carbonate industry) carbon dioxide emitted and using green electricity, which is
the most effective carbon neutral technology, and it can effectively reduce the final
carbon dioxide emissions of carbon-based energy.
We should accelerate the large-scale commercialization of non-carbon energy, so
that the energy structure is close to 80% of non-carbon and carbon cycle (carbon
dioxide energy), which needs to be increased by 1 percentage point every year from
2031 to 2060. In addition, we should vigorously develop carbon neutral technology
system and carbon–neutral industry. Industrial support is the basis for large-scale
replacement of carbon-intensive fossil fuel energy by various new energy technologies; otherwise, the technologies can only stay in the experimental stage. In order to
promote the realization of the goal of carbon neutrality, it is necessary to vigorously
develop a new technological and economic system of carbon–neutral industry. With
China’s market scale and potential, carbon neutrality will become a trillion-dollar
emerging industry, providing a new growth point for China’s economic upgrading
and transformation.
5.3 Comprehensively Promoting Ecological Restoration
and Improvement
We should accelerate ecological restoration and improvement. By 2060, the forest
coverage rate will be increased to over 30% (in 2019, the national forest coverage
rate was 22.96%, with a forest area of 220 million hectares), the grassland ecological
function will be restored, and the natural lake area in the eastern region will be restored
to over 90,000 square kilometers (in 2015, there were 2,554 lakes with an area of
over 1 square kilometer in China, with a total area of 74,000 square kilometers), and
the ecological function of rivers and lakes will be greatly improved. The ecological
function improvement with such intensity can absorb and neutralize 500 million tons
of carbon dioxide every year.
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Q. Liu et al.
References
National Development and Reform Commission. Master plan for major national ecological system
protection and restoration projects (2021–2035) [EB/OL]. [2021–06–12]. https://www.ndrc.gov.
cn/xxgk/zcfb/tz/202006/P020200611354032680531.pdf
Rhodium Group, Mikhail Grant, Hannah Pitt, and Kate Larsen. Preliminary 2020 Greenhouse Gas
Emissions Estimates for China. [2021–03–04]. https://rhg.com/research/preliminary-2020-gre
enhouse-gas-emissions-estimates-for-china/.
Economic Growth and Energy
Consumption: Four-Dimensional
Comparison of Aggregate, Elasticity,
Intensity and Structure Among
Economies
Anjun Hu and Yuqi Jing
1 Introduction
On September 22, 2020, President Xi Jinping announced at the 75th Session of the
United Nations General Assembly that China will scale up its intended nationally
determined contributions by adopting more vigorous policies and measures. We
aim to have CO2 emissions peak before 2030 and achieve carbon neutrality before
2060. On December 12, 2020, President Xi Jinping further announced at the Leaders
Summit on Climate that China will lower its carbon dioxide emissions per unit of
GDP by over 65% from the 2005 level, increase the share of non-fossil fuels in
primary energy consumption to around 25%, increase the forest stock volume by 6
billion cubic meters from the 2005 level, and bring its total installed capacity of wind
and solar power to over 1,200 GW. In December 2020, the Central Conference on
Economic Work listed carbon peak and carbon neutrality as one of the eight key tasks
in 2021. In 2021, the Report on the Work of the Government emphasized carbon peak
and carbon neutrality, and formulated the action plan for carbon peak before 2030.
China, as a developing country, has always actively assumed international responsibilities. The goal of carbon peak and carbon neutrality is not only the performance of
China’s great powers, but also the inherent requirement of realizing the high-quality
development of China’s economy. In order to better promote China’s carbon peak and
carbon neutrality, the analysis on the relationship between economic development
and energy consumption in major economies, especially the analysis on the relationship between total energy consumption, energy consumption elasticity, energy
A. Hu (B)
Institute of Quantitative & Technological Economics, Chinese Academy of Social Sciences,
Beijing, China
Y. Jing
Faculty of Economics and Management, East China Normal University, Shanghai, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_3
45
46
A. Hu and Y. Jing
consumption intensity and energy consumption structure, will provide important
theoretical reference and practical experience for China to carry out relevant work.
Firstly, eight economies including the US, the UK, France, Germany, Japan, Italy,
Canada and the European Union (EU) were selected to analyze the relationship
between economic growth and total energy consumption, energy consumption elasticity, energy consumption intensity and energy consumption structure. It is found
that with the continuous economic progress, seven economies, except Canada, all
have peak energy consumption. In addition to Germany’s peak energy consumption in
1988, the US, the UK, France, Japan, Italy and the EU achieved peak energy consumption in 2003–2006. Developed economies have high energy efficiency, among which
the UK has the highest efficiency, which is only 0.07 kg of oil equivalent/at 2010 US
dollar price. Canada has the lowest efficiency, which is 0.15 kg of oil equivalent/at
2010 US dollar price. The energy consumption structure of developed economies,
except France, is based on fossil fuel, with focuses on oil and natural gas instead of
coal.
Secondly, Brazil, Russia, India and South Africa among BRICS were selected to
analyze the relationship between economic growth and total energy consumption,
energy consumption elasticity, energy consumption intensity and energy consumption structure. A study found that, due to the low level of economic development,
the total energy utilization of Brazil, India and South Africa, except Russia, is still
increasing, with no peak. The energy efficiency of BRICS is low. Except Brazil, the
energy consumption intensity of South Africa, India and Russia is much higher than
that of developed economies, and there is still much room for improvement in energy
efficiency. The energy consumption structure of Russia, India and South Africa is
relatively stable with little change, except that the percentage of renewable energy
consumption in Brazil has risen sharply and the percentage of fossil fuel consumption
has declined.
Thirdly, the relationship between China’s economic growth and total energy
consumption, energy consumption elasticity, energy consumption intensity and
energy consumption structure were analyzed. China’s energy efficiency has been
greatly improved. Compared with developed countries, China’s energy consumption intensity is higher, which is 5.67 times, 5.23 times, 5.08 times, 4.46 times, 4.27
times, 3.92 times, 2.94 times and 2.47 times higher than that of developed economies
such as the UK, Italy, Japan, Germany, France, the EU, the US and Canada, so there
is still much room for the China’s energy efficiency improvement. China is a coalbased energy consuming country. Although its energy conservation and consumption
reduction have been accelerating in recent years, and the proportion of coal consumption has been declining, the coal-based energy consumption structure of China has
not changed. Reducing the total consumption of coal and improving the utilization
efficiency of coal are the keys to achieve carbon peak and carbon neutrality.
Fourthly, China’s energy consumption prospects and key industries for emission
reduction were analyzed in accordance with President Xi Jinping’s goal of carbon
peak by 2030 and carbon neutrality by 2060. A study found that the carbon emission
industry is highly concentrated. Carbon dioxide emissions from six high-emission
industries, including power, steam and hot water production and supply, ferrous
Economic Growth and Energy Consumption: Four-Dimensional …
47
metal smelting and rolling processing, non-metallic mineral products, transportation,
warehousing and post and telecommunications services, chemical raw materials and
chemical products, petroleum processing and coking, exceeded 90% of the total
emissions. Therefore, six high-emission industries are not only the key points to
improve energy efficiency and reduce carbon emissions, but also the most severe
industries facing green transformation condition.
Hereinafter, the economic growth and energy consumption of developed
economies were analyzed in the second section; the economic growth and energy
consumption of developing economies were analyzed in the third section; China’s
economic growth and energy consumption were analyzed in the fourth section; the
goals of carbon peak and carbon neutrality and China’s energy consumption in the
future were analyzed in the fifth section; conclusion and discussion were drawn in
the last section.
2 Economic Growth and Energy Consumption
of Developed Economies
The economies of the Group of Seven (G7) and the EU economies are the main
representatives of the developed economies in the world. In 2019, the economic
aggregate of G7 accounted for 45.17% of global GDP, while the economic aggregate
of the EU economies accounted for 17.80% of global GDP, which played key roles
in handling international and regional affairs. Therefore, eight economies including
the US, the UK, France, Germany, Japan, Italy, Canada and the EU were selected
to analyze the relationship between economic growth and total energy consumption,
energy consumption elasticity, energy consumption intensity and energy consumption structure. The law of energy consumption was summarized through comparative
analysis.
2.1 Economic Growth and Total Energy Consumption
Kuznets inverted U curve law is a basic law in the field of social science. Its application in the field of energy indicates that energy consumption first increases and then
decreases with the development of economy. According to the energy consumption
curves of developed economies, most developed economies follow Kuznets inverted
U curve. That is to say, the economy of developed economies still shows positive growth in the case of negative growth of energy consumption, indicating that
the economic development and energy consumption of developed economies have
entered the decoupling stage.
The energy consumption of the US increased from 1.016 billion tons of oil equivalent in 1960 to 2.178 billion tons of oil equivalent in 2015, with an increase of 2.14
48
A. Hu and Y. Jing
times. In the same period, the GDP of the US increased from 3,200 billion to $17,000
billion, with an increase of 5.31 times. The increase of total energy consumption is
less than that of economic growth, which reflects that energy utilization efficiency
has been improved. Meanwhile, the total energy consumption of the US peaked in
2005, and then declined slowly.
The energy consumption of the UK increased from 158 million tons of oil equivalent in 1960 to 180 million tons of oil equivalent in 2015, with an increase of 1.14
times. In the same period, the GDP of the UK increased from 730 billion to $2,700
billion, with an increase of 3.70 times. The increase of total energy consumption is
less than that of economic growth, which reflects the improvement of energy utilization efficiency. At the same time, the total energy consumption of the UK peaked in
2003, and then declined continuously.
France’s energy consumption increased from 80 million tons of oil equivalent in
1960 to 247 million tons of oil equivalent in 2015, with an increase of 3.10 times. In
the same period, France’s GDP increased from 590 billion to $2,800 billion, with an
increase of 4.75 times. The increase of total energy consumption is less than that of
economic growth, which reflects the improvement of energy utilization efficiency. At
the same time, France’s total energy consumption peaked in 2004, and then declined
continuously.
Germany’s energy consumption increased from 301 million tons of oil equivalent
in 1970 to 313 million tons of oil equivalent in 2015, with an increase of 1.04 times.
In the same period, Germany’s GDP increased from 1,500 billion to $3,700 billion,
with an increase of 2.47 times. The increase of total energy consumption is less
than that of economic growth, which reflects the improvement of energy utilization
efficiency. At the same time, Germany’s total energy consumption peaked in 1988,
and then declined continuously.
Japan’s energy consumption increased from 81 million tons of oil equivalent in
1960 to 446 million tons of oil equivalent in 2015, with an increase of 5.48 times. In
the same period, Japan’s GDP increased from 800 billion to $6,000 billion, with an
increase of 7.50 times. The increase of total energy consumption is less than that of
economic growth, which reflects the improvement of energy utilization efficiency. At
the same time, Japan’s total energy consumption peaked in 2004, and then declined
continuously.
Italy’s energy consumption increased from 40 million tons of oil equivalent in
1960 to 151 million tons of oil equivalent in 2015, with an increase of 3.81 times. In
the same period, Italy’s GDP increased from 550 billion to $2,100 billion, with an
increase of 3.82 times. There is little difference between the increase of total energy
consumption and the increase of economic growth, which reflects that there is little
improvement in energy utilization efficiency. At the same time, Italy’s total energy
consumption peaked in 2005, and then declined continuously.
Canada’s energy consumption increased from 77 million tons of oil equivalent in
1960 to 275 million tons of oil equivalent in 2015, with an increase of 3.59 times. In
the same period, Canada’s GDP increased from 290 billion to $1,800 billion, with
an increase of 6.21 times. The increase of total energy consumption is less than that
of economic growth, which reflects the improvement of energy utilization efficiency.
Economic Growth and Energy Consumption: Four-Dimensional …
49
At the same time, the total energy consumption in Canada is still growing, with no
peak.
The energy consumption of the EU increased from 1.077 billion tons of oil equivalent in 1970 to 1.442 billion tons of oil equivalent in 2015, with an increase of 1.34
times. In the same period, the GDP of EU increased from 5,800 billion to $15,000
billion, with an increase of 2.59 times. The increase of total energy consumption is
less than that of economic growth, which reflects the improvement of energy utilization efficiency. At the same time, the total energy consumption of the EU peaked in
2006, and then declined continuously (See Fig. 1).
On the whole, the energy efficiency of seven economies, including the US, the UK,
France, Germany, Japan, Canada and the EU (except Italy), has been greatly improved
with the continuous economic progress. In addition to Canada, seven economies,
including the US, the UK, France, Germany, Japan, Italy and the EU, all have peak
energy consumption. In addition to Germany’s peak energy consumption in 1988,
the US, the UK, France, Japan, Italy and the EU achieved peak energy consumption
in 2003–2006.
2.2 Economic Growth and Energy Consumption Elasticity
Energy consumption elasticity is the ratio of energy consumption growth rate to GDP
growth rate. The energy consumption elasticity of the US, the UK, France, Germany,
Japan, Italy, Canada and the EU was analyzed based on data inthisarticle.
The energy consumption elasticity of the US changed from −0.23 in 1961
to −0.77 in 2015. Since the total energy consumption has reached its peak, the
energy consumption elasticity in the middle year was positive or negative. Energy
consumption of the US is more efficient.
The energy consumption elasticity of the UK changed from 0.39 in 1961 to −
0.20 in 2015. Since the total energy consumption has reached its peak, the energy
consumption elasticity was negative in the middle year. This shows that the energy
consumption efficiency of the UK is high.
France’s energy consumption elasticity fluctuated greatly, which changed from
0.54 in 1961 to 2.18 in 2015. Since the total energy consumption has reached its
peak, the energy consumption elasticity was negative in the middle year. This shows
that the energy consumption elasticity in France fluctuates greatly, and the efficiency
of energy consumption has declined in recent years.
Germany’s energy consumption elasticity changed from 0.28 in 1971 to 1.51 in
2015. Since the total energy consumption has reached its peak, the energy consumption elasticity was negative in the middle year. This shows that the energy consumption elasticity in Germany fluctuates greatly, and the efficiency of energy consumption
has declined in recent years.
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Fig. 1 Economic growth and total energy consumption of developed economies
Economic Growth and Energy Consumption: Four-Dimensional …
Fig. 1 (continued)
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Japan’s energy consumption elasticity changed from 1.04 in 1961 to −0.99 in
2015. Since the total energy consumption has reached its peak, the energy consumption elasticity was negative in the middle year. This shows that Japan’s energy
consumption efficiency is high.
Italy’s energy consumption elasticity changed from 1.74 in 1961 to 3.58 in 2015.
Since the total energy consumption has reached its peak, the energy consumption
elasticity was negative in the middle year. This shows that Italy’s energy consumption
elasticity fluctuates greatly, and the efficiency of energy consumption has declined
in recent years.
Canada’s energy consumption elasticity decreased from 0.42 in 1961 to −0.93
in 2015, which shows that the energy consumption efficiency is improving, with
positive economic growth rate and negative energy consumption growth rate.
The energy consumption elasticity of the EU changed from 0.27 in 1971 to 2.15 in
2015. Since the total energy consumption has reached its peak, the energy consumption elasticity in the middle year was negative. This shows that the energy consumption elasticity of the EU fluctuates greatly, and the efficiency of energy consumption
has declined in recent years (See Fig. 2).
In a word, the energy consumption elasticity of the US, the UK, Japan and Canada
has changed from positive to negative, and the utilization efficiency has been continuously improved. However, the energy consumption elasticity of France, Germany,
Italy and the EU fluctuates greatly, and it is positive in recent years, and the utilization
efficiency of energy consumption has declined.
2.3 Economic Growth and Energy Consumption Intensity
Energy consumption intensity is the ratio of a country’s total energy consumption
to GDP. In order to facilitate the comparison between countries, the total energy
consumption and the units of GDP are unified in accordance with the international
standards. On the whole, the energy consumption intensity of the eight developed
economies is declining.
The energy consumption intensity of the US has been declining, from 0.32 kg of
oil equivalent/at 2010 US dollar price in 1960 to 0.13 kg of oil equivalent/at 2010
US dollar price in 2015. The energy consumption intensity in 2015 is 0.40 times of
that in 1960.
The energy consumption intensity of the UK has been declining, from 0.22 kg oil
equivalent/at 2010 US dollar price in 1960 to 0.07 kg of oil equivalent/at 2010 US
dollar price in 2015. The energy consumption intensity in 2015 is 0.31 times of that
in 1960.
France’s energy consumption intensity has been declining, from 0.14 kg of oil
equivalent/at 2010 US dollar price in 1960 to 0.09 kg of oil equivalent/at 2010 US
dollar price in 2015. The energy consumption intensity in 2015 is 0.65 times of that
in 1960.
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53
Fig. 2 Energy consumption elasticity of developed economies. Data source World Bank Database,
2021
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Fig. 2 (continued)
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55
Fig. 2 (continued)
Germany’s energy consumption intensity is declining continuously, from 0.20 kg
oil equivalent/at 2010 US dollar price in 1970 to 0.08 kg of oil equivalent/at 2010
US dollar price in 2015. The energy consumption intensity in 2015 is 0.73 times of
that in 1960.
Japan’s energy consumption intensity has been declining, from 0.10 kg of oil
equivalent/at 2010 US dollar price in 1960 to 0.07 kg of oil equivalent/at 2010 US
dollar price in 2015. The energy consumption intensity in 2015 is 0.40 times of that
in 1960.
Italy’s energy consumption intensity has mostly unchanged, from 0.07 kg of oil
equivalent/at 2010 US dollar price in 1960 to 0.07 kg of oil equivalent/at 2010 US
dollar price in 2015. The energy consumption intensity in 2015 is 1.00 times of that
in 1960.
Canada’s energy consumption intensity has been declining, from 0.26 kg of oil
equivalent/at 2010 US dollar price in 1960 to 0.15 kg of oil equivalent/at 2010 US
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dollar price in 2015. The energy consumption intensity in 2015 is 0.58 times of that
in 1960.
The energy consumption intensity of the EU has been declining, from 0.19 kg of
oil equivalent/at 2010 US dollar price in 1970 to 0.10 kg of oil equivalent/at 2010
US dollar price in 2015, and the energy consumption intensity in 2015 is 0.52 times
of that in 1960 (See Fig. 3).
According to the change range of energy consumption intensity in the eight developed economies in 2015, the energy consumption intensity of the UK decreased the
most, followed by the US, Germany, the EU, Canada, France and Japan and Italy. In
1960, Italy’s energy consumption intensity was very low, with small fluctuation. The
energy consumption intensity reflects the overall energy efficiency of a country. From
the energy consumption intensity of the eight developed economies in 2015, the UK
had the highest efficiency, only 0.07 kg of oil equivalent/at 2010 US dollar price,
followed by Italy, Japan, Germany, France, the EU, the US and Canada (0.15 kg of
oil equivalent/at 2010 US dollar price).
2.4 Economic Growth and Energy Consumption Structure
The economic development is not only a process of continuously improving energy
consumption efficiency, but also a process of continuously optimizing energy supply
structure. These two processes jointly promote the change of environmental Kuznets
inverted “U” type curve and realize the transformation of environment from pollution
to optimization.
The energy supply of the US is mainly based on fossil fuel supply, with crude
oil accounting for the largest percentage, followed by natural gas and coal. In 2009,
coal consumption accounted for 22.51% of primary energy consumption, crude oil
consumption accounted for 37.80%, and natural gas consumption accounted for
26.69%, totaling 87%. Hydropower and renewable energy accounted for 4.36% of
primary energy consumption.
The energy supply of the US is mainly based on fossil fuel supply, with crude
oil accounting for the largest percentage, followed by oil and coal. In 2009, coal
consumption accounted for 14.55% of primary energy consumption, crude oil
consumption accounted for 36.56%, and natural gas consumption accounted for
38.33%, totaling 89.44%. Hydropower and renewable energy accounted for 2.9% of
primary energy consumption.
The percentage of nuclear power supply is the highest in France, followed by
crude oil and natural gas. In 2009, coal consumption accounted for 4.06% of primary
energy consumption, crude oil consumption accounted for 35.85%, and natural
gas consumption accounted for 15.57%, totaling 55.48%. Nuclear power consumption accounted for 38.02% of primary energy consumption, and hydropower and
renewable energy accounted for 6.52%.
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57
Fig. 3 Energy consumption intensity of developed economies. Data source World Bank Database,
2021
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Germany’s energy supply is based on fossil fuel supply, crude oil accounting for
the largest percentage, followed by coal and natural gas. In 2009, coal consumption accounted for 23.32% of primary energy consumption, crude oil consumption
accounted for 37.05%, and natural gas consumption accounted for 22.84%, totaling
83.21%. Hydropower and renewable energy accounted for 6.87% of primary energy
consumption.
Japan’s energy supply is based on fossil fuel supply, crude oil accounting for
the largest percentage, followed by coal, natural gas and nuclear power. In 2009,
coal consumption accounted for 23.00% of primary energy consumption, crude oil
consumption accounted for 42.00%, and natural gas consumption accounted for
16.63%, totaling 81.63%. Nuclear power consumption accounted for 13.74% of
primary energy consumption, and hydropower and renewable energy accounted for
4.63%.
Italy’s energy supply is based on fossil fuel supply, with crude oil accounting
for the largest percentage, followed by natural gas. In 2009, coal consumption
accounted for 7.78% of primary energy consumption, crude oil consumption
accounted for 44.62%, and natural gas consumption accounted for 38.27%, totaling
90.67%. Hydropower and renewable energy accounted for 9.33% of primary energy
consumption.
Canada’s energy consumption is relatively balanced. In 2009, coal consumption accounted for 7.46% of primary energy consumption, crude oil consumption
accounted for 31.07%, and natural gas consumption accounted for 27.20%, totaling
65.73%. Hydropower and renewable energy accounted for 27.81% of primary energy
consumption.
The EU’s energy supply is based on fossil fuel, with crude oil accounting for
the largest percentage, followed by natural gas and coal. In 2009, coal consumption accounted for 15.48% of primary energy consumption, crude oil consumption
accounted for 39.93%, and natural gas consumption accounted for 24.58%, totaling
79.99%. Hydropower and renewable energy accounted for 7.94% of primary energy
consumption (See Fig. 4).
In 2019, coal consumption of the US accounted for 11.98% of primary energy
consumption, crude oil consumption accounted for 39.08%, and natural gas
consumption accounted for 32.20%, totaling 83.26%. Hydropower and renewable
energy accounted for 8.71% of primary energy consumption. Compared with 2009,
the energy supply in the US is still based on fossil fuel supply, with declined
coal consumption and increased oil and natural gas consumption. In addition, the
percentage of renewable energy has also increased.
In 2019, coal consumption of the UK accounted for 3.34% of primary energy
consumption, crude oil consumption accounted for 39.61%, and natural gas
consumption accounted for 36.20%, totaling 79.15%. Hydropower and renewable
energy accounted for 14.46% of primary energy consumption. Compared with 2009,
coal consumption has dropped significantly, while the percentage of hydropower and
renewable energy has increased significantly.
In 2019, France’s coal consumption accounted for 2.79% of primary energy
consumption, crude oil consumption accounted for 32.54%, and natural gas
Economic Growth and Energy Consumption: Four-Dimensional …
Fig. 4 Energy consumption structure of developed economies in 2009
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Fig. 4 (continued)
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61
consumption accounted for 16.15%, totaling 51.48%. Nuclear power consumption
accounted for 36.79% of primary energy consumption, while hydropower and renewable energy accounted for 11.73%. Compared with 2009, the overall structure has
not changed much, and the percentage of hydropower and renewable energy has
increased to a certain extent.
In 2019, Germany’s coal consumption accounted for 17.53% of primary energy
consumption, crude oil consumption accounted for 35.60%, and natural gas
consumption accounted for 24.29%, totaling 77.42%. Hydropower and renewable
energy accounted for 17.48% of primary energy consumption. Compared with 2009,
the percentage of fossil fuel decreased and that of renewable energyhas increased
rapidly.
In 2019, Japan’s coal consumption accounted for 26.27% of primary energy
consumption, crude oil consumption accounted for 40.34%, and natural gas
consumption accounted for 20.84%, totaling 87.45%. Nuclear power consumption
accounted for 3.13% of primary energy consumption, while hydropower and renewable energy accounted for 9.42%. Due to the impact of the earthquake in 2011, the
scale of nuclear power in Japan dropped sharply, and the percentage of fossil fuel
and renewable energy increased.
In 2019, Italy’s coal consumption accounted for 4.67% of primary energy
consumption, crude oil consumption accounted for 39.05%, and natural gas
consumption accounted for 39.99%, totaling 83.71%. Hydropower and renewable
energy accounted for 16.29% of primary energy consumption.
In 2019, Canada’s coal consumption accounted for 3.93% of primary energy
consumption, crude oil consumption accounted for 31.66%, and natural gas
consumption accounted for 30.47%, totaling 66.06%. Hydropower and renewable
energy accounted for 27.64% of primary energy consumption. Compared with 2009,
there is little change.
In 2019, coal consumption accounted for 11.18% of primary energy consumption,
crude oil consumption accounted for 38.36%, and natural gas consumption accounted
for 24.57%, totaling 74.11%. Hydropower and renewable energy accounted for
15.23% of primary energy consumption (See Fig. 5).
The energy consumption structure of developed economies, except France, is
based on fossil fuel, with focuses on oil and natural gas, instead of coal. From 2009
to 2019, the coal consumption of other developed economies, except Japan (which
was largely affected by the earthquake in 2011), showed a decline, and the percentage
of renewable energy consumption increased.
3 Economic Growth and Energy Consumption
of Developing Economies
Today’s world is in the midst of great changes that have not been seen in a century,
and emerging economies play a very important role in international affairs. BRICS,
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Fig. 5 Energy consumption structure of developed economies in 2019
as the representatives of emerging economies, accounted for 24% of global GDP
in 2019, and have become the main force to promote world multipolarization.
Therefore, BRICS such as Brazil, Russia, India and South Africa are selected in
this paper to analyze the relationship between economic growth and total energy
consumption, energy consumption elasticity, energy consumption intensity and
energy consumption structure.
Economic Growth and Energy Consumption: Four-Dimensional …
63
Fig. 5 (continued)
3.1 Economic Growth and Total Energy Consumption
Brazil’s energy consumption increased from 69 million tons of oil equivalent in 1971
to 299 million tons of oil equivalent in 2014, with an increase of 4.31 times. In the
same period, Brazil’s GDP increased from 500 billion to $2,400 billion, with an
increase of 4.80 times. The increase of total energy consumption is less than that of
economic growth, which reflects the optimization of energy utilization efficiency. At
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Fig. 5 (continued)
the same time, the total energy consumption in Brazil continued to grow, with no
peak.
Russia’s energy consumption increased from 891 million tons of oil equivalent in
1990 to 692 million tons of oil equivalent in 2014, with an increase of 0.78 times.
In the same period, Russia’s GDP increased from 1,400 billion to $1,700 billion,
with an increase of 1.21 times. The increase of total energy consumption is less
than that of economic growth, which reflects the optimization of energy utilization
efficiency. Meanwhile, the total energy consumption in Russia peaked in 2012 and
then declined.
India’s energy consumption increased from 152 million tons of oil equivalent in
1971 to 828 million tons of oil equivalent in 2014, with an increase of 5.43 times. In
the same period, India’s GDP increased from 220 billion to $2,100 billion, with an
increase of 9.55 times. The increase of total energy consumption is less than that of
economic growth, which reflects the improvement of energy utilization efficiency. At
the same time, India’s total energy consumption continued to grow without a peak.
South Africa’s energy consumption increased from 46 million tons of oil equivalent in 1971 to 148 million tons of oil equivalent in 2014, with an increase of
3.22 times. In the same period, South Africa’s GDP increased from 140 billion to
$410 billion, with an increase of 2.93 times. The increase of total energy consumption is larger than that of economic growth, which reflects the deterioration of energy
utilization efficiency. At the same time, the total energy consumption in South Africa
continued to grow, with no peak (See Fig. 6).
Economic Growth and Energy Consumption: Four-Dimensional …
Fig. 6 Economic growth and total energy consumption of developing economies
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Fig. 6 (continued)
Except for South Africa, Brazil, Russia and India have made great improvements
in energy efficiency with the economic growth. Because the level of economic development is still low, the total energy utilization of Brazil, India and South Africa,
except Russia, is still growing, and there is no peak yet, which is quite different from
that of developed economies.
3.2 Economic Growth and Energy Consumption Elasticity
The fluctuation of energy consumption in Brazil is larger than that of economic
growth, which leads to great changes in the energy consumption elasticity. The energy
consumption elasticity changed from 0.65 in 1972 to 4.68 in 2014, and there is still
much room for improvement in energy efficiency.
Russia’s energy consumption growth rate and economic growth rate are highly
consistent. With the peak of total energy consumption, Russia’s economic growth
was decoupled from energy consumption, and the energy consumption elasticity in
Russia has turned from positive to negative, which was dropped sharply from 0.24
in 1991 to −3.63 in 2014.
India’s economic growth and energy consumption fluctuated greatly, while the
energy consumption elasticity has not changed much, from 0.67 in 1973 to 0.69 in
2014. There is still much room for improvement in energy efficiency.
South Africa’s energy consumption elasticity has increased greatly, from 1.79 in
1973 to 2.97 in 2014. There is much room for improvement in energy utilization
efficiency (See Fig. 7).
On the whole, Russia’s energy consumption has reached its peak and its energy
elasticity coefficient has turned negative. India’s energy elasticity coefficient has
hardly changed, while Brazil’s and South Africa’s energy elasticity coefficient is on
the rise.
Economic Growth and Energy Consumption: Four-Dimensional …
67
Fig. 7 Energy consumption elasticity of developing economies. Data source World Bank Database,
2021
3.3 Economic Growth and Energy Consumption Intensity
Brazil’s energy consumption intensity has not changed much, from 0.14 kg of oil
equivalent/at 2010 US dollar price in 1971 to 0.12 kg of oil equivalent/at 2010 US
dollar price in 2014. The energy consumption intensity in 2014 is 0.90 times of that
in 1971.
Russia’s energy consumption intensity has not changed much, from 0.64 kg of oil
equivalent/at 2010 US dollar price in 1990 to 0.41 kg of oil equivalent/at 2010 US
dollar price in 2014. The energy consumption intensity in 2014 is 0.64 times of that
in 1990.
India’s energy consumption intensity has not changed much, from 0.69 kg of oil
equivalent/at 2010 US dollar price in 1971 to 0.39 kg of oil equivalent/at 2010 US
dollar price in 2014. The energy consumption intensity in 2014 is 0.57 times of that
in 1971.
South Africa’s energy consumption intensity has not changed much, from 0.33 kg
of oil equivalent/at 2010 US dollar price in 1971 to 0.36 kg of oil equivalent/at 2010
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US dollar price in 2014. The energy consumption intensity in 2014 is 1.10 times of
that in 1971 (See Fig. 8).
On the whole, the energy consumption intensity of Brazil, Russia and India, except
South Africa, showed a downward trend, among which the energy consumption
intensity of Russia and India declined greatly. In terms of the energy consumption
intensity in 2014, South Africa, India and Russia, except Brazil, has much higher
energy consumption intensity than developed economies, and there is still much
room for improvement in energy efficiency.
Fig. 8 Energy consumption intensity of developing economies. Data source World Bank Database,
2021
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69
3.4 Economic Growth and Energy Consumption Structure
The analysis on the energy consumption structure of Brazil, Russia, India and South
Africa shows that Brazil is based on crude oil and hydropower consumption, Russia
is based on natural gas and crude oil consumption, India is based on coal and crude
oil, and South Africa is based on coal consumption.
In 2009, Brazil’s coal consumption accounted for 5.00% of primary energy
consumption, crude oil consumption accounted for 45.71%, and natural gas
consumption accounted for 7.60%, totaling 58.31%. Hydropower consumption
accounted for 37.80% of primary energy consumption, and renewable energy
accounted for 2.65%.
In 2009, Russia’s coal consumption accounted for 14.03% of primary energy
consumption, crude oil consumption accounted for 20.65%, and natural gas
consumption accounted for 53.56%, totaling 88.24%. Hydropower and renewable
energy accounted for 6.11% of primary energy consumption.
In 2009, India’s coal consumption accounted for 52.22% of primary energy
consumption, crude oil consumption accounted for 31.46%, and natural gas
consumption accounted for 9.56%, totaling 93.24%. Hydropower and renewable
energy accounted for 5.96% of primary energy consumption.
In 2009, South Africa’s coal consumption accounted for 73.82% of primary
energy consumption, crude oil consumption accounted for 20.79%, and natural gas
consumption accounted for 2.53%, totaling 97.14%. Hydropower and renewable
energy accounted for 0.25% of primary energy consumption (See Fig. 9).
The fossil fuel consumption of Brazil has declined and the percentage of renewable
energy has increased significantly. In 2019, Brazil’s coal consumption accounted for
5.29% of primary energy consumption, crude oil consumption accounted for 38.14%,
and natural gas consumption accounted for 10.39%, totaling 53.82%, which has
declined compared with 2019. Hydropower consumption accounted for 28.70% of
primary energy consumption, which is lower than that in 2009. Renewable energy
accounted for 16.32% of primary energy consumption, which is significantly higher
than that in 2009.
Russia’s energy consumption structure is very stable compared with 2009. In 2019,
Russia’s coal consumption accounted for 12.18% of primary energy consumption,
crude oil consumption accounted for 22.04%, and natural gas consumption accounted
for 53.67%, totaling 87.89%. Hydropower and renewable energy accounted for
5.86% of primary energy consumption.
India’s energy consumption structure is relatively stable compared with 2009. In
2019, India’s coal consumption accounted for 54.67% of primary energy consumption, crude oil consumption accounted for 30.06%, and natural gas consumption
accounted for 6.31%, totaling 91.04%. Hydropower and renewable energy accounted
for 7.79% of primary energy consumption.
South Africa’s energy consumption structure is relatively stable compared with
2009. In 2019, South Africa’s coal consumption accounted for 70.61% of primary
energy consumption, crude oil consumption accounted for 21.91%, and natural gas
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Fig. 9 Energy consumption structure of developing economies in 2009. Data source BP Statistical
Review of World Energy, 2010
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71
Fig. 9 (continued)
consumption accounted for 2.85%, totaling 95.37%. Hydropower and renewable
energy accounted for 2.28% of primary energy consumption (See Fig. 10).
On the whole, the energy consumption structure of Russia, India and South Africa
was relatively stable with little change between 2009 and 2019, except that the
percentage of renewable energy consumption in Brazil increased sharply and the
percentage of fossil fuel consumption decreased.
4 China’s Economic Growth and Energy Consumption
With the rapid growth of China’s economy, the total energy consumption and energy
consumption efficiency are constantly improving, while the elasticity and intensity of
energy consumption are constantly declining, indicating that the energy consumption
structure is constantly optimized. However, there is still much room for improvement
in energy efficiency compared with developed economies in China.
4.1 Economic Growth and Total Energy Consumption
China’s energy consumption increased from 391 million tons of oil equivalent in
1971 to 3.131 billion tons of oil equivalent in 2014, with an increase of 8.02 times. In
the same period, China’s GDP increased from 200 billion to $8,300 billion, with an
increase of 41.5 times. The increase of total energy consumption is less than that of
economic growth, which reflects the substantial improvement of energy utilization
efficiency has been made. At the same time, China’s total energy consumption is still
growing, without peak (See Fig. 11).
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Fig. 10 Energy consumption structure of developing economies in 2019. Data source BP Statistical
Review of World Energy, 2020
Economic Growth and Energy Consumption: Four-Dimensional …
73
Fig. 10 (continued)
Fig. 11 Economic growth and total energy consumption of China. Data source World Bank
Database, 2021
4.2 Economic Growth and Energy Consumption Elasticity
Compared with energy consumption growth rate and economic growth rate, the
change of energy consumption elasticity is small. With the improvement of energy
utilization efficiency, China’s energy consumption elasticity dropped sharply, from
1.33 in 1972 to 0.14 in 2014. However, the energy consumption in developed countries has peaked, the growth rate of energy consumption is decoupled from the
economic growth rate, and the energy consumption elasticity is negative. This also
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Fig. 12 Energy consumption elasticity of China. Data source World Bank Database, 2021
reflects that there is still much room for improvement in China’s energy efficiency
(See Fig. 12).
4.3 Economic Growth and Energy Consumption Intensity
China’s energy consumption intensity has been declining, from 1.95 kg of oil equivalent/at 2010 US dollar price in 1971 to 0.38 kg of oil equivalent/at 2010 US dollar
price in 2014. The energy consumption intensity in 2014 was 0.19 times of that in
1971, with a great decline (See Fig. 13).
According to comparison with international communities, China’s energy
consumption intensity is higher, which is 5.67 times, 5.23 times, 5.08 times, 4.46
times, 4.27 times, 3.92 times, 2.94 times and 2.47 times that of developed economies
such as the UK, Italy, Japan, Germany, France, the EU, the US and Canada. There
is still much room for improvement in China’s energy efficiency (See Fig. 14).
4.4 Economic Growth and Energy Consumption Structure
China is a coal-based energy consuming country. Although energy conservation and
consumption reduction have been accelerating in recent years, and the percentage of
coal consumption has been declining, the coal-based energy consumption structure
has not changed.
Economic Growth and Energy Consumption: Four-Dimensional …
75
Fig. 13 Changes in energy consumption intensity of China. Data source World Bank Database,
2021
Fig. 14 International comparison of China’s energy consumption intensity. Note Data of China,
Russia, Brazil, India and South Africa are in 2014, and data of other economies are in 2015. Data
source World Bank Database, 2021
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Fig. 15 Primary energy consumption structure of China in 2009. Data source BP Statistical Review
of World Energy, 2010
In 2009, China’s coal consumption accounted for 71.16% of primary energy
consumption, crude oil consumption accounted for 17.74%, and natural gas
consumption accounted for 3.68%, totaling 92.59%. Hydropower and renewable
energy account for 6.69% of primary energy consumption.
Compared with 2009, the percentage of coal consumption in China has dropped
significantly, while the percentage of hydropower and renewable energy has
increased. In 2019, China’s coal consumption accounted for 57.64% of primary
energy consumption (down 13.52 percentage points from 2009), crude oil consumption accounted for 19.69%, and natural gas consumption accounted for 7.81%,
totaling 85.14%. Hydropower and renewable energy accounted for 12.67% of
primary energy consumption (See Figs. 15 and 16).
Improving energy utilization efficiency, especially coal utilization efficiency, is
the key to reduce the emission of greenhouse gases such as carbon dioxide. China can
meet the current energy demand with a half coal if its energy consumption efficiency
is increased by three times. China even can meet the current energy demand with
one-third coal if its energy consumption efficiency is increased by five times, that is,
it reaches the level of developed countries. Therefore, improving energy efficiency
is the first choice for China to achieve carbon peak and carbon neutrality.
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77
Fig. 16 Primary energy consumption structure of China in 2019. Data source BP Statistical Review
of World Energy, 2020
5 Carbon Peak, Carbon Neutrality Commitment
and Future China’s Energy Consumption
Greenhouse gases cover the earth like a blanket, and the increase of its concentration is the main cause of global warming. The ultimate cause of global warming
is the increase of greenhouse gas emissions such as carbon dioxide caused by the
burning of fossil fuels. In recent years, the concentration of greenhouse gas emissions has increased rapidly, and the global temperature has increased rapidly. The
earth is a nonlinear complex system. When the emission concentration increases to
a certain extent, it will trigger the melting of a large number of ice sheets, the largescale changes of ocean circulation, the positive feedback and long-term aggravation
of global warming, which will induceirreversible or sudden changes to earth and
we cannot effectively control them with existing technologies (Nordhaus 2019). To
protect the human being’s shared home, the Paris Agreement of 2015 put forward
an important goal to make sure the global temperature rise to well below 2 degrees
Celsius above pre-industrial levels, and pursue efforts to limit the temperature rise
to 1.5 degrees Celsius at the end of twenty-first century. Achieving this goal requires
concerted action by the international community. As of February 2021, 127 countries
have promised to achieve carbon neutrality by 2050, among which Bhutan and Suriname have achieved carbon neutrality. According to “the Special Report on Global
Warming of 1.5°C” issued by IPCC, carbon neutrality refers to that zero CO2 emission can be achieved when anthropogenic CO2 removal offsets anthropogenic CO2
emission globally within a specified period of time (See Table 1).
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Table 1 Countries committed to achieve carbon neutrality
Number of
Total
countries
number of
committed to countries
achieve carbon
neutrality
Percentage of
committed
countries/%
Commitment time
Low-income
country
26
31
83.9
2050
Low-and
middle-income
country
25
51
49.0
2050
Middle-income
country
27
57
47.4
Before 2050/2060
High-income
country
48
83
57.8
2030/2035/2040/2045/2050
Data source Energy & climate intelligence unit. Net zero emissions race. 2021. https://eciu.net/net
zerotracker/map
China, as a developing country, has always actively assumed international responsibilities. In September 2020, President Xi Jinping promised the international
community at the 75th session of the United Nations General Assembly that China
would achieve peak carbon emissions by 2030 and carbon neutrality by 2060. As
one of the major emitters of greenhouse gases in the world, President Xi Jinping has
defined the timetable of “carbon peak and carbon neutrality”, which is undoubtedly
a milestone event for mankind to cope with climate change and injected new impetus
into the new round of global climate cooperation.
In order to further promote carbon peak and carbon neutrality, carbon peak and
carbon neutrality were listed as one of the eight key tasks in 2021 at Central Conference on Economic Work, and an action plan to peak carbon dioxide emissions before
2030 was put forward in the Report on the Work of the Government of 2021. To
achieve carbon peak and carbon neutrality, we must improve energy utilization efficiency, reduce energy demand and reduce carbon emissions. Second, we should
develop renewable energy, improve energy supply and reduce carbon emissions.
China is a coal-based energy supplier. According to the calculation of coal consumption for power generation, raw coal accounted for 69.2% of the total primary energy
production in China in 2018, while non-fossil fuel supply accounted for only 18.2%.
Coal-based supply structure and relatively small scale of non-fossil fuel determines
that improving energy efficiency is the most important and lowest cost strategic
choice to achieve carbon peak and carbon neutrality in advance (Boqiang 2060).
The goal of carbon peak and carbon neutrality will bring changes to China’s industrial structure, and China’s economy will undergo a comprehensive green transformation and upgrading. In order to promote carbon peak and carbon neutrality, China
will focus on establishing and improving the carbon market and raising the carbon
price. At the same time, relying on the administrative system with Chinese characteristics, we should strengthen environmental supervision over carbon emissions.
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79
Driven by both the market and the government, China’s energy consumption will
continue to decline with the carbon peak and neutralization, and China’s energy
utilization efficiency will be greatly improved. In this process, high-emission industries will face enormous challenges and pressures. By surveying the carbon emission
data of various industries, the author found that the carbon emission industry is
highly concentrated. Carbon dioxide emissions from six high-emission industries,
including power, steam and hot water production and supply, ferrous metal smelting
and rolling processing, non-metallic mineral products, transportation, warehousing
and post and telecommunications services, chemical raw materials and chemical
products, petroleum processing and coking, exceeded 90% of the total emissions.
Therefore, the six high-emission industries will be the focus of improving energy
efficiency and reducing carbon emissions, and they are also the industries facing
severe green transformation. The goal of carbon peak and carbon neutrality has been
established, and timely action is the key measure to reduce costs. Enterprises of
various industries, especially high-emission industries, have realized the great challenges of carbon peak and carbon neutrality, and they will make plans actively and
take actions early, thus reducing the cost of green transformation. This will also
drive energy conservation and emission reduction actions in all sectors of the whole
society.
Column
Declaration of China Baowu Steel Group Corporation Limited on Carbon Peak
and Carbon Neutrality
In 2020, China’s steel output accounted for 57% of the world’s total output. As a
representative of high energy-consuming industries, steel industry is a major carbon
emitter in manufacturing industry, accounting for about 15% of the total carbon
emission in China. Carbon peak and carbon neutrality in iron and steel industry will
be the key to realize carbon peak and carbon neutrality in advance in China. As a pillar
of the nation, China Baowu Steel Group Corporation Limited issued a declaration
on carbon reduction on January 20, 2021: strive to achieve carbon peak in 2023,
have the technological capacity to reduce carbon emissions by 30% in 2025, strive
to reduce carbon emissions by 30% in 2035 and strive to achieve carbon neutrality
in 2050. Specific measures are as follows:
First, relying on scientific and technological innovation. We will open up a
low-carbon development path, create a global low-carbon metallurgical innovation
alliance and build a global exchange platform for low-carbon metallurgical innovation technology. We will establish a 1 + N open R&D innovation model and carry out
research on forward-looking, subversive and breakthrough innovative technologies
in the iron and steel industry. We will also build a global low-carbon metallurgical
innovation experimental base to promote the technical cooperation between upstream
and downstream industrial chains of steel and the sustainable development of steel
industry.
Second, achieving the ultimate carbon utilization efficiency with intelligence
and quality. We will break the time–space boundary and cross the management
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boundary with digital intelligence system to promote the interconnection and sharing
of processes, realize the efficient use of resources and energy, and provide the society
with greener and better-quality steel and related new materials.
Third, optimizing the energy structure and increasing investment in energy conservation and environmental protection technologies. We will continuously improve the
percentage of clean energy utilization to promote the cleanliness of energy structure,continuously improve the thermal efficiency of furnaces, dig deep into the
recovery potential of surplus energy, improve the efficiency of energy conversion
and utilization, greatly reduce the energy consumption intensity, and strictly control
the total energy consumption.
Fourth, strengthening publicity and education to make sure that employees
form awareness of carbon reduction. We will promote the significance of carbon
neutrality strategy tomake employees consciously develop low-carbon living habits,
and encourage low-carbon or zero-carbon actions such as green travel,“clean your
plate” campaign, afforestation, video conference and paperless office.
Materialsource: https://baijiahao.baidu.com/s?id=1689453190429878747&wfr=
spider&for=pc
6 Conclusion and Discussion
By comparing and analyzing the characteristics of economic growth and energy
consumption in developed and developing economies, it can be concluded that:
First, Kuznets inverted “U” curve is also applicable in the energy field. With the
development of economy, energy consumption first increased and then decreased.
The energy consumption of most developed economies has changed from growth
to decline, and reached its peak. The economic development and energy consumption of developed economies have entered the decoupling stage. While developing
economies are still on the left side of Kuznets inverted “U” curve, and the total energy
consumption is still on the rise.
Second, there is a big gap in energy efficiency between developed and developing
economies. According to the energy consumption intensity of the eight developed
economies in 2015, the UK has the highest efficiency, only 0.07 kg of oil equivalent/at
2010 US dollar price, followed by Italy, Japan, Germany, France, the EU, the US and
Canada (0.15 kg of oil equivalent/at 2010 US dollar price). The energy consumption
intensity of BRICS in 2014, was 0.12 kg of oil equivalent/at 2010 US dollar price in
Brazil, 0.36 kg of oil equivalent/at 2010 US dollar price in South Africa, 0.39 kg of
oil equivalent/at 2010 US dollar price in India, 0.41 kg of oil equivalent/at 2010 US
dollar price in Russia and 0.38 kg of oil equivalent/at 2010 US dollar price in China.
The energy efficiency of developing economies is far lower than that of developed
economies.
Third, the energy structure of developed and developing economies is different.
Except for France, the energy consumption structure of developed economies is
based on fossil fuel, with focuses on oil and natural gas consumption, instead of
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81
coal consumption. Developing economies, such as China, India and South Africa,
have a large percentage of coal consumption, which has increased the pressure on
developing economies to reduce emissions.
Fourthly, improving energy efficiency is the first choice for developing countries.
There are three ways to achieve the goal of carbon neutrality in developing countries: improving energy efficiency, developing renewable energy and implementing
geo-engineering. At present, the energy efficiency of developing economies is very
low compared with developed economies. From the perspective of implementation
cost, improving energy efficiency is a choice that has the lowest cost for developing
economies to achieve carbon neutrality.
The goal of carbon peak and carbon neutrality provides a guiding direction for
China’s economic green transformation. How to measure the amount of carbon emission and collection, how to determine the price of carbon, and how to distribute carbon
emission rights fairly with carbon transfer between provinces, all of which need to
be studied in depth (Hui et al. 2020). China is a developing country, and the goal in
2035 is to basically realize modernization, and to ensure that the per capita GDP will
reach the level of moderately developed countries. In this process, it is necessary to
develop the economy and improve the environment. Under the guidance of carbon
price mechanism, how to balance the relationship among economic growth, employment security and green environment is also a difficult problem facing academia and
governments at all levels.
References
Boqiang L (2021) Path, opportunity and challenge of “carbon neutrality” of China in 2060 [N].
China Bus News, 2021–01–19 (11)
Hui C, Jing W, Jun P et al (2020) Research on the carbon transfer and carbon equity at provincial
level of China based on MRIO model of 31 Provinces [J]. China Environ Sci 40(12):5540–5550
Nordhaus WD (2019) The climate casino [M]. Interpreted by LIang Xiaomin. Orient Publishing
Center, Shanghai
Part II
Petroleum
In-Depth Analysis on International Oil
Market in Post-pandemic Era
Lei Shi, Pei Wang, and Yuan Wang
1 Characteristics of Global Oil Market in 2020
1.1 Oil Prices Have Plummeted and Fallen
to an Unprecedented Negative Price, and the Benchmark
Oil Price Spreads Fluctuated Drastically
Since 2020, the COVID-19pandemic has spread in a wide range, and the world has
fallen into an unprecedented crisis. Under such condition, many countries adopted
strict containment measures and locked down cities, and people have to stay at home
and work from home. What’s worse, the global economy and oil demand have shrunk
severely. Oil price plummeted in the first quarter, fell to a historical low level in April
in 2020, picked up in the late second quarter and the third quarter, and fluctuated and
rebounded in the fourth quarter, showing a deep V-shaped fluctuation as a whole. On
April 20th, 2020, under the influence of many factors, such as the expiring future
contract, the booming inventory, and the rule modification of the exchange, WTI
in North America once hit an unprecedented extreme negative price (See Fig. 1).
In 2020, the average price of Brent Crude, as the benchmark of the world, was
$43.21/bbl, down $20.95/bbl year-on-year, a decrease of 32.7%, a 16-year low. The
average price of WTI was $39.34/bbl, down $17.7/bbl year-on-year, a 17-year low.
The average price of S&P Global Platts Dubai was $42.27/bbl, down $21.24/bbl
year-on-year, hitting a new low in 16 years.
Judging from the benchmark oil price spreads, WTI/Brent spread was widened
to nearly $-10/bbl in April, while global light and heavy oil spread were upside
down, and the average DTD Brent/Dubai spread in 2020 was $−0.46/bbl, which is
significantly lower than $0.8/bbl in 2019. In addition, China’s Shanghai crude oil
L. Shi (B) · P. Wang · Y. Wang
Unipec, Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_4
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Fig. 1 International benchmark crude oil price trend. Data source Reuters, Unipec Research &
Strategy Dep. (URS)
futures (SC) became the most expensive crude oil futures contract in the world in
April 2020 under the enthusiastic speculation of domestic investors, and its price
was $14/bbl higher than Brent’s at the highest point.
1.2 Demand Side: In 2020, Global Oil Demand Showed
the Largest Decline in History
Affected by the pandemic, major economies in the world have successively issued
lockdown policies, and the global economy has shrunk severely. Industrial activities
and economic activities have almost stagnated, resulting in a precipitous decline in
oil demand. According to statistics, during peak hours, nearly 100 countries have
introduced policies to restrict entry and cancel international flights, while more than
50 countries and regions have declared a state of emergency. According to the statistics of the International Energy Agency (IEA), the global oil demand dropped sharply
by 8.7 mmbd year-on-year to 91 mmbd in 2020, which far exceeded the decline of
about 1 mmbd during the financial crisis. In April, the global oil demand dropped by
more than 20 mmbd, the largest decline in history. In terms of varieties, in 2020, the
demand for gasoline, kerosene, diesel and other major varieties declined to varying
degrees, among which gasoline demand decreased by about 10% year-on-year, and
diesel demand decreased by about 6% year-on-year. Jet fuel suffered the most severe
impact, and the demand dropped by about 40% year-on-year. According to the International Air Transport Association (IATA), in 2020, the loss of passenger transport
revenue of global airlines was as high as $113 billion. In terms of countries, in 2020,
except that China’s oil demand showed positive growth, other countries’ oil demand
showed negative growth.
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1.3 Supply Side: In 2020, OPEC+ Adopted an Unprecedented
Scale of Production Reduction
Low oil prices forced major oil producers in the world to assess the situation and
readjust their survival strategies to cope with the unprecedented depressed market.
After a month-long price war, at the end of April 2020, OPEC+, represented by Saudi
Arabia and Russia, reached the largest production reduction agreement in history,
which decided to reduce production by 9.7, 7.7 and 5.8 mmbd respectively in May,
July 2020 and January 2021. Driven by the production reduction agreement, the
global oil supply in 2020 was 93.9 mmbd, down 6.6 mmbd year-on-year, which is the
highest in history. The average compliance for OPEC+ was basically 100%. In addition to OPEC+, shale oil producers are also facing great pressure. The unprecedented
low oil price brought a very poor financing environment. The reduction of funding
sources and the continuous growth of debt make shale oil producers overwhelmed.
According to Baker Hughes, the number of oil and gas drilling rigs plummeted from
683 in March 2020 to the lowest point of 172 in August, and the stock prices of
oil companies generally plummeted by 40–70%. US crude oil production once fell
from 13 mmbd in early 2020 to 9.7 mmbd. In addition to the US, other non-OPEC
oil producers, including Brazil and Canada, have also reduced production under the
pandemic situation.
1.4 Inventory Side: In 2020, Both Global Crude Oil
Inventories and Floating Inventories Reached
the Highest Level in History
In 2020, the global oil demand plummeted, which was confronted with the most
severe recession in April when OPEC and Russia were engaged in a price war. The
mismatch between supply and demand caused the global oil inventory to soar to the
highest level in history, resulting in a tight supply situation. The inventory of Cushing,
the delivery warehouse of WTI in the US, once climbed to 65.45 million barrels, and
the utilization rate of storage capacity exceeded 80%, which directly caused the WTI
fall to negative price. According to Kayrros, the global onshore inventory soared to
3.21 billion barrels in July 2020, the highest since 2016. At the same time as the
onshore inventory is running at full capacity, the scale of floating inventories has
also risen sharply. During this period, the front and second line spread of Brent crude
first reached $−3.97/bbl, the highest level after the financial crisis, which is enough
to cover the storage fees and capital costs of floating oil storage, thus motivating
traders to carry out large-scale floating inventories operations. The WS for VLCC of
the global freight market once reached a high level of 223, resulting in a tight supply
situation. At the end of July 2020, the scale of floating inventory also reached 100
million barrels. Since the second half of the year, driven by large-scale production
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reduction, onshore inventory and offshore inventory has gradually declined, but it is
still higher than the normal level.
1.5 Refining: The Global Refining Has Suffered
Unprecedented Heavy Losses
Under the severe impact of the pandemic on oil demand and the high inventory of
products and crude in the world, the world oil refining has suffered heavy losses, and
refineries around the world have set off the largest shutdown tide since the financial
crisis. On September 30, Eneos, Japan’s largest refiner, announced the permanent
closure of the Osaka refinery with a capacity of 115,000 bpd. Shell closed the Convent
refinery with a capacity of 260,000 bpd in Louisiana. The Philippines closed the
Tabangao refinery with a capacity of 110,000 bpd. Australia closed the Kwinana
refinery with a capacity of 140,000 bpd. This refinery is also the largest refinery in
Australia. New Zealand is about to close the only refinery, Marsden Point (refining
capacity of 135,000 bpd). According to preliminary estimates, the pandemic has
caused the global refinery capacity of about 2 mmbd to be permanently shut down.
According to Reuters’s calculation, in 2020, the average refining margin in Singapore
was only $0.4/bbl, a significant decrease of $3.3/bbl year-on-year. Since mid-March,
the income has basically been in a negative area. The average refining margin in
Rotterdam, Europe was $2.3/bbl, dropped by $2.9/bbl year-on-year. Since mid-May,
it has also fallen to a negative area. The average margin of refineries along the Gulf
of Mexico in the US was $7.2/bbl, which is $8/bbl lower than that of the same period
of last year, with a drop of 53%, far below the normal level.
2 Prospects in 2021: Analysis on International Oil Market
in Post-pandemic Era
In 2021, the recovery of global economy and oil demand in the post-pandemic
era is still the main focus. At the same time, OPEC countries still firmly limit
production to support prices. Besides countries continuously reduce excess global oil
stocks. However, the international political and economic situation and geopolitics
are complicated. Therefore, oil prices should generally remain at a medium–high
level.
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2.1 Pandemic Situation: The Turning Point Has Appeared,
and the Situation Is Generally Good, but It Has Been
Repeated
Since 2021, the turning point of the global pandemic has appeared, and the situation
is generally good. Since mid-January, the number of new cases in a single day
in the world has dropped from 800,000 in the previous period to about 300,000.
However, since April, the number has risen to more than 700,000 again because
of the Delta variant in India, Japan and other countries, while the COVID-19 in
most countries and regions has improved. According to the data of Johns Hopkins
University, except India and Brazil, the number of new cases in major countries
has stabilized or decreased. In particular, the number of new cases in the US in a
single day has dropped sharply from about 200,000 cases in the previous peak period
to about 10,000 cases at present. Many Asian countries have experienced repeated
outbreaks recently, nevertheless it is expected that the impact of this pandemic will
not last too long (See Fig. 2). The impact of the third wave of pandemic in Europe
on the demand is controllable, and the situation of road traffic congestion in the UK
and other places has basically recovered to the pre-pandemic level.
In terms of vaccination, many kinds of COVID-19 vaccines have been put into
large-scale use in the world, including Pfizer, Johnson & Johnson, AstraZeneca,
Russia’s Sputnik-V, as well as China’s Sinopharm and Sinovac vaccines. As of the
beginning of August 2021, the global cumulative vaccination exceeded 4.6billion
doses, of which 360 million doses were vaccinated in the US. The vaccination rates
in European countries such as the Spain and Germany are close to or over 100%,
and the European Union announced to have completed 70% of adult vaccination in
July (first dose). The United Arab Emirates and Malta have the highest vaccination
ratio, with a cumulative vaccination amount of 18.18 million doses. The vaccination
Fig. 2 Number of new cases per day in the world. Data source WIND, Unipec Research & Strategy
Dep. (URS)
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process in COVID-19 in China is also advancing. As of the middle of August 2021,
nearly 777 million people have completed the whole process of vaccination.
2.2 Macro-Level: The Global Economy Has Achieved
Recovery Growth, and Large-Scale QE (Quantitative
Easing) Policies Has Pushed Up Asset Prices
With the COVID-19 pandemic under control in most countries and regions around the
world, economic recovery has become the top priority of governments this year. The
International Monetary Fund (IMF) predicts that with the acceleration of the global
COVID-19 vaccination process and the adoption of economic stimulus policies by
major global economies, the global economic growth rate will recover to 6% in
2021 (See Fig. 3). The latest forecast of the Federal Reserve believes that the US
GDP will increase by 6.5% in 2021, which will be the largest increase since 1984.
China’s economy is recovering significantly. According to the National Bureau of
Statistics, China has achieved a GDP growth of 18.3% in the first quarter and 12.7%
year-on-year in the first half of 2021. With the guidance of dual circulation strategy,
China has entered a new stage of economic development, and the annual GDP growth
rate is expected to reach more than 6% for the whole year. From the perspective of
manufacturing industry, the PMI of manufacturing industry in major countries has
generally recovered to over 50%.
It is worth noting that since 2020, in order to boost the economy, central banks
of various countries have launched large-scale quantitative easing measures, which
significantly pushed up commodity prices. The Federal Reserve launched an unlimited asset purchase program. In 2020, US monetary aggregates (M2) reached $19.4
trillion, up 34% year-on-year, making global market liquidity abundant or even
rampant. In addition to monetary easing, fiscal stimulus has also been continuously
strengthened. At present, the US has launched nearly $6 trillion of fiscal stimulus
programs, while the EU has launched 2.2 trillion stimulus programs, a considerable
part of which goes to financial assets. Since the beginning of 2021, global financial
markets and commodity prices have generally risen. The Dow Jones Index, S&P 500
Fig. 3 World economic growth rate expectation (IMF). Data source IMF, Unipec Research &
Strategy Dep. (URS)
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Index and Nikkei Index have reached record highs, while the price of iron ore, copper
and corn has hit new highs in ten years. From the perspective of oil market funds, the
net long position of Brent crude futures held by the Managed Money increased from
about 80,000 lots in the fourth quarter of 2020 to about 350,000 lots in February
2021, the highest level in more than one year. In early March, Brent soared to nearly
$70/bbl, basically smoothing the decline since the COVID-19 outbreak. Since June
2021, Brent oil price has successively exceeded $70/bbl and $75/bbl. On July 5, the
Brent oil price rose to $77.16/bbl, the highest level since October 2018.
2.3 Demand Side: Global Oil Demand Has Gradually
Recovered, but It Is Difficult to Fully Reach
Pre-pandemic Levels
With the acceleration of current vaccination process, economic activities resume
growth, and global oil demand continues to recover strongly. By the beginning of
July 2021, the demand for products in major European countries, including France,
the UK, and Spain, has rebounded, and the European oil demand has recovered to
90% of the normal level. Besides, US demand also continues to improve. In early July
2021, the air passenger traffic in the US has recovered to the same level in 2019. Even
though the retail price of gasoline has risen and exceeded the red line of $3 per gallon,
US road traffic has remained at a high level. In addition, US gasoline demand has
exceeded 10 mmbd and reached a record high. In Asia, the sales volume of gasoline
and diesel in India increased by 29 and 19% respectively on a monthly basis in
June 2021. With the lifting of the lockdown and the recovery of economic activities,
India’s oil demand is expected to return to normal level before the end of the year.
In general, the overall demand in Europe, America and Asia is in a strong recovery
stage. Judging from the pace of demand recovery, the global demand recovery was
relatively slow in the first half of the year, while demand from the third quarter is
expected to usher in a strong seasonal recovery, but the new round of the pandemic
and global extreme weather has hindered the recovery, and the global oil demand is
expected to approach the pre-pandemic level by the end of the fourth quarter (See
Fig. 4).
Recovery varies by oil types. In 2021, after the blockade and isolation measures in
various countries are lifted, gasoline demand recovers steadily. Especially, during the
driving season in Europe and America, a retaliatory rally trend will emerge. However,
since more people choose to work from home due to the COVID-19 outbreak and the
application of NEVs has been accelerated, gasoline growth is restricted to a certain
degree. In addition, major countries such as China and the US are still vigorously
strengthening infrastructure construction. That China has entered the first year of the
14th Five-Year Plan and that the infrastructure construction plans are introduced by
the US, coupled with the rapid development of logistics and transportation, will help
to promote the growth of diesel demand. However, considering the acceleration of
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Fig. 4 Global oil demand changes compared with pre-pandemic level. Data source IEA, Unipec
Research & Strategy Dep. (URS)
diesel substitution and high prices in China, it is expected that the performance of
diesel for the whole year will not be as strong as last year. In 2021, the demand for
jet fuel is expected to step out of the bottom in 2020. However, due to COVID-19
and major airlines’ spending cuts, the recovery of flights, especially the recovery of
international routes, is slow, and more business people prefer online meetings than
business trip on a flight, which inhibits the demand for jet fuel. It is believed that the
demand for jet fuel will not return to the pre-pandemic level until the end of 2022.
2.4 Supply Side: OPEC Maintained a Small Increase
in Production, and Global Supply Growth Is Generally
Limited
On April 1, 2021, the OPEC+ Ministerial Conference reached a small gradual production increase agreement. According to the OPEC+ post-meeting statement, OPEC+
will increase the production by 350,000 bpd in May and June 2021, and by 450,000
bpd in July. Saudi Arabia will withdraw its voluntary production reduction of 1 mmbd
by stages, increasing production by 250,000 bpd in May, 350,000 bpd in June and
400,000 bpd in July. On the whole, the OPEC+ Oil Production Cut Alliance will
increase production by 600,000, 700,000 and 850,000 bpd in May, June and July,
respectively, which is generally controllable compared with the demand growth. In
late July, after difficult negotiations, OPEC+ decided to extend the existing production cut agreement to December 2022, adding 400,000 bpd from August 2021 until
the total reduction of 5.76 mmbd is fully achieved. From May 2022, Saudi Arabia
and Russia each will raise their baseline of production cuts by 500,000 bpd to 11.5
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Fig. 5 OPEC+ output change. Data source OPEC, Unipec Research & Strategy Dep. (URS)
million bpd, UAE increase by 330,000 bpd to 3.5 mmbd, and Iraq and Kuwait raise by
150,000 bpd to 4.803 mmpd and 2.959 mmbd, respectively. In general, all combined
increase in production will reach 1.63 mmbd from May 2022. In our view, the OPEC+
agreement to increase production lays the foundation of the rebalancing of the oil
market this year. We expect global destocking to continue in the second half of the
year, but we expect the market to return to a loose stance in 2022 as producers increase
production and baselines.
For Non-OPEC countries, the low oil price in the previous year has had a huge
impact on American shale oil producers. Shale oil producers have cut capital expenditure on a large scale, and shareholders require higher return on capital. What’s
worse, a large number of debts are due. It is predicted that there will be no substantial increase in upstream investment in 2021, and the US shale oil production will
pick up slowly. The annual average output will be less than 8 mmbd, down nearly
150,000 bpd year-on-year. In addition, in 2021, the output of Brazil’s pre-salt oil
will still increase by about 100,000 bpd, and the new oilfields in Norway will also
increase by about 100,000 bpd. Some newly put into operation oil sands projects in
Canada are expected to increase by about 300,000 bpd. The output growth of nonOPEC countries is still relatively limited. It is estimated that the global oil supply
will be about 95 mmbd in 2021, with a year-on-year growth of only about 2.2 mmbd,
which is less than demand growth (Fig. 5).
2.5 Inventory: Destocking Accelerated Throughout the year,
and Global Inventory Gradually Returns to Normal
Levels
It is known that inventory is the ultimate embodiment of co-ordination of supply and
demand. Since 2020, the supply and demand were mismatched, resulting that global
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oil inventories have once risen to the highest level in history. Since the fourth quarter
of 2020, driven by the recovery of demand and the production reduction of OPEC,
global inventories have gradually declined. It is estimated that the global supply–
demand gap will reach about 1.3 mmbd in 2021, so that the global inventory will
be further reduced. According to the statistics of Kayrros and FGE, two consulting
agencies, as of the beginning of July 2021, the inventory of global onshore crude
oil was 3.01 billion barrels, 200 million barrels lower than the high point in 2020,
while that of onshore products were 640 million barrels, nearly 100 million barrels
lower than the highest point in 2020. Except for China, the inventory levels of major
countries and regions in the world have basically returned to normal level, especially
the crude oil and products inventories in the US have fallen below the five-year
average.
The latest data from the International Energy Agency (IEA) shows that, among
OECD countries, the OECD commercial oil inventory has declined for eight consecutive months as of the end of April 2021. In April, the total inventory dropped by
41.5 million barrels to 2.93 billion barrels on a monthly basis, which is still 6 million
barrels lower than the average in the past five years and the overall inventory level
was low. Among them, the inventory of crude oil was 1.14 billion barrels, 480.9
million barrels lower than the same period of last year, while that of products such
as gasoline, kerosene and diesel was 1.46 billion barrels, about 89.4 million barrels
lower than the same period of last year. In terms of the number of days available,
the current OECD inventory can meet the oil demand for 101 days, with sufficient
inventory (See Fig. 6).
Fig. 6 OECD commercial oil inventory. Data source IEA, Unipec Research & Strategy Dep. (URS)
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2.6 Refining: The Global Refining is Gradually Recovering
but Hard to Reach the Pre-pandemic Normality
As mentioned above, the global refining suffered a lot under the influence of the
COVID-19 pandemic, and old refineries in Europe and America were closed down
one after another. However, opportunities and challenges coexist. The COVID-19 has
accelerated the restructuring and optimization of the entire refining. Besides outdated
production capacities will continue to be phased out to realize the metabolism within
the industry. As many old refineries in Europe and America are permanently closed,
the competitive and operational advantages of large-scale integrated refineries led by
China are further highlighted. East of Suez will continue to largely improve refining
capacity. It is predicted that the world will usher in a new round of refinery production
peak in 2021, with an estimated new capacity of about 2.04 mmbd, mainly from Asia
and the Middle East, including Shenghong Petrochemical (16 million tons/year),
Saudi Jazan Refinery (20 million tons/year) and Kuwait Al-Zour Refinery (30.75
million tons/year).
From the perspective of refining margins, since 2021, the demand for gasoline
and diesel in the US has recovered strongly, and the largest oil pipeline in the US
has been hacked, which has greatly improved the refining margins in the Gulf of
Mexico. In the first half of 2021, the average was $10.70/bbl, a year-on-year increase
of $2.4/bbl, roughly restored to 70% of pre-pandemic level. Since the European
region was greatly affected by the blockade policy, the average refining margins in
the first half of the year was $1.94/bbl, down 1.72 $/bbl year-on-year, and recovered
to about 50% before the pandemic, but it has deteriorated again since July 2021. The
refining margins in Singapore recovered steadily, with the average level of $1.92/bbl
in the first half of the year, increasing by $1.79/bbl year on year and recovering
to about one third before the pandemic. However, considering that the global oil
demand is difficult to fully return to pre-pandemic level in 2021, the competition in
refining is further intensified, and industrial upgrading and transformation are also
on the fast track, it is expected that the global refining margins are still difficult to
fully reach pre-pandemic levels (Fig. 7).
2.7 Geopolitics: Geopolitics Will Still Be Turbulent
and the Recovery of Iranian Crude May Come Back
Later Than Expected
Since the beginning of this year, the geopolitical conflicts in the Middle East have
escalated gradually. Recently, Houthi armed forces have increased the frequency of
attacks on Saudi refineries, ports, docks and other oil facilities, resulting in frequent
attacks. However, thanks to more and more advanced intercept technologies, the
attacks failed to greatly affect the output. However, after these incidents, it cannot
be ruled out that Saudi Arabia will take retaliatory measures, and Houthi armed
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Fig. 7 Changes in refining margins of complex refineries in three places. Data source Reuters,
Unipec Research & Strategy Dep. (URS)
forces in Saudi Arabia and Yemen are at daggers drawn and the situation will still
intensify. The geopolitical situation in the Middle East will become more turbulent.
In addition, after the new US President Biden took office, he made major adjustments
to the Middle East policy and carried out the rebalancing strategy in the Middle East.
First, he kept Saudi Arabia and other traditional American allies down and changed
Trump’s one-sided support to Saudi Arabia and Israel. What’s more, the US tried
to release goodwill to Iran in order to seek dialogue between the US and Iran. In
addition, the US-Russia relations have been quite tense recently. Biden has repeatedly
released unfriendly signals to Russia and threatened to impose new sanctions on
Russia. Russia has recently announced the recall of its ambassador to the US, and
threatened to increase production to suppress US shale oil. Some media said that
US-Russia relations have entered the worst moment in 41 years.
Since the US imposed sanctions in May 2018, Iran’s crude oil output has dropped
from 3.8 mmbd before sanctions to about 2 mmbd, and its export volume has once
dropped from about 2.5 mmbd to a record low of 100,000 bpd (See Fig. 8). Since the
fourth quarter of 2020, with a large number of illegal crude oil flowing into the market,
the consulting agency said that Iran’s actual export volume has reached 1 mmbd.
After taking office, the new US President Biden has actively promoted negotiations
with Iran. Since April 2021, the parties involved in the Joint Comprehensive Plan
of Action (JCPOA) on Iranian nuclear issue have held six rounds of negotiations in
Vienna. It is reported that about 60% of the JCPOA has been reached, but the US and
Iran failed to reach agreement on key issues. Although Iran’s newly elected President
Ebrahim Raisi made it clear that he would support and continue to promote the Iran
nuclear talks, the latest statements made by the US and Iran showed that there are
still important differences between the two countries on many issues, so the prospect
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Fig. 8 Iranian crude oil production and export volume. Data source Kpler, Unipec Research &
Strategy Dep. (URS)
of the Iran nuclear talks is once again in an uncertain state. At present, the market
generally predicts that Iranian crude oil will finally return to the market in the fourth
quarter of 2021 or the first quarter of 2022.
3 Prospect on Medium and Long-Term Oil Market
Over the longer term, the global political and economic structure will enter a
new phase of turbulence and game period. The unprecedented changes in the past
100 years will profoundly affect the international oil market. The combined influence
of pandemic and low-carbon energy transition will bring profound changes to global
economy, demand, supply and oil refining, which are manifested in the following
aspects.
3.1 Medium and Long-Term Global Economic Growth Faces
Some Challenges
Today’s global economy is undergoing major adjustments and transformation, with
structural contradictions superimposed with cyclical factors. After a strong rebound
in 2021, it is predicted that the global economy will generally show a pattern of high
deficit, high debt, low growth and low inflation in the next few years. The impact
of COVID-19 outbreak on global economy is lasting and profound, and it will take
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quite some time to repair the global supply chain, industrial chain and trade chain. In
response to the pandemic, countries have adopted unprecedented fiscal and monetary
stimulus measures. While boosting the economy, these measures will undoubtedly
increase the governments’ financial burden, and at the same time, lead to deeper
liquidity flooding and larger financial market fluctuations. In addition, since the start
of the pandemic, the relations between major powers have been divided, and the trend
of global populism and reverse globalization has intensified. The relations between
China and the US, the US and Europe, the US and Russia and other major powers are
facing new evolutionary challenges. The new round of strategic competition between
China and the US has intensified, and mutual trust and potential economic and trade
cooperation between the two sides are facing great challenges, which will reshape
the international political and economic structure.
3.2 Medium and Long-Term World Oil Demand Has Entered
a Low Growth Stage
Affected by the low growth of the world economy, the global oil demand in the postpandemic era may enter a low growth stage, and the increment and growth rate may
drop by a step compared with those in the past few years. The COVID-19 has not only
greatly impacted the world economy, but also profoundly changed people’s living and
working styles. More and more companies choose teleworking. Moreover, companies
such as Google and Twitter have announced that their employees can work from home
permanently, which will have a huge impact on the oil demand. In addition, alternative
energy such as electric vehicles, natural gas and biofuels are still expected to enter a
rapid development stage in the future, and the sharing economy and the improvement
of fuel efficiency will continue to exert pressure on traditional oil demand. China
has announced the goal of carbon peak by 2030 and carbon neutrality by 2060, and
more and more countries and regions have announced the goal of net zero emission,
which will have a huge impact on fossil fuel consumption, and decarbonization and
hydrogen energy are expected to enter the fast lane of development (International
Monetary Fund 2021). It is worth noting that in 2025, Norway, the Netherlands and
other countries will formally implement the plan to ban the sale of fuel vehicles, and
the challenge of new energy to traditional energy will enter a new stage.
3.3 Medium and Long-Term World Oil Supply is Facing
Great Uncertainty
The outbreak of the COVID-19 caused the oil price to fall to a 20-year low and fell
below the oil production cost of most countries. Affected by the decline in oil prices,
overall global upstream oil and gas investment dropped to the historical freezing
In-Depth Analysis on International Oil Market …
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point, and the investment expenditure dropped sharply to $380 billion, down 32%
year-on-year, the lowest level in 15 years. In the medium and long term, the reduction
of capital expenditure in 2020 will not only affect the projects that producers plan
to start this year, but also affect the projects that will be put into production in the
next few years. Some of them may be delayed, others may be directly cancelled, and
even some old oilfields with high operating costs and low production capacity will
be permanently closed. Generally speaking, the upstream investment in global oil
and gas industry will grow slowly in the next few years, while the conventional oil
and gas investment will remain sluggish. The growth of unconventional investment
including shale oil, deep water, salt water, extra heavy oil and oil sands will also bear
certain pressure in the post-pandemic era, which will greatly increase the uncertainty
of global oil supply. Coupled with OPEC’s continuous production reduction in the
next two years, the global oil supply may be in a tight supply pattern in some periods.
3.4 Medium and Long-Term Oil Prices May Return
to the Rebalancing Range
Since 2000, oil price has gone through several rounds of ups and downs. From 2011
to 2014, under the background of geopolitical turmoil such as the Jasmine Revolution
in the Middle East and the rapid growth of oil demand in China and India, oil price
has maintained a high level above $100/bbl for four years. During 2015–2019, with
the rise of shale oil revolution and the slowing demand of emerging economies, Brent
price fluctuated in the range of $50–70/bbl most of the periods. In the post-pandemic
era, although oil demand has entered a low growth stage, oil supply is also facing
great uncertainty, and oil prices may return to the previous rebalancing range. It is
estimated that Brent will fluctuate in the range of $50–80/bbl most of the periods
in the medium and long term. Meanwhile, the uncertainty of geopolitics and global
supply in the post-pandemic era still exists or even intensifies, and oil price may still
show great ups and downs in individual periods.
3.5 The New Round of Reshuffle of Medium and Long-Term
Oil Companies Will Continue to Intensify, and Energy
Transformation Will Accelerate
The combined forces of pandemic and low oil price have brought great test for oil
companies’ operating conditions, profitability and anti-risk ability. In 2020, most
oil companies in the world suffered unprecedented losses, with ExxonMobil losing
$22.4 billion, Shell losing $21.7 billion and BP losing $20.3 billion. In addition,
oil service companies such as Schlumberger, Baker Hughes, and Halliburton, are
caught in the dilemma of stock price collapse, operating loss and massive layoffs,
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and Singapore oil giant Hin Leong is also caught in an unprecedented debt crisis. In
the medium and long term, despite the rebound of oil prices, the environment of the
energy industry is still facing many challenges. Under the shrinking market share,
the competition among companies will become more intense. The new reshuffle of
oil companies will intensify, and some small and medium-sized oil companies will
inevitably fall into the dilemma of bankruptcy and restructuring. Meanwhile, the
COVID-19 accelerated the energy transformation of major oil companies. Shell, Total
and BP announced that they would achieve carbon neutrality before 2050, vigorously
develop new energy business, gradually increase the production of renewable energy
and realize the transition from “big oil” to “big energy”.
References
China National Bureau of Statistics (2021) Statistical Bulletin of China National Bureau of Statistics
[EB/OL]. http://www.stats.gov.cn/
Energy Aspects (2020–2021) Fundamentals. Energy Aspects, London
International Energy Agency (2020–2021) Oil market report. IEA, Paris
International Monetary Fund (2021) World economic outlook update. IMF, Washington, D.C.
Organization of Petroleum Exporting Countries OPEC (2020–2021) Monthly oil market report.
OPEC, Vienna
Shi L (2021) Study on the road of oil company transformation under carbon neutrality target. Petrol
Petrochem Today 29(06):23–19
U.S. Energy Information Administration (2020–2021) Short-term energy outlook. EIA, Washington, D.C.
Wang P (2020) Global petroleum market trend analysis in post-COVID-19 era. 28(7):6–12, 54
Analysis and Prospect on Global Oil
Supply Under the Production Reduction
of OPEC+
Ren Na and Zhang Hongmei
1 Review of Global Oil Supply in 2020
In 2020, the oil price dropped sharply due to the COVID-19,and the global oil industry
cut upstream capital expenditure by nearly $100 billion, which was about 30% less
than originally planned. Affected by this, OPEC + oil producers reduced production
on a large scale, and the supply of non-OPEC oil producers such as the US and
Canada fell sharply. In 2020, the global oil supply was 93.93 mmbd, with a year-onyear decrease of 5.91 mmbd. Among them, the crude oil supply was 73.52 mmbd,
with a year-on-year decrease of 5.89 mmbd, hitting the largest decline in history (See
Fig. 1).
1.1 OPEC+ Reached the Largest Production Reduction
Agreement in History
For the sharp drop in global oil demand caused by the COVID-19 in 2020, the
OPEC + Production Reduction Alliance, composed of ten OPEC production countries and ten non-OPEC countries headed by Russia, reduced production significantly
throughout the year to restore the rebalance of the oil market as soon as possible,
with the largest scale of production reduction and the highest frequency of meetings. OPEC + , a production reduction alliance under the CoC, accounts for 52% of
global crude oil production and plays the role of regulator in the oil market, and is the
most important organization in the international oil market. From January to March
R. Na (B) · Z. Hongmei (B)
Research & Strategy Department, China International United Petroleum & Chemicals Co., Ltd.,
Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_5
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Fig. 1 Global oil supply increment in 2020. Data source IEA, OPEC, EIA, Unipec Research &
Strategy (URS)
2020, OPEC + oil producers continued the last round of production reduction agreement, and the scale of production reduction was 1.7 mmbd. Due to the breakdown of
negotiations between Saudi Arabia and Russia in March, major oil producers began
to increase production substantially in April. With the plunge in oil prices, OPEC
+ finalized the largest production reduction agreement on April 13, 2020. OPEC
+ Joint Ministerial Supervision Committee (JMMC) held monthly meetings in the
second half of 2020 to evaluate the market, the implementation of the agreement
and determine the next production reduction policy. In 2020, under the OPEC + ’s
large-scale production reduction, the global supply and demand situation gradually
tightened. The oil price gradually rebounded from the low of $20/bbl in April 2020,
and OPEC + successfully achieved the goal of limiting production to ensure prices
(See Fig. 2).
In 2020, driven by the production reduction agreement, the total crude oil production of 20 OPEC + countries was 37.69 mmbd, with a year-on-year decrease of 4.32
mmbd and an implementation rate of production reduction of 103%. Among them,
the crude oil production of ten OPEC countries participated in production reduction was 22.81 mmbd, with a year-on-year decrease of 2.79 mmbd and the average
implementation rate of production reduction of 99%. In terms of countries, Saudi
Arabia continued to act as the leader in production reduction in 2020. In June 2020,
it reduced production by an additional 1 mmbd. The annual crude oil production
averaged 9.19 mmbd, with a year-on-year decrease of 590,000 bpd. The average
implementation rate of production reduction throughout the year is 124%. Due to
the large domestic financial pressure and the large share of international oil giants in
Iraq’s oil production, Iraq’s production reduction is relatively difficult. The annual
crude oil production averaged 4.05 mmbd, with a year-on-year decrease of 640,000
bpd. The average implementation rate of production reduction is 81%. The UAE has
maintained a good implementation rate of production reduction since May. The crude
oil production of UAE was 2.8 mmbd, with a year-on-year decrease of 270,000 bpd
and an implementation rate of production reduction of 102% from May to December
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Fig. 2 Review of the results of OPEC + conferences since 2020
2020. Kuwait’s crude oil production was 2.44 mmbd, with a year-on-year decrease of
250,000 bpd and an implementation rate of production reduction of 101% from May
to December 2020. Angola’s crude oil production was 1.26 mmbd, with a year-onyear decrease of 140,000 bpd and an implementation rate of production reduction of
106% from May to December 2020 (OPEC. Monthly Oil Market Report[R].2020).
The crude oil production of ten non-OPEC countries involved in production
reduction was 14.88 mmbd, with a year-on-year decrease of 1.52 mmbd and an
average implementation rate of production reduction of 92% (IEA. Oil Market
Report[R].2020). From the perspective of countries, due to the sharp reduction of
processing capacity by European refiners, Russia’s crude oil production and export
volume have fallen sharply since the start of this production reduction cycle. In
2020, Russia’s crude oil production was 10.27 mmbd, with a year-on-year decrease
of 980,000 bpd. The implementation rate was 90%, which was significantly higher
than the previous 80% reduction implementation rate. In May 2020, Kazakhstan
government signed a decree to implement OPEC + production reduction agreement
from May, but the implementation effect was not satisfactory. In 2020, Kazakhstan’s
crude oil production was 1.5 mmbd, with a year-on-year decrease of 140,000 bpd
and an average production reduction implementation rate of only 81%.
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1.2 Political Upheaval Has Led to a Decline in Production
in Countries with Exemption for Production Reduction
Since 2019, Iran, Libya and Venezuela have been exempted from production reduction among OPEC member countries due to the special reasons of U.S. sanctions or
civil war. In 2020, the production of these three oil producers declined to varying
degrees.
Libya declared force majeure. After Gaddafi’s regime was overthrown in 2011,
Libya was in constant turmoil, and Tripoli-based Government of National Accord
(GNA) supported by the United Nations and the Libyan National Army (LNA)
led by Haftar were fragmented and confronted. The distribution of oil revenue has
always been the key to the conflict between the eastern and western governments in
Libya. The eastern government controls most oilfields and ports, but cannot obtain
oil revenue through the Central Bank of Libya. All Libya’s energy revenue is remitted
to the Libyan National Oil Corporation (NOC) through the central bank in Tripoli.
On January 18, 2020, Haftar announced the closure of crude oil export ports in the
eastern part of Libya, and then NOC declared the force majeure for the export of
crude oil, and Libya’s oil production dropped rapidly to about 100,000 bpd. After
more than eight months of blockade, NOC announced the lifting of force majeure on
oilfields and ports in September 2020.Libya’s crude oil production averaged 368,000
bpd in 2020, with a sharp decrease of 730,000 bpd year-on-year (See Fig. 3).
Venezuela’s crude oil production continued to decline. Due to the lack of
upstream investment, poor infrastructure and serious domestic inflation in recent
years, Venezuela’s crude oil production has been declining continuously. In January,
2019, the US began to impose sanctions on Venezuela, resulting in a significant
reduction in Venezuela’s crude oil production and export volume. In February 2020,
the US imposed sanctions on Rosneft Trading SA, a trading subsidiary of Rosneft,
and its CEO for concealing the export of oil from Venezuela. In 2020, Venezuela’s
Fig. 3 Crude oil production of Libya. Data source OPEC, Unipec Research & Strategy (URS)
Analysis and Prospect on Global Oil Supply Under the Production …
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annual crude oil production averaged 500,000 bpd, the lowest level in history, with
a year-on-year decrease of 290,000 bpd.
Iran’s crude oil production has declined for three consecutive years. Since May
2019, Iran’s crude oil production and export volume decreased significantly when the
US canceled the exemption of oil imports from Iran. The floating inventory of crude
oil of National Iranian Oil Company (NIOC) is maintained at 60 million barrels.
In 2020, Iran’s crude oil production was 1.99 mmbd, a year-on-year decrease of
370,000 bpd. It declined for the third consecutive year, 1.8 mmbd lower than before
the sanctions.
1.3 American Shale Oil Producers Have Been Greatly
Affected
In recent years, since investors pay more attention to cash flow and capital return,
American shale oil producers have reduced funding sources. With prominent debt
problems and the bottleneck of production technology, they face increasingly difficult
production conditions. In 2020, the plunge in oil prices caused the share prices of
shale oil producers and major oil service companies in the US to fall by 40–70%,
and producers faced a large risk exposure for hedging. Due to difficult financing
environment, oil producers reduced capital expenditure and drilling rigs. In 2020, the
upstream capital expenditure of American oil industry was reduced from the original
planned 147.8 billion to $105.9 billion, with a reduction rate of 28%, accounting for
42% of the global total reduction scale. Since the oil price plummeted in mid-March
2020, the number of active oil drilling rigs in the US has dropped sharply. As of
mid-August, the number of active oil drilling rigs in the US has dropped to 172,
which was 74% lower than that in the beginning of the year. The number of frack
crews has dropped to 70, a significant decrease of 78% compared with that in the
beginning of the year. Shale oil wells usually show a very high initial decline rate. In
2020, the decline rate of old shale oil wells in the US exceeded the contribution rate
of new wells, resulting in a sharp decline in shale oil production. The annual crude
oil production in the US was 11.31 mmbd, with a year-on-year decrease of 930,000
bpd. Shale oil production was 8.09 mmbd, with a year-on-year decrease of 550,000
bpd(EIA. Short Term Energy Outlook[R].2020. xxxx) (See Fig. 4).
1.4 Non-OPEC Oil Producers Responded to the Impact
of Low Oil Prices by Production Reduction
Ultra-long overhaul was carried out in Brazil oilfield. Affected by the COVID-19 and
low oil prices in the first half of 2020, Petrobras temporarily suspended the operation
of 62 shallow water production platforms located in Campos, Sergipe, Potiguar and
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Fig. 4 Changes in the number of oil drilling rigs and crude oil production in the US. Source EIA,
Baker Hughes, Unipec Research & Strategy (URS)
Ceara basins, and cut the production target in 2020 by 200,000 bpd. In the second
half of the year, Buzios, Tupi and Sapinhoa oilfields began to have an extremely
long overhaul period of five months. Petrobras had 37 floating production storage &
off-loading units (FPSO) for overhaul in 2020, and each platform was closed for
15–20 days. Affected by the maintanance, Brazil’s crude oil production decreased
from 3.1 mmbd in August 2020 to 2.7 mmbd in December 2020. However, due to
the low base in 2019, Brazil’s crude oil production in 2020 was 2.94 mmbd, with a
year-on-year increase of 150,000 bpd. The production of pre-salt oil accounted for
69% of Brazil’s crude oil production.
Canada’s production wells were forced to shut down. In 2020, some production
wells in Canada were forced to shut down due to the plunge in oil prices. In the
first half of 2020, the crude oil production in Alberta province decreased by about 1
mmbd. Alberta’s crude oil production accounts for nearly 90% of Canada’s total crude
oil production. Due to the pipeline transportation limitation, Alberta government of
Canada has implemented the production ban since January 2019, and announced the
lifting of the ban in December 2020. With the price rising and maintenance ending,
the oil sand production in Alberta of Canada reached 3.3 mmbd in December 2020,
hitting a record high. The oil production basically recovered to the pre-pandemic
level. In 2020, Canada’s crude oil production was 4.03 mmbd, with a year-on-year
decrease of 220,000 bpd. The oil sand production was 2.83 mmbd, with a year-on-year
decrease of 120,000 bpd.
The production in Norway has increased for the first time in recent four years.
Due to the aging of mature oilfields, the crude oil production of Norway decreased
year by year after 2000. In October 2019, the Phase I Project of Johan Sverdrup, a
giant oilfield in Norway, was put into operation with an initial production capacity
of 430,000 bpd, which completely reversed the declining trend of Norway’s crude
oil production. From June to December 2020, Norway voluntarily participated in the
production reduction operation. In June 2020, Norway planned to reduce production
by 250,000 bpd to 1.609 mmbd. From July to December, 2020, the production would
Analysis and Prospect on Global Oil Supply Under the Production …
107
be reduced by 134,000 bpd to 1.725 mmbd. Since the production of Johan Sverdrup
oilfield offset the impact of production reduction, Norway’s crude oil production in
2020 was 1.69 mmbd, with a year-on-year increase of 280,000 bpd, which increased
for the first time in the past four years.
Mexico’s production declined for sixteen consecutive years. Because the new
president of Mexico plans to promote oil investment and reverse the declining trend
of Mexico’s production, and Mexico implements hedging every year, which makes
it have strong low oil price tolerance, Mexico withdrew from OPEC + production reduction agreement in the second half of 2020. In 2020, Mexico’s crude oil
production was 1.67 mmbd, with a year-on-year decrease of 60,000 bpd, which was
the 16th consecutive decline in production. Pemex’s crude oil production was 1.61
mmbd(Platts. xxxx).
Investment in Colombia has fallen sharply. In 2020, Colombia’s investment in oil
and gas industry decreased by 49% to $2.05 billion year-on-year, the lowest level
since 2016. Among them, exploration investment decreased by 55% year-on-year to
$350 million. Production investment decreased by 48% year-on-year to $1.7 billion.
Affected by this, Colombia’s crude oil production in 2020 was 780,000 bpd, with a
year-on-year decrease of 105,000 bpd.
Guyana’s new oilfield basically has stable production. Liza-1, a new offshore
oilfield in Guyana, was put into production on December 20, 2019. Exxon Mobil
Corporation exported first shipment of crude oil from Guyana in January 2020,
marking Guyana as a crude oil exporter for the firsttime. The Phase I production of
Liza oilfield was currently stable at 120,000 bpd.
2 Prospect on Global Oil Supply in 2021
In 2021, the global oil supply is expected to bottom out. It is estimated that the annual
oil supply will increase by 2.5 mmbd year-on-year to 96.38 mmbd, among which the
crude oil production will increase by 2.2 mmbd to 75.75 mmbd from a year earlier.
The major oil producers have achieved year-on-year growth, but it is still difficult
to return to the level in 2019. In 2021, oilfield projects of about 2.5 mmbd will be
put into production worldwide, among which 2 mmbd are distributed in non-OPEC
countries.
2.1 OPEC+ is Expected to Relax the Production Reduction
Quota by Stages
Due to the second outbreak of COVID-19 in Europe and America at the end of
2020, OPEC + reached an agreement to gradually relax production reduction. In
January 2021, member countries adjusted the production reduction quota from 7.7
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million to 7.2 mmbd. In February and March 2021, Russia and Kazakhstan reduced
their production quotas by 65,000 bpd and 10,000 bpd per month, and Saudi Arabia
voluntarily reduced production by 1 mmbd. The production quotas of other member
countries remained the same as in January. In April 2021, OPEC + decided to
continue the production reduction agreement. Russia and Kazakhstan were allowed
to increase production by 130,000 bpd and 20,000 bpd respectively and Saudi Arabia
maintained a voluntary production reduction of 1 mmbd. Meanwhile, the production
reduction quotas of other member countries remained unchanged. This cautious
decision showed that oil producers have strong desires to limit production and protect
prices.
Saudi Arabia and Russia, as two “leaders”, are the key to the production decision
of OPEC + meeting. In 2021, the oil price for Saudi Arabia to maintain a balanced
budget is $75/bbl, while that for Russia is $64/bbl. After experiencing the painful
lessons of ultra-low oil prices and negative oil prices in 2020, oil producers have
a very strong willingness to take collective action and limit production to ensure
prices. Saudi Arabia once said that producers must be cautious and warned the short
position, expressing the determination to support the market by postponing voluntary
production reduction. The declining support rate of the ruling party in Russia and
the aging population, coupled with the slow recovery of the production of rival
American shale oil producers, have increased Russia’s desire for higher oil prices. It
is predicted that OPEC + oil producers will still play roles as market regulators in
2021, and will adjust their production policies through frequent meetings. With the
recovery of oil prices, it will be the general trend for OPEC + to gradually relax its
quota of production reduction. In the first half of 2021, considering that the recovery
of oil demand is still slow due to the repeated pandemics in Europe in the first half
of 2021, OPEC + maintain a high scale of production reduction. According to the
latest OPEC + agreement, the alliance will increase 400,000 bpdper month from
August 2021, until the reduction quota is fully restored. It is expected that OPEC
+ will withdraw from the current production reduction quota by September 2022.
Under this scenario, the increase in production in the H2 2021 will basically offset
the decrease in the first half of the year. The crude oil output of OPEC + is expected
to be 37.69 million bpd in 2021, basically the same year-on-year. (See Fig. 5).
2.2 The Production Prospects of Countries With Reduced
Production Exemptions Are Full of Variables
Iran nuclear talks are expected to make progress. After Biden’s administration took
office, the US gradually released positive signals of Iran nuclear talks. The US and
Iran constantly test each other. The US says it is ready to discuss the nuclear issue
with Iran, while the Iranian government has repeatedly said that lifting the sanctions
by the US is the prerequisite for Iran to return to the Iran nuclear deal. In June 2021,
the hardliner Raisi wined the Iranian presidential election, which makes the situation
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Fig. 5 Production expectations of OPEC + oil producers. Data source OPEC, IEA, Unipec
Research & Strategy (URS)
more uncertain.After the inauguration of the new president, the negotiations on the
Iranian nuclear deal have stalled, coupled with the supreme Leader Khamenei’s new
demands, the uncertainty of the negotiations has increased.Now the return of Iranian
crude oil is expected to be delayed. In 2021, Iran’s crude oil production will be 2.25
million bpd, with a year-on-year increase of 270,000 bpd (See Fig. 6).
The situation in Venezuela continues to deteriorate. At present, the Biden administration is in no hurry to lift the sanctions imposed on Venezuela. In March 2021,
US Secretary of State Antony Blinken made the first call with Venezuelan opposition leader Guaido, saying that the US is making efforts to help Venezuela achieve
democratic transition and will provide humanitarian assistance. Considering that
Fig. 6 Crude oil production and export volume of Iraq. Data source OPEC, Unipec Research &
Strategy (URS)
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the United States Congress opposes Maduro’s government and Venezuela’s regime
change is unlikely, it is expected that the US will still maintain sanctions against
Venezuela in 2021. The situation in Venezuela will continue to deteriorate in 2021,
and the crude oil production is expected to decrease by 40,000 bpd year on year to
460,000 bpd.
There is still a risk of supply disruption in Libya. In February 2021, under the
mediation of the United Nations, Libya established an interim government, and representatives of both parties to the conflict agreed to hold presidential and parliamentary
elections in December 2021. Although Libya’s crude oil production has returned to
normal level, there is still a risk of supply interruption in Libya considering the
complicated domestic conflicts. It is estimated that Libya’s crude oil production will
be 1.27 mmbd in 2021, which is basically maintained at a normal level, increasing
by 900,000 bpd from a year earlier.
2.3 The Shale Oil Production of the Us is Expected
to Recover
In 2021, American shale oil producers will still pay attention to cash flow and shareholder returns. With the recovery of oil prices, shale oil production is expected
to gradually recover. In 2021, large shale oil producers in the US are expected to
increase capital expenditure by 10%, while small and medium-sized producers will
only increase by 2%. It is difficult for these producers to return to the capital expenditure level before the pandemic. The Drilled but Uncompleted Wells (DUCs) of large
producers accounted for 50%, while the DUCs of small and medium-sized producers
only accounted for 14%. The cost of building a DUC into a completed well is 60% of
the whole process of drilling and completion. Large caps will be produced mainly by
consuming DUC to save cost. From August 2020 to March 2021, there were about
140 new active oil drilling rigs in the US, of which 90 were from small and mediumsized shale oil producers. It shows that small and medium-sized shale oil producers
are the main source of the increase in the number of oil drilling rigs in the US. Shale
oil production has a high attenuation rate. According to measurement and calculation of Energy Aspects, 700 new onshore completed wells are needed every month
in the US to keep the production basically stable. However, the average number of
newly completed wells in the US was 470 per month from April 2020 to January
2021, so the shale oil production in the US continued to decline. President Biden
advocated the development of new energy. After taking office, he issued a 60-day
ban on federal land drilling licenses. However,the producers have already reserved
nearly 9,000 drilling licenses on federal land in advance which will be valid for the
next 2 years. More than 60% licenses are located in Delaware Basin, New Mexico,
and it is expected to have no impact on supply in the short term. We estimated that
American crude oil production will decrease by 270,000 bpd year-on-year to 11.05
mmbd in 2021. With the recovery of oil prices, shale oil is expected to usher in a
Analysis and Prospect on Global Oil Supply Under the Production …
111
Fig. 7 Trends of American crude oil productions. Data source OPEC, Unipec Research & Strategy
(URS)
recovery, and the production will gradually increase in the second, third and fourth
quarters (See Fig. 7).
2.4 Oil Producers Such as Brazil and Canada have Released
Growth Potential
Brazil’s pre-salt oil project was put into operation. With the recovery of oil prices,
the maintenance volume of Brazil’s oilfields gradually returned to the level before
the pandemic in March 2021. In 2021, Berbigao/Sururu oilfield (150,000 bpd) and
Atapu oilfield (150,000 bpd) are expected to increase production, while Sepia oilfield
(180,000 bpd) and Mero I oilfield (180,000 bpd) will be postponed to the second
half of 2021. The production of sub-salt oilfield in Brazil is expected to decrease
by 200,000 bpd from a year earlier, which partially offsets the impact of increasing
production of pre-salt oilfield. It is estimated that Brazil’s crude oil production in
2021 will increase by 100,000 bpd year-on-year to 3.03 mmbd, with the increase
mainly concentrated in the second half of the year.
Several oil sand projects in Canada have been put into production. Although
US President Biden canceled the license of US-Canada cross-border Keystone XL
pipeline with a transportation capacity of 830,000/day, Canada still plans to put
into production more than 1 mmbd of pipeline transportation capacity, of which TC
Energy Corporation plans to increase Keystone pipeline transportation capacity by
50,000 bpd in 2021, and Enbridge’s Line 3 replacement pipeline (370,000 bpd) is
expected to be put into production in the second half of 2021. In addition, Enbridge
plans to increase the pipeline capacity by 300,000 bpd after 2021. TransMountain
expansion project plans to increase the pipeline capacity by 590,000 bpd, which
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R. Na and Z. Hongmei
is expected to be put into operation in 2022. Due to the cancellation of production restrictions in Alberta, the commissioning of several oil sand projects and the
increasing pipeline transportation capacity in Canada, it is estimated that Canada’s
crude oil production will be 4.34 mmbd in 2021, with a year-on-year increase of
300,000 bpd.
The production capacity of Norway’s new oilfields is increasing. Johan Sverdrup’s
production has continuously set a new record high. Equinor said that the production
capacity of Phase I Project of Johan Sverdrup oilfield will increase to 535,000 bpd
in the second half of 2021. Its Phase II Project is planned to be put into production in
the fourth quarter of 2022 and then its capacity will further increase to 755,000 bpd.
In addition, oilfields including Yme, Martin Linge, Njord, Hyme, Bauge and Tor,
which were originally planned to be put into operation in 2020, have been postponed
until the second half of 2021. The production capacity of these oilfields is 220,000
bpd. It is estimated that the Norway’s crude oil production will increase by 110,000
bpd year-on-year to 1.8 mmbd in 2021.
Mexico is still struggling to increase production. Most of the oilfields in production
in Mexico are developed in early time, and the naturaldeclining rate leads to the
continuous decline of production. Pemex’s debt is as high as $110.3 billion, which
is the highest among all large oil companies. Over the years, it has been unable
to invest in new oilfields, and the production increase plans of 20 key oilfields are
lagging behind earlier expectations. It is predicted that Mexico will still be difficult
to achieve growth in crude oil production in 2021, and the production may further
decline to 1.69 mmbd.
Colombia plans to revive oil and gas industry. Ecopetrol said that it plans to invest
$12–15 billion in 2021–2023 with the rising oil price. Colombia’s goal is to maintain
the current production level through three methods, including providing 30–40 blocks
in the new round of auction held in mid-2021, higher oil recovery (EOR) projects
and shale oil development. Colombia plans to sign 15 oil exploration contracts in
2021, and sets its crude oil production target at 865,000 bpd in 2021.
Phase II Project of Guyana oilfield is scheduled to be put into operation next
year. Since 2015, Exxon Mobil has made 18 discoveries in the Stabroek block in
Guyana, containing 9 billion barrels of oil equivalent recoverable resources. Exxon
Mobil will continue its exploration in 2021, and plans to drill two exploration wells
in the Stabroek block. The Phase II Project of Liza oilfield is planned to be put into
production in 2022, with an estimated production capacity of 220,000 bpd.
Analysis and Prospect on Global Oil Supply Under the Production …
113
3 Medium and Long-Term Prediction of Global Oil Supply
3.1 The Production Of Medium Crude Oil Will Increase
Rapidly, and the Price Difference Between Light
and Heavy Crude Oil will Remain Narrow
In the medium and long term, the production of light, medium and heavy crude oil will
show different trends. The growth of global heavy crude oil supply will be restricted.
On the one hand, Venezuela and Iraq have insufficient long-term investment and poor
infrastructure. On the other hand, the requirements of developing green economy
in Canada and other countries restrict the production of heavy crude oil. At the
meantime, the global production of light crude oil has increased to a certain extent,
but it is still lower than the normal level. The increase of light oil in the US, Libya
and UAE is expected to mostly offset the decrease in the Soviet Union, the North
Sea and the Asia–Pacific region (Aspects and Crude oil quality_ 5-year outlook).
In the post-pandemic era, the production of medium crude oil will increase faster
than that of light and heavy crude oil. Saudi Arabia will lead the production growth
of medium and high-sulfur oil in OPEC oil producers, and new projects of Brazil,
Guyana, Norway and Nigeria will be launched. In addition, the production capacity
of complex refineries in the east of Suez will increase, and the large-scale closure
of simple refineries in Europe and America will further aggravate the tight supply
of heavy crude oil and further pressure the price of light crude oil. In the next five
years, it is expected that the heavy crude oil will gain traction globally, and the price
differential between light and heavy crude oil will remain narrow.
3.2 Oil Producers have Great Growth Potential and the World
will Enter an Era of Oversupply
According to BP Statistical Review of World Energy, 1.73 billion barrels of oil
reserves have been explored worldwide, with a reserve-production ratio of 50 years.
At present, the global surplus capacity is about 7.2 mmbd, among which OPEC’s
surplus capacity is as high as 6.1 mmbd, so major oil producers still have great
growth potential. Since May 2020, the oil market can quickly destock largely due to
the production reduction driven by OPEC + ’s unprecedented production reduction
agreement. With the gradual recovery of oil prices, OPEC + production is expected
to gradually return to normal. In addition, shale oil supply in the US is flexible
and the period from drilling to production is only 3–6 months. Therefore, shale
oil producers in the US have great growth potential. Under the accelerating global
energy transformation and low-carbon emission reduction, the peak demand for oil is
gradually approaching. In the next five year, the percentage of global oil consumption
in primary energy consumption is expected to decrease from 33% in 2019 to 30%.
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Driven by the release of supply potential and the reduction of oil demand, the world is
entering an era of oil oversupply. However, considering the geopolitical turmoil in the
Middle East in the short term, and the production of large oilfields may be interrupted
by armed attacks again, there may be a shortage of supply in some periods.
References
IEA ( 2020) Oil market report[R]
Platts (2020) World oil market forecast[R]
OPEC (2020) Monthly oil market report[R]
EIA (2020) Short term energy outlook[R]
Energy aspects. Crude oil quality_ 5-year outlook
Review and Medium- and Long-Term
Prospect of Global Oil Demand
Yi Cai and Zhiyuan Qin
1 Global Oil Demand in 2020 Hit the Largest Decline
in History
1.1 The COVID-19 Caused a Serious Recession in the Global
Economy
Under the COVID-19 around the whole world in 2020, countries adopted different
levels of blockade. The economic and production activities stagnated, the global
supply chains and market demands were hit hard, the cross-border trade and investment activities shrank sharply, the commodity market turmoil intensified, and the
global economic activities faced the worst recession in history. In April, the World
Monetary Fund (IMF) predicted that the global GDP would increase by −4.9%, far
exceeding the level of the global financial crisis in 2008. The cumulative loss of
global GDP caused by the COVID-19 was about $9 trillion, exceeding the economic
aggregate of Japan and Germany. Among them, developed countries in Europe and
America suffered the most severe impact. During the outbreak, it is expected that the
US economy will shrink by 8%, the Eurozone economy will decline by 10.2%, and
the India’s economy will decline by 10.3% after rapid growth. China will become
the only country to register positive growth in 2020, which is expected to increase
slightly by 1.9% (International Monetary Fund 2020) (see Fig. 1).
Y. Cai (B) · Z. Qin
Unipec, Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_6
115
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Y. Cai and Z. Qin
Fig. 1 GDP growth rate of major economies in the world. Data source Reuters, IMF, Unipec URS
1.2 The Pandemic Caused the Biggest Drop in Global Oil
Demand in History
The COVID-19 is highly infectious, showing a trend of concentrated outbreak and
multi-point spread. Countries have taken unprecedented measures to close roads and
cities, which has caused unprecedented serious impact on the global economy and
oil consumption. Major institutions, such as IEA, OPEC and EIA, have continuously
lowered the global oil demand for the whole year since the beginning of 2020, and
the overall oil demand has dropped by 8–9 mmbd year on year, setting the largest
decline in history (International Energy Agency 2020a). In terms of monthly data, the
oil demand in April was most affected by the pandemic. Due to the strict blockade
imposed by major countries in all regions of the world, the oil demand showed a
dramatic decline, with a month-on-month decline of nearly 23 mmbd to about 78
mmbd (see Fig. 2).
Fig. 2 Global oil demand growth trends over the years. Data source IEA, Unipec URS
Review and Medium- and Long-Term Prospect of Global Oil Demand
117
After the pandemic situation in major countries eased, the government increased
economic stimulus and accelerated economic recovery, which led to a gradual
recovery of oil demand. By July, the global oil demand has steadily increased to
93.4 mmbd, which was nearly 15 mmbd higher than the low level in April. However,
since the fourth quarter, with the northern hemisphere entering winter, the general
drop in temperature has accelerated the spread of the virus, and it is easier for the
virus to survive and spread at low temperature. The major countries in Europe and
the US have once again experienced serious outbreaks, which were much serious
than that in the second and third quarters. In order to control the pandemic, governments around the world announced the re-implementation of different degrees of
blockade, and the recovery of oil demand slowed down again. In the fourth quarter,
the overall oil demand in European dropped month-on-month, casting a shadow over
the recovery of global oil demand. COVID-19 vaccine has been authorized for emergency use in many countries since December, and vaccination in developed countries
such as the US, the UK, Israel and UAE has been accelerated. Due to problems such
as unbalanced vaccine production capacity and distribution, the vaccine can only be
administered to people in major developed countries in Europe and the US at present.
It is expected to administer vaccine in large scale until the second half of 2021, which
has a limited effect on the recovery of oil demand.
1.3 China’s Oil Demand Has Increased Year on Year,
and Other Countries Have Fallen Sharply
In 2020, under the impact of the COVID-19, the oil demand of major regions and
countries in the world has dropped sharply. Among them, the developed countries in
Europe and America are most seriously affected. The Asia–Pacific region performs
relatively well, and the overall demand recovery is faster than that in Europe and the
US. Other regions, such as the Middle East, Africa and CIS, have also been greatly
affected and declined to varying degrees.
In 2020, oil demand of Asia–Pacific region was 33.17 mmbd, with a year-onyear decrease of 1.6 mmbd. It accounted for 36.3% of the total global oil demand,
1.6 percentage points higher than that in 2019, and the overall proportion is still
increasing. From the perspective of major countries, in 2020, China’s apparent oil
demand increased by 550,000 bpd year on year to 13.43 mmbd, making it the only
major consumer country that achieved positive year-on-year oil demand growth under
the influence of the pandemic. Among them, gasoline and diesel decreased slightly
due to the pandemic blockade control measures, with a year-on-year decline of
200,000 bpd and 100,000 bpd, respectively. Products such as naphtha, LPG, fuel
oil and asphalt increased significantly due to the support of strong chemical demand
and infrastructure investment, which also reflected that China’s overall performance
in pandemic prevention and control and economic activity recovery was better than
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that of developed countries in Europe and the US. For India, an oil consumer in Asia–
Pacific region after China, its overall oil demand decreased by 480,000 bpd year on
year to 4.19 mmbd in 2020. India once became one of the countries most affected
by the pandemic in the world. In order to control the spread of the pandemic, its
government introduced strict blockade and isolation measures, resulting in a sharp
decline in gasoline, diesel and jet fuel. Diesel decreased by 250,000 bpd year on
year to 1.47 mmbd, while naphtha and LPG increased slightly year-on-year. In the
alleviation of the pandemic and accelerated recovery of economic activities, India’s
oil demand recovered rapidly, and it had risen to the pre-pandemic level by the end of
December. The oil demand of developed countries, such as Japan and South Korea,
also dropped sharply year on year. The impact of the pandemic led to a serious
decline in economic activities, and the transportation and aviation oil were greatly
impacted. In 2020, the oil demand of the two countries will decrease by 280,000
bpd and 200,000 bpd year-on-year, respectively. Other countries, such as Malaysia,
Indonesia and the Philippines, were also affected by the pandemic, with the decline
of oil demand of 100,000–200,000 bpd.
In North America, the oil demand was 22.05 mmbd in 2020, down 2.6 mmbd
compared with the same period of last year, accounting for 24% of the global oil
demand. Among them, the oil demand in the US suffered the most severe impact from
the pandemic. Traffic blockade control measures and the sharp decline in economic
activities led to a sharp decline in the demand for gasoline and diesel, which decreased
by 1.2 mmbd and 300,000 bpd year-on-year, respectively. The jet fuel demand also
showed a sluggish performance due to the long-term flight outage caused by the
pandemic, which decreased by 700,000 bpd year-on-year. Under the influence of the
global pandemic, the oil demand in Canada and Mexico also dropped significantly,
with a year-on-year decrease of 200,000 bpd and 280,000 bpd, respectively (see
Fig. 3).
Europe’s oil demand has also shrunk severely under the influence of the pandemic.
Since March 2020, major European countries have concentrated outbreaks, which
once became the epicenter of the global pandemic. Governments around the world
have announced to implement national blockade and traffic control measures,
resulting in a cliff-like decline in oil demand and a significant decline in oil demand
in major countries such as Britain, France and Germany. Since June, the demand has
slowly risen with the gradual recovery of economic activities. However, the repeated
resurgence of COVID-19 has put pressure on the recovering demand. By the end of
December, the European oil demand was still about 2.5 mmbd lower than the same
period of last year. On the whole, European oil demand in 2020 will drop by 2.2
mmbd year on year to 13.1 mmbd.
In 2020, under the impact of the pandemic, the oil demand other regions, such
as the Middle East, the Soviet Union, Africa and South America, will decline to
varying degrees. The overall oil demand in the Middle East decreased to 7.9 mmbd
from previous years, down by 600,000 barrels per da. Demand in the Soviet Union
decreased by 400,000 bpd year on year to 4.6 mmbd. Africa decreased by 500,000
bpd year-on-year to 3.9 mmbd.
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119
Fig. 3 Comparison of global oil demand changes before and after the pandemic. Data sources
Energy Aspects, Rystad Energy, Unipec URS
1.4 The Demand for Refined Petroleum Products Continued
the Trend of Strong Diesel Consumption and Weak
Gasoline Consumption, and Jet Fuel Was the Most
Affected
Since 2020, the COVID-19 has had a great impact on the global oil demand, among
which the jet fuel demand is the most affected. Overseas countries have taken
measures, such as blocking borders and prohibiting international flights from landing,
to prevent the introduction of COVID-19. The number of international flights in the
world has dropped greatly, which has seriously impacted the demand for jet fuel.
The blockade and control measures also directly affect the traffic of major cities in
countries around the world, thus impacting the oil used for road traffic.
In terms of variety, the global demand for jet fuel in 2020 was 4.77 mmbd, with a
year-on-year decrease of 3.32 mmbd. Since April last year, affected by the outbreak
of the pandemic, countries around the world have introduced measures to prohibit
international flights, and the number of flights in major countries has dropped by
as much as 70% year on year, resulting in the largest drop in jet fuel demand in
major countries including the US, Europe and Asia–Pacific. In April, the jet fuel
demand of the US was 690,000 bpd, a year-on-year decrease of 1,060,000 bpd.
The jet fuel demand in Europe was 410,000 bpd, with a year-on-year decrease of
1.2 mmbd. With the gradual improvement of the pandemic control, countries have
resumed flights one after another. However, due to concerns about the pandemic and
the reduction of business trips, the overall recovery is still very slow. As of December,
the global demand for jet fuel was still 38% lower than that of the previous year. At
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Y. Cai and Z. Qin
Fig. 4 Changes of global jet fuel demand. Data sources Energy Aspects, IEA, Unipec URS
present, jet fuel is the most seriously affected fuel, and the demand for jet fuel will
not return to the pre-pandemic level until the end of 2022 (see Fig. 4).
In terms of gasoline, the global demand for gasoline was 23.6 mmbd in 2020,
down 2.6 mmbd year on year. Throughout 2020, all countries in the world have
introduced strict traffic control and home isolation measures to control the spread
of the pandemic, and the traffic congestion in major cities, such as New York in the
US, Paris in France, Rome in Italy, and London in the UK, has dropped significantly,
which all dropped by over 70% year on year. In April, the demand for gasoline in
the US dropped nearly 50% year on year. With the effective control of the pandemic
since May, countries began to relax traffic control measures, and traffic trips began
to rise steadily. Since October, there has been a second outbreak in Europe and
the US, and countries have tightened the pandemic prevention alert again, with the
demand for gasoline in major cities dropping by about 30% year-on-year. With the
release of good news of vaccines, European and American countries took the lead in
vaccinating COVID-19, and road traffic recovered steadily (see Fig. 5).
In terms of diesel oil, the global demand for diesel oil in 2020 was 26.65 mmbd,
down by 1.8 mmbd year on year, which was far less than jet fuel and gasoline,
making it one of the best performing varieties in the whole year. Although the control
blockade under the pandemic also has an impact on diesel demand, the urgent need
for logistics transportation such as trucks and daily necessities is strong in view of
the relatively developed e-commerce in the world. In addition, as the year 2020 is
also the final year for the 13th Five-Year Plan, large-scale infrastructure construction
has also promoted diesel demand. In winter, power cuts have been implemented in
Zhejiang area, which also boosted diesel demand for a time. From the market outlook,
infrastructure demand is expected to promote the recovery of diesel demand if the
US and the EU introduce large-scale economic stimulus bills (see Fig. 6).
Review and Medium- and Long-Term Prospect of Global Oil Demand
121
Fig. 5 Changes of global gasoline demand. Data sources Energy Aspects, IEA, Unipec URS
Fig. 6 Trends of global diesel demand. Data sources Energy Aspects, IEA, Unipec URS
2 Global Oil Demand Recovered in 2021, But It Was
Difficult to Return to the Pre-pandemic Level
2.1 Global Macro Economy Shows Recovery Growth
In 2021, driven by global monetary easing and large-scale fiscal stimulus plans issued
by major countries, the global economy is expected to usher in recovery growth. Since
the beginning of 2021, major institutions have raised the global economic growth
this year. IMF said that the global economic growth will reach 5.5% in 2021, an
increase of 9% points over the previous year (International Monetary Fund 2021).
Among them, the growth rate of emerging economies will rise from −2.4% last year
to 6.3%, while the growth of developed countries will also recover from −4.9 to
122
Table 1 IMF’s forecast for
latest world economic outlook
Y. Cai and Z. Qin
Economic growth
2021 (%)
2020 (%)
China
8.1
2.3
The US
5.1
−3.4
Japan
3.1
−5.1
The UK
4.5
−10
France
5.5
−9
Germany
3.5
−5.4
Brazil
3.6
−4.5
India
11.5
−8
Global
5.5
−3.5
Data source IMF, Unipec URS
4.3%. In the stage of steady recovery of the global economy, the growth of emerging
economies will still be higher than that of developed countries.
In terms of countries, the economies of the US and the Eurozone are expected to
grow by 5.1% and 4.2% respectively, and China will continue to grow by 8.1%, while
India will rebound sharply by nearly 11.5%. The major economies in the world will
usher in a V-shaped rebound in 2021. Meanwhile, it should be noted that the impact
of the development trend of COVID-19 on economic recovery is still uncertain, and
the recent pandemic in Europe shows signs of recurrence, which will still inhibit the
recovery of economic activities. In addition, China-US economic and trade frictions
will continue to have a greater impact on the global economic development in the
post-pandemic era, and it is necessary to pay close attention to the changes in the
trend of China-US economic and trade relations after Biden administration took
office (Table 1).
2.2 Global Oil Demand Bottoms Out, Creating the Largest
Increase
After the impact of the COVID-19 in 2020, the global oil demand will bottom out
driven by the accelerated recovery of the global economy with the gradual stabilization of the pandemic and the large-scale vaccination. Since the beginning of 2021,
major institutions have slightly raised their oil demand in 2021. The International
Energy Agency (IEA) predicts that the global oil demand will increase by 5.5 mmbd
year-on-year. The oil demand will rise to 99.2 mmbd in the fourth quarter, which is
only 1.4 mmbd lower than the pre-pandemic level. In addition, OPEC and EIA predict
that the global oil demand will increase by 5.89 mmbd and 5.32 mmbd respectively in
2021. In terms of stages, the recovery of global oil demand in the first half of 2021 is
still limited by the uncertainty of pandemic spread and the limited vaccine production
capacity in COVID-19. However, from the third quarter onwards, economic recovery
Review and Medium- and Long-Term Prospect of Global Oil Demand
123
Fig. 7 Major institutions’ prediction on the growth of global oil demand in 2021. Data sources
IEA, OPEC, EIA, FGE, Unipec URS
will be accelerated and road traffic will return to normal with the vaccination rate of
major economies exceeding 50%, driving oil demand to rise to near normal level.
On the whole, the pandemic will gradually mitigate and the economic recovery will
accelerate in 2021. We expect that the global oil demand will increase by 5.8 mmbd
year on year, the largest increase in history (see Fig. 7).
2.3 Demand of Major Economies Has Ushered in a Sharp
Rebound
With the steady recovery of the global economy, the oil demand of major economies
will also show recovery growth. In 2021, under the favorable influence of the launch
of COVID-19 vaccines and the start of large-scale vaccination, the oil demand in the
US will usher in a rapid recovery. With the new President Biden taking office, the
$1.8 trillion American Rescue Plan has been approved by the parliament. The Federal
Reserve System continuously implements quantitative easing and low interest rate
policy, which will accelerate the recovery of oil demand. It is worth noting that the
new energy policy of the new Biden administration is expected to suppress the traditional energy consumption represented by oil. With the change of travel modes and
the increase of the number of people working from home, it is estimated that the
oil demand in the US will increase by 1.6 mmbd in 2021. In addition, Europe’s oil
demand will rise steadily. Due to the slow vaccination process and the great uncertainty in pandemic control caused by the mutation virus with stronger transmission
ability, many countries have recently announced to extend the blockade control time,
and the weak trend of oil demand will continue into the first half of 2021. In the
second half of 2021, oil demand is expected to rise significantly under the support of
pandemic control. It is estimated that Europe’s oil demand will achieve a year-onyear increase of 800,000 bpd in 2021, which is still far lower than the pre-pandemic
level.
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In India, with the steady growth of India’s economy, the recovery of industrial
activities and the introduction of the government’s economic stimulus plan, the oil
demand will be significantly driven. At present, the operating rates of major refineries
in India have returned to the pre-pandemic level and maintained a high operating
capacity. According to the analysis report of Standard & Poor’s, India and China
will lead the world in oil demand growth in 2021, driving the steady growth of
Asian demand. With India’s economic recovery and continuous increase in refining
capacity, it is estimated that India’s oil demand will increase by 470,000 bpd year
on year to 4,660,000 bpd in 2021. For China, economic growth and infrastructure
construction in the first year of the 14th Five-Year Plan will continue to drive the
growth of its oil demand. It is predicted that China’s oil demand will increase by
530,000 bpd in 2021. From the perspective of crude oil imports, with the recovery of
processing capacity of main refineries and the launch of several large-scale integrated
private refineries, and the further increase of crude oil import quotas of non-stateowned enterprises, China’s crude oil imports will continue to grow, and China will
remain the world’s largest crude oil importer.
2.4 Demand for Gasoline and Diesel Has Returned
to Normal, and Jet Fuel Is Still Under Pressure
In 2021, with the gradual alleviation of the global pandemic and the accelerated
recovery of economy, the demand for products will rise steadily and is expected to
return to the pre-pandemic level. Among them, the demand for gasoline and diesel
will grow strongly, but jet fuel is still under pressure, and the demand for naphtha is
relatively strong due to the strengthening of the chemical industry.
In terms of gasoline, the global gasoline demand is expected to rise sharply with
the relaxation of traffic control and strong driving demand in countries around the
world. It is estimated that the global gasoline demand will increase by 1.65 mmbd
year on year to 25.2 mmbd in 2021. From the perspective of major countries, the
gasoline demand in the US has maintained a good recovery since the beginning of
2021. At present, the average gasoline demand in the US has risen to 90% before the
pandemic. With the coming of the driving season in the US in summer, the gasoline
demand will rebound vigorously and is expected to rise to over 9 mmbd. EIA predicts
that in 2021, gasoline demand in the US will increase by 600,000 bpd year on year to
8.6 mmbd (US Energy Information Administration 2021). The recovery of gasoline
demand in Europe is relatively slow. At present, gasoline consumption in major
countries such as Britain, France and Germany, is still about 40% lower than that
before the pandemic. Recently, many governments have restarted blockade, which
will continue to put pressure on gasoline demand, and gasoline consumption may
increase significantly in the second half of 2021.
In terms of diesel, global manufacturing activities gradually return to normal,
which will provide strong support for diesel demand. It is estimated that the global
Review and Medium- and Long-Term Prospect of Global Oil Demand
125
diesel demand will increase by 1.1 mmbd year on year in 2021. At present, the
diesel demand in the US has achieved positive growth year on year, and that in
China is firm. With the mutual promotion of development paradigm featuring dual
circulation put forward by CPC Central Committee, in which domestic and overseas
markets reinforce each other, with the domestic market as the mainstay, the economic
development and high-quality development of international trade will continue to be
promoted. Driven by the rapid recovery of domestic economic activities, India’s
diesel demand rose steadily in the fourth quarter of last year and approached the
pre-pandemic level. Since the beginning of 2021, India’s diesel demand has reached
1.7 mmbd, with a year-on-year decrease of 50,000 bpd. In addition, diesel demand
in other major manufacturing countries, such as Japan, South Korea and Germany,
is still rising steadily, which helps to support global diesel demand.
In terms of jet fuel, the recovery of international routes is slow. With the acceleration of vaccination, it is expected that more countries will open their borders in
the second half of the 2021 and business trips will drive the demand for jet fuel to
gradually increase. It is estimated that the global demand for jet fuel in 2021 will
be 6.15 mmbd, with a year-on-year increase of 1.36 mmbd, but it is still 1.9 mmbd
lower than that before the pandemic. At present, the global daily airline index is
still about 40% lower than that before the pandemic. Especially, Europe is greatly
affected by the pandemic, and the number of flights is weak, which is still 60% lower
than that before the pandemic (Rystad Energy 2021). The demand for jet fuel in
major countries is far below the normal level. According to the latest data from EIA,
the demand for jet fuel in four weeks in the US is 1.03 mmbd, which is 750,000 bpd
lower than before the pandemic. The demand for jet fuel in Europe is 650,000 bpd,
far below the normal level of 1.5 mmbd. Countries such as India, Japan and South
Korea have experienced slow recovery in demand for jet fuel.
In addition, the naphtha and fuel oil market will also perform well in 2021.
According to the statistics of major energy consulting agencies, the demand for
low-sulfur fuel oil will further increase in 2021, and the global consumption of
marine fuel oil market will exceed 300 million tons. With the continuous implementation of the new IMO regulations, more ports will provide low-sulfur fuel oil. In
China, the export volume of fuel oil will also increase significantly with the introduction of the export rebate policy for low-sulfur marine fuel oil. From January to
February 2021, China’s fuel oil export volume reached 3.02 million, with a yearon-year increase of 94% (http://www.customs.gov.cn/). The demand for naphtha is
expected to grow steadily with the global chemical market continues to strengthen
driven by the economy recovery. Since the beginning of 2021, the strong demand for
naphtha has driven the price to continue to rise, once rising to $600/ton and hitting a
new high since 2018. It is predicted that in 2021, the demand for naphtha will remain
strong and exceed the pre-pandemic level.
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3 Medium and Long-Term Trend of Global Oil Demand
Since 2020, the COVID-19 has not only severely damaged global demand, but also
brought structural changes to oil demand. With more people working from home,
reduction of unnecessary business trips and acceleration of green clean energy, the
global oil demand may peak in advance.
In the medium and long term, the global COVID-19 will eventually end. After the
large-scale marketing and vaccination of COVID-19 vaccine, the global economy
will bottom out, which will drive the steady growth of oil consumption. In 2022, the
global oil demand is expected to return to the pre-pandemic level. It is worth noting
that with the rapid development of renewable energy in the world, major countries
have introduced targets of carbon neutrality and carbon peak, which will limit the
consumption growth of traditional energy represented by oil. According to the latest
Energy Outlook released by BP, the global oil demand may have reached its peak (BP
2020), while in the latest outlook report, IEA and OPEC believed that the global oil
demand will reach its peak around 2030 under the baseline scenario (International
Energy Agency 2020b). IHS, a consultancy, predicts that the processing volume of
global crude oil will slow down between 2030 and 2035, and peak in 2037. From
2038, the demand of other varieties will shrink due to substitution, except jet fuel
and naphtha (HIS 2021) (see Fig. 8).
At present, as major countries in the world announce to increase energy conservation and emission reduction measures for achieving carbon peak ahead of schedule
and carbon neutrality, the dependence on traditional fossil energy demand will gradually decline, and increasing the proportion of new energy and intensifying the development of green renewable energy will become the goal of joint efforts of all countries. The Netherlands, Norway, Italy, France, Israel and Spain have announced plans
Fig. 8 Medium and long-term trend of global oil demand. Data source FGE, IEA, Unipec URS
Review and Medium- and Long-Term Prospect of Global Oil Demand
127
to phase out fuel vehicles between 2030 and 2040. In addition, traditional car enterprises such as Volkswagen, Ford, GM and Volvo have also announced that they will
completely stop selling fuel vehicles. At the General Assembly on September 22,
2020, President Xi Jinping announced that China will scale up its intended nationally
determined contributions by adopting more vigorous policies and measures. We aim
to have CO2 emissions peak before 2030 and achieve carbon neutrality before 2060,
which will also significantly increase the intensity of China’s energy transformation
and reduce the use of fossil energy.
What’s more, with the acceleration of technological progress in energy utilization,
energy technology innovation has entered a highly active period, and emerging energy
technologies are accelerating iteration at an unprecedented speed. Major countries
around the world regard energy technology as a breakthrough in the new round
of scientific and technological revolution and industrial revolution, and formulate
various policies and measures to seize the commanding heights of development,
enhance national competitiveness and maintain leading position. The rapid rise of
renewable energy, such as wind energy and solar energy, and smart grid, as well
as the development and application of large-scale energy storage technology, will
accelerate the development of green and low-carbon energy, which will further reduce
the global demand for crude oil.
4 Conclusion
The COVID-19 caused an unprecedented impact on global oil demand in 2020,
with the largest decline in history. With the large-scale administration of COVID-19
vaccine in 2021, the global pandemic will be effectively controlled, and the economic
recovery will drive the oil demand to rebound significantly. At the same time, the oil
market will face greater challenges in the post-pandemic era. The rapid rise of new
energy will gradually replace the important role of oil in the past century, and the
structural demand transformation of oil will gradually transit from fuel property to
material property dominated by chemical raw materials. The oil demand in developed
countries will gradually decline after reaching its peak in a faster time, while there
is still room for demand growth in developing countries for a long time.
What’s more, oil companies will face great challenges in the critical period of
global energy reform. The gradual peak of oil demand growth will force major
oil companies to accelerate their transformation from single oil development and
production to comprehensive energy companies. On the one hand, companies such
as BP, Shell and Exxon Mobil accelerate technological innovation, reduce costs
and increase efficiency, actively seize opportunities for digital transformation, and
improve international competitiveness in the traditional oil field. On the other hand,
these companies continuously increase the layout of natural gas field and duly march
into new energy fields such as hydrogen energy, fuel cells and new materials.
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Y. Cai and Z. Qin
References
BP (2020) Energy outlook 2020 edition. BP, London
China customs. http://www.customs.gov.cn/
Rystad Energy (2021) Oil market weekly report
HIS (2021) Asia and Middle East refining and marketing February 2021. IHS, London
International Energy Agency (2020a) Oil market report. IEA, Paris
International Energy Agency (2020b) World energy outlook 2020. IEA, Paris
International Monetary Fund (2020) World economic outlook. IMF, Washington, DC
International Monetary Fund (2021) World economic outlook. IMF, Washington, DC
US Energy Information Administration (2021) Short-term energy outlook
Development Status and Prospect
of World Oil Refining
Li Han and Hu Di
1 Global Refining was Hit Hard in 2020, and the Refining
Capacity Declined for the First Time In 30 Years
1.1 Due to the COVID-19 the Commissioning of Some New
Projects was Delayed and Many Refineries Around
the World were Forced to Be Closed
In 2020, due to the COVID-19 around the world, refining suffered from heavy losses,
the global refining margin and crack of major oil products hit an all-time low, and
many refineries in the US and Europe were forced to be closed. Some new refining
projects were postponed to put into production. The global refining capacity dropped
by 580,000 bpd year on year to 100 mmbd, which was decreased for the first time
since 1993 (see Fig. 1).
1.2 Some New Projects Were Postponed to Production,
and the New Capacity was Lower than Expected
In 2020, the global new construction and expansion projects contributed a total of
820,000 bpd of refining capacity, all of which came from China, Kuwait and Iran.
However, the newly-built Jazan refinery in Saudi Arabia, the expansion of Baiji
refinery in Iraq and the expansion of Jebel Ali condensate separating unit in the
UAE, which were originally planned to be put into operation, were postponed to
L. Han (B) · H. Di (B)
Research & Strategy Department, China International United Petroleum & Chemicals Co., Ltd.
(Unipec), Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_7
129
130
L. Han and H. Di
Fig. 1 Global refining capacity in 1990–2021 Data sources BP statistical review of world energy,
UNIPEC research & strategy
2021, which made the global refining capacity grow less than expected. The specific
projects of new and expanded refining capacity in the world in 2020 are shown in
(Table 1 FGE 2022).
The refining capacity of Phase I Project of Zhejiang Petroleum & Chemical Co.,
Ltd. is 400,000 bpd. The project was originally planned to be put into production in
the fourth quarter of 2018, and the actual engineering construction and equipment
installation and debugging were completed in May 2019. On December 31, 2019,
the commissioning of Phase I Project of Zhejiang petroleum & chemical Co., Ltd.
was completed, and it was fully put into production in the first quarter of 2020.
The refining capacity of Zhongke Refining-chemical Integration Project of
Sinopec Group is 200,000 bpd. This project is one of the largest joint-venture refining
Table 1 Major new and expanded refining projects in the world in 2020
Country
Company
Refinery/project
Refining capacity
China
Zhejiang petroleum &
chemical Co., Ltd
Phase I project
New refining capacity of
400,000 bpd
Sinopec Group
China-Kuwait Joint Venture New refining capacity of
Refining-chemical
200,000 bpd
Integration Project
Sinochem Group
Quanzhou Refinery
Reconstruction and
Expansion Project
Expanded refining capacity
of 60,000 bpd
Sinopec Group
Luoyang Petrochemical
Engineering Corporation
Expanded refining capacity
of 40,000 bpd
Kuwait
KPC
Clean Fuels Project (CFP)
Expanded refining capacity
of 60,000 bpd
Iran
NIORDC
Star of Persian Gulf
Expanded refining capacity
of 56,000 bpd
Data Sources UNIPEC Research & Strategy, FGE, Reuters, S&P Global Platts, HIS
Development Status and Prospect of World Oil Refining
131
and chemical projects in China at present and a key construction project in Guangdong during the 13th Five-Year Plan period. On December 28, 2019, 10 sets of
facilities including 200,000 bpd crude distillation unit (CDU) and related supporting
projects were completed and put into operation in the second quarter of 2020.
The refining capacity of Quanzhou Refinery Reconstruction and Expansion
Project of Sinochem Group has increased from 240,000 bpd to 300,000 bpd, which
was put into operation in June 2020.
Kuwait Clean Energy Project (CFP) is an optimization project to upgrade and
integrate the existing Mina Al-Ahmada (MAA) and Mina Abdulla (MAB) refineries
in Kuwait. After the completion of the project, the refining capacity will increase
from 740,000 bpd to 800,000 bpd. The energy consultants Facts Global Energy (FGE)
reported that the trial run of CFP has been started in June 2020, and the trial run of all
the new devices in the MAA refinery was completed. The trial run of MAB refinery
was completed in the first quarter of 2021.
Persian Gulf Star Reconstruction and Expansion Project in Iran is to expand the
refining capacity from the current 480,000 bpd to 540,000 bpd. The project has been
put into operation in December 2020.
1.3 Global Refineries Set Off an Upsurge of Shutdown Under
the COVID-19
In 2020, the COVID-19 caused the dramatic decline in global oil demand, and the
margins of refining continued to be low, which had a huge impact on the refining.
Refineries in Europe, America and Asia–Pacific region have reduced their operating
rate, and about 1.4 mmbd of refining capacity worldwide has been permanently
closed. Among them, CDU (Crude Distillation Unit) production capacity of nearly
500,000 bpd was permanently closed in Europe, accounting for about 3.2% of the
total production capacity in Europe. About 400,000 bpd of production capacity may
be closed in Asia, which is about 1.2% of the total production capacity in Asia.
Nearly 500,000 bpdwas closed in North America, accounting for 2.2% of the total
production capacity (Table 2 FGE 2022).
1.4 Closure of Refineries in Asia-Pacific Region
During the COVID-19, the operating rate of refineries in Asia–Pacific decreased.
Refineries in China and India recovered rapidly, and those in Japan and South Korea
remained relatively low. Some refineries in Australia, the Philippines and Japan
decided to shut down permanently.
Australia: BP announced that it planned to close its Kwinana refinery in Western
Australia at the beginning of November. The refinery has a capacity of 140,000 bpd,
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Table 2 Global refinery shutdown in 2020
Country
Company
Refinery/Project
Refining capacity
Australia
BP
Kwinana refinery
140,000 bpd
The Philippines
Shell
Tabangao refinery
110,000 bpd
Japan
Eneos
Osaka refinery
120,000 bpd
Belgium
Gunvor Group
Antwerp refinery
110,000 bpd
Finland
Neste Oyj
Naantali refinery
260,000 bpd
The UK
Petroineos
Grangemouth refinery
110,000 bpd
The US
P66
Bayway refinery
260,000 bpd
The US
Holly Frontier
Cheyenne
50,000 bpd
The US
Marathon Petroleum
Martinez
160,000 bpd
The US
Marathon Petroleum
Gallup
30,000 bpd
Data Sources UNIPEC Research & Strategy, FGE, Reuters
which is the largest refinery in Australia and a major fuel supplier for large mining
enterprises in the region. Due to poor management, BP plans to convert it into a
wharf for import. The production capacity of diesel in Kwinana Refinery is 50,000
bpd, that of gasoline is 70,000 bpd, and that of jet fuel is 20,000 bpd. After the
refinery is shut down, there are only three refineries operating in Australia, namely
Geelong refinery (118,000 bpd) of Vitol, Lytton refinery (105,000 bpd) of Ampol and
Altona refinery of Exxon Mobil (88,000 bpd). In early October, Ampol said it would
consider permanently closing its Lytton refinery in Queensland or turning it into an
import facility. Due to collapse of oil demand caused by the COVID-19, the refinery
operation was severely hit. After shutting down for four months, Ampol restarted
the Lytton refinery in September, and the profit of Lytton refinery decreased by 141
million Australian dollars ($101 million) this year. With the closure of BP’s Kwinana
refinery, Australia will increase imports of products from Singapore, China, Japan
and South Korea. At present, refining facilities in Australia are generally wearing
and in small scale, with main processing oils including Australian crude oil and light
crude oil imported from Malaysia, UAE, the US and Papua New Guinea, which have
no competitive advantage in the Asia–Pacific region. In addition, the Marsden Point
refinery with a capacity of 135,000 bpd in New Zealand has been in load reduction
operation and stopped refinancing business. The operation of these refineries has
been severely challenged due to the pandemic.
The Philippines: In August 2020, Shell announced that it would permanently close
its Tabangao refinery in the Philippines. The refinery is located in Batangas province
of the Philippines and starts operation in 1962, with a crude oil processing capacity
of 110,000 bpd. As it is no longer economically feasible, it will be transformed into
an import terminal. Shell’s other refinery in the Philippines has a crude oil processing
capacity of 180,000 bpd, which has been under maintenance since May.
Japan: Eneos, the largest refiner in Japan, permanently closed the Osaka refinery
with a capacity of 115,000 bpd on September 30, 2020. Due to the requirements of
Development Status and Prospect of World Oil Refining
133
environmental protection and industrial upgrading in recent years, Japan’s refining
capacity has been continuously reduced, and it is still possible to continue to close
refineries in the future.
Singapore: Due to the continuous low refining margins and to achieve the goal
of zero net emission in 2050, Shell plans to lay off its Pulau Bukom refinery in
Singapore and cut its production capacity by half. Pulau Bukom refinery, with a
capacity of 500,000 bpd, is the largest wholly-owned refinery of Shell in the world.
Shell said that it plans to lay off 500 employees by the end of 2023, accounting for
about 30% of the current total employees. The refinery will turn to the processing of
biofuels, asphalt and recycled chemical raw materials.
1.5 Closure of Refineries in Europe
In recent years, due to stricter environmental protection policies and old refineries
in the region, the overall refining capacity in Europe has shown a downward trend,
totaling 15.72 mmbd, which is nearly 1.5 mmbd less than 10 years ago. Under the
influence of pandemic, some refineries in Europe are unresistant to risks under the
background of low margins because of their simple processing equipment, so they
take measures to reduce the operating rate. Some refineries even shut down.
Belgium: On October 16, 2020, Gunvor Group said that it would consider permanently closing its Antwerp refinery (with a production capacity of 110,000 bpd) in
Belgium, but it will retain its terminal facilities. Affected by the pandemic, Antwerp
refinery stopped operating at the end of May.
Finland: On October 22, 2020, Neste Oyj in Finland indicated that it might
consider closing its Naantali refinery as part of the business restructuring of the
refinery in the country. In 2017, Neste completed the integration of Porvoo and
Naantali refineries, with a total production capacity of 260,000 bpd. Neste may
turn Naantali refinery into wharf and port facilities, and turn Porvoo refinery into
processing renewable and recyclable raw materials. The main reason for shutting
down the refinery is that the products price was too low in the third quarter, and the
refining profit dropped sharply. The production of Neste products was 3.3 million
tons in the third quarter, with a year-on-year decrease of 160,000 tons. Compared
with the traditional oil refining business, Neste’s biodiesel business reported a better
profit, with the biodiesel production of 760,000 tons in the third quarter, an increase
of 20,000 tons year-on-year.
The UK: At the beginning of November 2020, Petroineos announced that it would
close a CDU unit in its Grangemouth refinery, with a capacity of 65,000 bpd. At the
same time, it will also shut down a Fluid Catalytic Cracking (FCC) unit with a
capacity of 45,000 bpd.
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1.6 Closure of Refineries in the US
The refining capacity in North America is relatively stable in recent years. With
the advantages of raw materials and the flexibility of refinery equipment, American
refineries are usually able to maintain higher refining margin. However, due to the
sharp decline in oil demand caused by the pandemic, refinery capacity was idle or
closed, with the largest decline in recent 10 years.
In the first half of 2020, P66 shut down Bayway Refinery with a capacity of
260,000 bpd. In August 2020, Holly Frontier converted Cheyenne (48,000 bpd) in
Wyoming into biodiesel processing facility. In August 2020, Marathon Petroleum
announced the permanent closure of Martinez refinery in California (161,000 bpd)
and Gallup refinery in New Mexico (27,000 bpd), in which Martinez refinery will
be converted to produce biodiesel. As Shell finds no buyer, it plans to close its
Convent refinery (260,000 bpd) in Louisiana, the US in August this year. From April
to August, 2020, the average processing capacity of Convention refinery was only
120,000 bpd, and its gasoline production was 80,000 bpd and diesel production was
60,000 bpd. The products of Convention refinery are mainly sold to the local and
northeastern regions of the Gulf Coast and it is the main supplier of Colonial gasoline
pipeline. The closure of Convention refinery will increase the gasoline price in the
northeastern US. At present, about 1 mmbd of refining capacity in the Gulf Coast is
idle due to the continuous low refining margins.
2 The Crude Oil Processing Capacity of Global Refineries
Reached the Lowest Level in Ten Years
Since the outbreak of the COVID-19 in early 2020, major oil consuming countries
have taken pandemic restrictions, which caused shrinking economic activities and
transportation dramatically, resulting in a cliff-like decline in oil demand. In April,
the global oil demand once fell to 78.84 mmbd, with a year-on-year decrease of
20.22 mmbd. It is estimated that the global oil demand for the whole year will be
91.81 mmbd, which is the lowest since 2014, with the highest year-on-year decline
in history.
Affected by this, the operating rate of refineries in the world has dropped significantly, and the processing capacity has dropped to a historical low. According to
the energy research consultancy Energy Aspects, the average processing capacity
of global refineries was 80.28 mmbd in the past five years. After the outbreak of
COVID-19 in February 2020, the processing capacity began to decline to below 80
mmbd. In April and May, the processing capacity of global refineries dropped sharply
to 68.75 mmbd and 68.25 mmbd, the lowest in recent ten years. As the pandemic
control and prevention is improving, the processing capacity of global refineries
slowly rose to about 74.6 mmbd at the end of the year, with an annual average of
73.38 mmbd. When the pandemic was serious, the average operating rate of global
Development Status and Prospect of World Oil Refining
135
Fig. 2 Crude oil processing capacity of global refineries in 2020 Data Sources Energy Aspects,
UNIPEC Research & Strategy
refineries dropped to a low level of 67%, and now it has risen back to 73% of prepandemic level. According to energy consultancy PIRA, the processing capacity of
refineries shut down due to COVID-19 is 10.8 mmbd worldwide (See Fig. 2).
3 The processing Income of Major oil Refining Centers
in the World has Reached a Record Low
In 2020, the world witnessed the most serious economic recession since the Great
Depression in the 1930s, and the economies of many countries suffered a historic
blow. The global oil demand dropped dramatically, and the oil refining margin also
fell sharply. The performance of refining margin in the three regions is different
in 2020. The refining margin of Singapore fell sharply right after the outbreak of
COVID-19 in February. From March to September, Singapore’s refining margin
remained negative for most of the time, falling below the historical low. In April,
driven by the plunge in crude oil prices, the refining margin of the Gulf Coast and
Rotterdam surged for a short time, and the refining margin of Rotterdam was once
reached a high level of $10.74/bbl. However, as the pandemic spread in the US and
Europe, the decline in demand resulted in the dramatic drop in refining margin of
the two regions. From May to September, the refining margin of Rotterdam also fell
to a negative range. In the second half of the year, as pandemic restriction measures
ease in various countries, the refining margin of the three regions has rebounded to
varying degrees.
In 2020, the average refining margin of the Gulf Coast was $7.20/bbl, which
dropped by $8.01/bbl year-on-year, with a drop of 53%. Among them, the refining
margin dropped to $1.74/bbl on May 29th, the lowest level in recent ten years, with an
average annual margin of 18.3%, down 9 percentage points year-on-year. Rotterdam’s
average refining margin was $2.27/bbl, down $2.93/bbl year-on-year, with a drop of
56%. The average annual interest rate was 5.25%, down 2.25 percentage points year
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L. Han and H. Di
on year. Since mid-May, European refining margins have fallen below 0, and once
fell to $-2.51/bbl, the lowest level in history. This dark period of “negative refining
margins” lasted as long as four months, and many refineries were forced to reduce the
operating rate, and even faced the dilemma of shutting down. In 2020, Singapore’s
refining margin reached the lowest level in history, with an annual average of only
$0.38/bbl, down by $3.34/bbl year on year, or a drop of 90% and an annual interest
rate of only 0.9%. After the outbreak of the COVID-19, the refining margins in the
Asia–Pacific region dropped suddenly to below 0 and hit a historical low of $-5.07/bbl
(Figs. 3 and 4). The main reasons for the decline in refinery processing income are
as follows.
Fig. 3 Processing income of the three major refining centers in 2020 Data source Reuters, UNIPEC
Research & Strategy
Fig.4 Data Source Reuters, UNIPEC Research & Strategy
Development Status and Prospect of World Oil Refining
137
3.1 The COVID-19 has Swept the World, and Oil Demand
has Been Hit Hard
Affected by the COVID-19 in 2020, many countries in the world took lockdown,
which severely hit global transportation and oil demand. According to the data of
the International Energy Agency (IEA), the global oil demand dropped by more than
12 mmbd in April, the highest monthly decline in history. In 2020, the global oil
demand plunged 8.6 mmbd year on year.
3.2 Freight has Soared, Squeezing the Processing Income
of Refinery
Under the influence of COVID-19 and Saudi price war in 2020, WTI oil price plummeted from $60/bbl at the beginning of the year to below $20/bbl, hitting an unprecedented negative price. Brent oil price also hit a low point in recent 18 years. The price
structure also showed a very deep Backwardation structure, with spread once widened
to nearly $4/bbl for the first-time. Driven by the low oil price and wide structure, a
large number of oil traders took the opportunity to buy oil and stock up, and both
the onshore inventory and the offshore floating capacity climbed to the highest level
in history, which further promoted the soaring freight price. The freight per barrel
from West Africa to China once approached $ 10, which was three times the normal
level. The freight per barrel from the Middle East to China also rose to more than $
6, while the normal level was around $ 1. The high freight rate has seriously raised
the cost of crude oil import and squeezed the profit space of refineries (See Figs. 3
and 4).
4 The Crack of Major Oil Products Fell to a Historical
Low, and Low-Sulfur Fuel Oil Suddenly Emerged
In 2020, the global major crack showed a wide fluctuation trend under the plummeting
of global demand. Travel restriction implemented in many countries in the world has
severely damaged the demand for oil products. Since gasoline was seriously affected
by the COVID-19, and substitutes such as new energy and bike sharing accelerated
to seize market share in the first half of 2020, the global gasoline demand dropped
sharply, resulting in the gasoline crack of Singapore and Rotterdam turn negative.
In 2020, the crack in Singapore decreased by $3.2/bbl to $2.8/bbl, that in Rotterdam
decreased by 71% year on year to $2.7/bbl, and that in Rotterdam once hit -$11.8/bbl.
It is worth mentioning that the crack in the Gulf Coast hit a record high of $65.7/bbl
when WTI crude oil prices plummet to negative values. Since then, with the gradual
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L. Han and H. Di
Fig. 5 Crack of gasoline in Singapore, Rotterdam and Gulf Coast from 2019 to 2020 Data Source
Reuters, UNIPEC Research & Strategy
relaxation of restriction policies in various countries, the recovery of gasoline demand
has driven the refining crack to close to the normal level (Fig. 5).
In terms of diesel oil, supported by the strong infrastructure activities in China
and the US, and the rising demand for heating oil in winter in two countries, diesel
oil was relatively less affected by the pandemic throughout the year. In 2020, the
crack in Singapore decreased by $7.5/bbl to $7.2/bbl, and that in the Gulf Coast
decreased by $11.1/bbl to $13.4/bbl. In contrast, the crack of diesel oil in Rotterdam
decreased significantly, with a year-on-year decrease of 65% to $4.7/bbl. It is worth
mentioning that, after the outbreak of COVID-19, over 90% of the world’s flights
were shut down, which greatly reduced the crack of jet fuel. In 2020, the average
jet fuel crack in Singapore was $2.5/bbl, a year-on-year drop of $11.2/bbl, hitting a
record low (See Fig. 6).
In addition, the fuel oil market is still concerned. Under the new regulations of
IMO (International Maritime Organization), the crack of low-sulfur fuel oil climbed
to an all-time high of $33.3/bbl in early 2020. Since then, the crack of low-sulfur fuel
oil declined rapidly due to the sharp drop in demand, but remained relatively normal.
Fig. 6 Crack of diesel oil in Singapore, Rotterdam and Gulf Coast from 2019 to 2020 Data Source
Reuters, UNIPEC Research & Strategy
Development Status and Prospect of World Oil Refining
139
Fig. 7 Crack of high and low sulfur fuel oil in Singapore from 2019 to 2020 Data Source Reuters,
UNIPEC Research & Strategy
In 2020, the average crack was $11.2/bbl, only slightly decreased by $1.1/bbl yearon-year. However, the crack of high-sulfur fuel oil shows a reverse change (Fig. 7),
with the annual average crack of $-4.07/bbl and a year-on-year increase of $1.8/bbl.
Driven by the sharp drop in oil prices, high-sulfur fuel oil has become the only oil
with positive year-on-year growth of the crack.
5 The Global Refining will Gradually Bottom Out
in the “Post-Pandemic Era”
5.1 Global Refining Capacity is Growing Rapidly
According to the data provided by S&P Global Platts, FGE and IHS, the global
new refining capacity will be 2.23 mmbd in 2021, which is much larger than that
in 2020, and all the new refining capacity will be generated in Asia–Pacific and
Middle East. Among them, the new capacity in Asia–Pacific region will be 1 mmbd,
accounting for 45% of the new capacity in the world. Two new projects and two
expansion projects are all contributed by China. There are two large-scale refining
and chemical projects, namely Phase II Project of Zhejiang Petroleum & Chemical
Co., Ltd. (400,000 bpd) and Refining-chemical Integration Project of Shenghong
Petrochemical (320,000 bpd). The new refining capacity in the Middle East will be
1.23 mmbd, accounting for 55% of the new refining capacity in the world. The new
construction and expansion projects are from Saudi Arabia, Kuwait, Iraq and the
UAE. Among them, the large-scale projects attracted the most attention are Jazan
refinery in Saudi Arabia (400,000 bpd) and Al-zour refinery in Kuwait (See Table
3) (China International United Petroleum Chemicals Co., Ltd, The Global Refinery
Closed Down Under the Pandemic [R] 2020).
The refining capacity of Phase II Project of Zhejiang Petroleum & Chemical Co.,
Ltd. is 400,000 bpd. The first batch of equipment (including CDU and related utilities, etc.) of the project has been put into operation on November 1, 2020, and
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L. Han and H. Di
Table 3 New and expanded refining projects in the world in 2020
Country
Refinery/Project
New/Expanded refining
capacity
Production time
China
Phase II Project of
Zhejiang Petroleum &
Chemical Co., Ltd
New refining capacity of
400,000 bpd
2021
Refining-chemical
Integration Project of
Shenghong
Petrochemical
New refining capacity of
320,000 bpd
End of 2021
Haoye (Panjin)
Chemical Co., Ltd
Expanded refining
capacity of 160,000 bpd
The second half of 2021
Xinhai Petroleum &
Chemical Co., Ltd
Expanded refining
capacity of 120,000 bpd
The second half of 2021
Saudi Arabia
Jazan refinery
New refining capacity of
400,000 bpd
The second quarter of
2021
Kuwait
Al-zour refinery
New refining capacity of
615,000 bpd
End of 2021/Beginning
of 2022
Iraq
Baiji refinery
Expanded refining
capacity of 65,000 bpd
June 2021
Basrah refinery
New refining capacity of
65,000 bpd
August 2021
Jebel Ali condensate
separating unit
Expanded refining
capacity of 88,000 bpd
End of 2021
The UAE
Date Source UNIPEC Research & Strategy, S&P Global Platts, FGE and IHS
it is estimated that the Phase II Project will be completed by the end of 2021.
Because Zhejiang Petroleum & Chemical Co., Ltd. comprehensively balances the
three product chains of refining-ethylene-aromatic hydrocarbon, the proportion of
chemical products is high, and more aromatic hydrocarbon ethylene raw materials
are produced, while the yield of products is relatively low. At present, the products
yield of the Phase I Project is 35%, and it is expected that the products yield will be
further reduced to 29% after Phase II Project is put into production, far lower than
the average level of over 60% of traditional refineries.
Integration Project of Shenghong Petrochemical is the largest single refinery
project in China, with a capacity of 320,000 bpd. It affiliates with storage and
transportation facilities including a 300,000-ton crude oil wharf, four 50,000-ton
products and liquid chemical wharves and 3.5 million cubic meters tank farm. The
project started in December 2018, and was originally planned to be fully completed
and put into production by the end of 2020 or the beginning of 2021. However, due
to the impact of COVID-19, the project has been delayed. At present, all the core
equipment of the project has been put in place and is expected to be completed and
put into operation by the end of 2021.
Development Status and Prospect of World Oil Refining
141
Jazan refinery in Saudi Arabia, with a refining capacity of 400,000 bpd, was built
in 2015 and has been completed. Due to the oilfield attack in Saudi Arabia in 2019 and
the COVID-19 in 2020, the project was delayed for several times. FGE predicts that
Jazan refinery will start trial run in the second quarter of 2021 and start commercial
operation in June. It is estimated that the processing capacity will reach 200,000 bpd
by the end of 2021, and the full-load production will be in mid-2022.
Al-zour refinery in Kuwait (615,000 bpd) is another important project to revitalize
the refining and chemical industry in Kuwait besides CFP. It was originally planned
to be put into operation in the third quarter of 2020, which has been delayed for the
COVID-19. According to the prediction of FGE, the distillation unit for No.1 crude
oil of the refinery will be put into operation in the first quarter of 2021, that for No.2
crude oil will be put into operation in the middle of the year, and that for No.3 crude
oil may be put into operation this year’s evening.
Baiji refinery in Iraq, affiliated to North Refineries Company of Iraq, plans to
increase its refining capacity from 65,000 bpd to 140,000 bpd. At present, the expansion project has been seriously delayed, and it is optimistic that the new facility will
be started in the middle and late 2021. The refining capacity of Basra refinery in Iraq
is 195,000 bpd, and it is planned to expand the capacity from 65,000 bpd to 260,000
bpd. It is estimated that the project will be put into production in August 2021.
5.2 The Refining will Gradually Recover
in the Post-pandemic Era, but it is Difficult to Restore
the Refining Margins to the Pre-pandemic Level
After the dark moment in 2020, the global oil refining will bottom out with the
improvement of gloabl health issue and the recovery of demand this year. It cannot
be ignored that most of the refining and chemical projects put into production and
newly built-in recent years are large-scale refining-chemical integration projects.
Refining and chemical enterprises have changed from mass production of products
to that of high value-added chemical products, and the yield of chemical products
can reach 70%, which has limited impact on the oil products market. For example,
the Chinese government asks for the elimination of backward refining capacity while
building new refining projects, which also relieves the pressure of oil oversupply to
a certain extent. Affected by the pandemic, the global refining capacity of about 2
mmbd has been shut down since last year. At the same time, a third wave of the
COVID pandemic broke out in Europe in March, which also affected the recovery
of refinery operating rate in Europe. This part of the decline in supply offsets the
pressure brought by the commissioning of new refining capacity. In terms of the
demand side, it is estimated that in 2021, the global oil demand will increase by
about 6 mmbd from a year earlier, among which the gasoline and diesel demand will
increase by 1.65 mmbd and 1.1 mmbd respectively. With the recovery of aviation
industry, the demand for jet fuel increased by 1.36 mmbd year-on-year. The recovery
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L. Han and H. Di
Fig. 8 Forward curve of refining margins in Singapore
of global aviation industry will strongly support the jet fuel crack, and then drive
the increase of refining margins. In 2021, a large number of new refining capacities
will be put into production in a centralized way. In particular, the commissioning of
many large-scale projects in the east of Suez will further squeeze the oil market and
increase the export pressure. Especially, it will put some pressures on the refining
margins in Singapore, which may be difficult to restore to the pre-pandemic level
(See Fig. 8).
5.3 Medium and Long-Term Prospect of Refining
Today’s world is in the midst of the COVID-19 and great changes that have not been
seen in a century. The concept of sustainable development of green and low carbon
has been globally recognized. Countries have accelerated the pace of coping with
climate change. Major oil companies are facing increasing transformation pressure,
and gradually focus on “de-carbonization” to accelerate the energy transformation.
European oil companies have made rapid progress in carbon emission reduction and
energy transformation. BP, Shell and Total have announced the goal of achieving
carbon neutrality in global business by stages before 2050, and other energy companies have put forward their own carbon emission reduction goals accordingly. On
March 15, 2021, General Secretary Xi Jinping emphasized at the ninth meeting of
the Central Committee for Financial and Economic Affairs that, China will strive to
achieve carbon peak by 2030 and carbon neutrality by 2060. Achieving the goal of
carbon peak and carbon neutrality is not only a great responsibility for the energy
and chemical industry, but also a profound revolution.
In the medium and long term, the popularization of green and low carbon will
accelerate the arrival of global oil demand peak. According to the forecast of various
institutions, the global oil demand is expected to reach the historical peak in 2030–
2035, and then start the steady decline. Before the peak of oil, although the global
refining capacity will continue to expand, eliminating backward production capacity
Development Status and Prospect of World Oil Refining
143
and building new large-scale refining-chemical integration projects will still be the
main theme of the refining in the future under the pressure of transformation and
upgrading. On the one hand, refining-chemical integration can maximize the utilization rate of raw materials and “make the best possible use of crude oil”. On the
other hand, the production mode of refining-chemical integration can enhance the
ability to resist market risks, make production and operation closer to the market
and customers, and further lean towards fine chemical industry and high-end chemical industry, which is conducive to maximizing the value of refining and chemical
industry. It is estimated that the global refining capacity will increase to about 5.6
billion tons by 2035. During this period, the refining capacity in Asia–Pacific will
gradually slow down, while refining capacity in North America, Middle East, Africa,
Soviet Union and Latin America will increase slightly.
References
China International United Petroleum & Chemicals Co., Ltd., The Global Refinery Closed Down
Under the Pandemic [R], China: UNIPEC, 2020
FGE, Middle East Refining Outlook: An Update on Projects[R], Singarpore: FGE, 2020
FGE, Asia Pacific Databook 2: Refinery Configuration & Construction [R], Singarpore: FGE, 2020
FGE, Asia Pacific Databook 2: Refinery Configuration & Construction [R], Singarpore: FGE, 2022
Analysis on the New Pattern of Global
Crude Oil Trade
Xiaoyuan Xia and Xiaoying Huang
1 Situation of Global Crude Oil Trade in 2020
1.1 In 2020, the Total Volume of Global Crude Oil Trade
Declined, and the Trade Center Continued to Move
Eastward
In recent years, developed economies such as Europe and Japan have confronted
with sluggish economic growth; environmental protection policies become stricter
and stricter; more pressure is put on oil consumption. Even worse, Sino-US trade
friction, U.S. sanctions on Iran and Venezuela’s oil exports and other factors also
exert great influence. Under such condition, global crude oil trade declined for the
first time in 2019 after nearly a decade of growth. In 2020, with COVID-19, the
total volume of crude oil trade further declined to 42.23 mmbd (see Fig. 1),1 with a
year-on-year decrease of 3.27 mmbd, a drop of 7.2%. The total trade has decreased
for two consecutive years. The average annual growth rate of crude oil trade in recent
10 years declined from 3 to 1%.
In 2020, the COVID-19 rapidly around the world, oil demand fell dramatically,
and refining margins continued to be sluggish. About 2 mmbd of refining capacity
in the world was permanently closed, of which North America shut down nearly
1 mmbd, about 4.4% of the total production capacity in North America; Europe’s
permanent shutdown capacity was nearly 500 kbd, accounting for 3.2% of Europe’s
total production capacity; Asia may shut down about 400,000 bpd, which is about
1.2% of the total production capacity in Asia. The shutdown of refineries has greatly
reduced the scale of crude oil imports.
1 BP (2020).
X. Xia (B) · X. Huang
Unipec, Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_8
145
146
X. Xia and X. Huang
Fig. 1 Trends of global crude oil trade (by import). Data source BP, China Customs, EIA, PIRA,
Unipec Research & Strategy (URS)
Specifically, the demand for oil in the Atlantic Basin is generally declining. Due to
the slow economic growth in Europe, the oil demand has not increased significantly.
In addition, the environmental protection policy in the region has become stricter. In
recent years, no new refineries have been put into operation, and some old refineries
have been closed due to the COVID-19. For example, the Naantali refinery with the
capacity of 260 kbd in Finland and the Antwerp refinery with the capacity of 110
kbd in Belgium have been shut down. The crude oil import in Europe has dropped
from 9.34 mmbd in 2010 to 8.73 mmbd in 2020, with an average annual decrease
of 1%, and its proportion in global crude oil trade fell from 25% in 2010 to 21% in
2020.
The crude oil supply in North America is growing rapidly, and the crude oil
production in Canada and Mexico is increasing continuously. The shale oil revolution
has promoted the leap-forwardgrowth of crude oil production in the US. Moreover,
the impact of the pandemic on the supply side is far less than that on the demand
side. In addition, there is no new refining capacity in the region, and the oil supply in
North America is abundant. Therefore, the US crude oil import volume has dropped
from 9.75 mmbd in 2010 to 5.88 mmbd in 2020, with an average annual decline of
4.9%, and its proportion in global crude oil trade fell from 26 to 15%.
Meanwhile, crude oil imports in the Asia–Pacific region see an uptick, bucking
global trade volume shrinking. The focus of global crude oil trade continues to move
eastward, and more crude oil resources flow to the east of Suez.2 Since 2008, the
Asia–Pacific region has surpassed North America and become the world’s largest
crude oil import destination. The import volume of crude oil in Asia–Pacific region
increased from 17.59 mmbd in 2010 to 25.16 mmbd in 2020, with an average annual
growth rate of 3.6%, and its proportion in global crude oil trade increased from 47%
in 2010 to 60% in 2020 (see Fig. 2).
From the perspective of import sources, in 2020, the Middle East remained the
largest import source in Asia–Pacific region. The amount of crude oil imported from
2 Pei and Han (2016).
Analysis on the New Pattern of Global Crude Oil Trade
147
Fig. 2 Changes of global crude oil import share in 2010 and 2020 (by region)
the Middle East in Asia–Pacific region was 14.88 mmbd (see Fig. 3), accounting for
59% of its total imports, increasing by 260 kbd year-on-year, while the import share
is basically flat year-on-year. Africa is the second largest source of crude oil imports
in the Asia–Pacific region. Since the implementation of the new regulations of the
International Maritime Organization (IMO), crude oil from West Africa and North
Africa, which is suitable for producing low-sulfur marine fuels, has been favored by
more refineries. With the decrease of crude oil resources supply in West Africa, Libya
and other countries, the amount of crude oil imported from Africa in the Asia–Pacific
region still increased slightly to 3.07 mmbd in 2020, an increase of 100 kbd compared
with the same period of last year, with an import share of 12%. Meanwhile, with the
implementation of the first-stage trade agreement reached between China and the US,
more American crude oil flows into the Asia–Pacific region. In 2020, Asia–Pacific
imported 1.43 mmbd of crude oil from the US, an increase of 140 kbd compared with
the same period of last year, accounting for 6% of the total Asia–Pacific imports.
1.2 China’s Crude Oil Imports Hit a New High,
with Diversified Import Entities and Sources
As the world’s second largest oil consumer, China has surpassed the US to become the
largest crude oil importer in 2017. In recent years, the amount of imported crude oil
has maintained an increasing trend, and China remains the largest crude oil importer.
Since the shale oil revolution, the supply of crude oil in the US has been increasing,
while the import volume of crude oil has been decreasing continuously, and the oil
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X. Xia and X. Huang
Fig. 3 Sources of imported crude oil in Asia–Pacific region (by region). Data source PIRA, BP,
Unipec Research & Strategy (URS)
is mainly imported from within the region. In 2020, the US became a net importer
of oil (crude oil + products), achieving energy independence to a certain extent.
In 2020, the COVID-19 all around the world, which had a severe impact on
oil demand. China, however, has taken effective prevention and control measures.
Despite the disruptions by the COVID-19, the industrial production activities in
China saw a rapid recovery. China has become the only major economy in the
world to achieve positive economic growth. The annual apparent oil demand has
achieved positive growth, with a year-on-year growth rate exceeding 4%. In terms of
imports, Zhongke Petrochemical put into operation, while Hengli Petrochemical and
Petroleum & Chemical Co., Ltd. (ZPC) kept high-load operation. In addition, the
low oil price in the second quarter also promoted centralized procurement of local
refineries, thus China’s crude oil imports continued to rise. According to the statistics
of China Customs, in 2020, China’s crude oil import volume was 540 million tons,
equivalent to 10.87 mmbd (see Fig. 4), which reached a new record high, increasing
by 710 kbd year-on-year, with a growth rate of 7%. Although the growth rate dropped
to the lowest level in six years, it was still far higher than other major countries in the
world. In 2020, China’s dependence on foreign crude oil further climbed to 73.5%,
an increase of 0.9% points over 2019, which was the highest level in history.
From the perspective of import entities, since the accelerated liberalization of
China’s crude oil trade policy in 2015, the import entities have become more diversified. Especially after Hengli Petrochemical and ZPC were put into production, the
import share of state-owned oil companies has gradually shown a downward trend,
though they still dominate China’s crude oil imports. Data show that in 2020, the
crude oil import volume of main oil companies was 7.74 mmbd, accounting for 71%
of the total volume in China, and its share decreased by about 4% points compared
with 2019 and nearly 20% points compared with 2015. In 2020, the non-state-owned
imported crude oil quota was actually 185 million tons, an increase of 18.55 million
tons year-on-year. The crude oil processing capacity of Hengli Petrochemical and
Analysis on the New Pattern of Global Crude Oil Trade
149
Fig. 4 Trends of crude oil imports of China and the US. Data source China Customs, EIA, UNIPEC
Research & Strategy (URS)
ZPC has been maintained at a high level. Moreover, local refineries purchased a large
amount of low-priced crude oil in the first half of the year. Upon the interaction of
all of these factors, the import volume of private refineries rises to 3.13 mmbd, up
23% year-on-year, accounting for 29% of the total crude oil imports.
From the perspective of import source areas, the Middle East is still the most
important import source area in China. However, with the increase of crude oil
procurement by local refineries in CIS, America, Africa and other regions, China’s
crude oil import source structure has also undergone great changes (see Fig. 5). In
2020, China imported 5.1 million barrels of crude oil per day from the Middle East,
up 14% year-on-year, accounting for 47% of the total crude oil imports. The Middle
East remained the largest source of imports for China, and its share increased for three
consecutive years, up 3% points year-on-year. Among them, 1.7 million barrels of
crude oil were imported from Saudi Arabia per day, an increase of 2% year-on-year,
and Saudi Arabia surpassed Russia as the largest import source country of China for
two consecutive years. The CIS region surpassed Africa to become the second largest
source of crude oil imports in China. China imported 1.78 million barrels of crude
oil per day from this region, up 6% year-on-year, accounting for 16% of China’s total
crude oil imports, which was basically the same as that in 2019. America has become
the third largest source of crude oil imports in China. However, due to the impact
of Sino-US trade friction and US oil sanctions against Venezuela, the growth rate of
crude oil imports from America has slowed down in recent years.3 In 2020, China
imported 1.61 mmbd of crude oil from America, which increased by 6% year-onyear, accounting for 15% of the total crude oil imports, and its share was basically the
same year-on-year. Africa fell from the former second largest import source region
to the fourth place. In 2020, 1.52 million barrels were imported from Africa per day,
a year-on-year decrease of 18%. In addition, it is worth noting that China’s crude
oil imports from Europe came back into positive territory. After Norway’s Johan
3 Zhen and Meng (2018).
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X. Xia and X. Huang
Fig. 5 Changes of China’s crude oil import sources in 2020. Data source China Customs, EIA,
UNIPEC Research & Strategy (URS)
Sverdrup giant oilfield (the first-stage production capacity is 220 kbd) was put into
operation, China’s crude oil imports from Norway increased significantly. In 2020,
it imported 250 kbd of Norwegian crude oil, an increase of 230 kbd compared with
the same period of last year.
1.3 The Largest Production Reduction in History Has Led
to a Decline in the Share of Crude Oil Exports
in the Middle East
Since the OPEC + production reduction agreement has been reached by major OPEC
and Non-OPEC oil producers at the end of 2016, it has never been interrupted regardless of repeated extension and deepening. In April 2020, under the background of
oil price collapse, OPEC + member countries worked together to reach a new round
of production reduction agreement, which reached the largest scale in history (see
Fig. 7). The new production reduction agreement is divided into three stages, with
the production reduction scales of 9.7 mmbd, 7.7 mmbd and 5.8 mmbd respectively.
Every month, the scale of production reduction is adjusted at the OPEC + Ministerial
Meeting. In the actual implementation process, the implementation rate of OPEC +
production reduction is generally around 100%.
In 2020, driven by the production reduction agreement, the crude oil production of
all 13 OPEC member countries totaled 25.67 mmbd, accounting for 35% of the total
global crude oil production, with a sharp decrease of 3.66 mmbd compared with the
same period of last year. According to PIRA shipping data, in 2020, OPEC’s crude oil
export volume was 19.48 mmbd (see Fig. 8), which decreased by 3.28 mmbd yearon-year, and the proportion in global crude oil trade volume decreased by 4% points
from a year earlier to 46%. Among them, Saudi Arabia is still the leader in reducing
production, with an average annual crude oil output of 9.19 mmbd, a year-on-year
Analysis on the New Pattern of Global Crude Oil Trade
151
Fig. 7 OPEC + phased production reduction quota distribution. Data source Reuters, UNIPEC
Research & Strategy (URS)
decrease of 590 kbd; the annual crude oil export volume averaged 6.86 mmbd, a
year-on-year decrease of 240 kbd. In 2020, Iraq’s crude oil output was 4.05 mmbd,
a year-on-year decrease of 640 kbd; the export volume of crude oil averaged 3.77
mmbd, a year-on-year decrease of 0.85 mmbd. Under the influence of severe U.S.
sanctions, the average export volume of Iranian crude oil was only 20 kbd, down by
390 kbd year on year, much lower than the 2.5 mmbd before the sanctions. Iran has
almost withdrawn from the crude oil trade stage, and OPEC’s production reduction
keeps carrying forward. The combined force of them brought out a downward trend
for the market share of crude oil of Middle East.
Fig. 8 Changes of OPEC crude oil export volume. Data source Reuters, UNIPEC Research &
Strategy (URS)
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X. Xia and X. Huang
1.4 Under the Pandemic, US Crude Oil Exports Continued
to Grow
The US has lifted the ban on crude oil exports since the end of 2015. With the
continuous improvement of crude oil transportation and export terminal infrastructure, the export volume of crude oil in the US continued to rise. Affected by the
pandemic, American shale oil producers cut spending sharply, and crude oil production fell accordingly. According to the EIA, in 2020, the US crude oil output was
11.67 mmbd, a sharp decrease of 560 kbd on a year-on-year basis. However, the US
crude oil export did not fall but increased, and the annual average export volume was
3.18 mmbd, up 200 kbd or 7% from the previous year; in February 2020, the export
volume of US crude oil surged to 3.71 mmbd, setting a new record.
In terms of export destinations, in 2020, the amount of crude oil exported from
the US to Canada declined. In the whole year, the average export volume was 400
kbd, with a slight decrease of 60 kbd from a year earlier (see Fig. 6). Compared to
2019, the amount of crude oil exported by the US to Asia–Pacific increased by 140
kbd, reaching 1.43 mmbd, and the export share reached 45%. China replaced Canada
as the largest export destination for US crude oil exports. The annual export volume
reached 480 kbd, a year-on-year increase of 320 kbd, with an export share of 15%.
Since the implementation of the first-stage trade agreement between China and the
US, China has resumed purchasing US crude oil. In May 2020, the US exported 1.27
mmbd of crude oil to China, accounting for 60% of the total exports in that month.
In the whole year, the amount of crude oil exported by the US to Europe reached
1.08 mmbd, a year-on-year increase of 130 kbd, accounting for 34% of the total US
exports. With more and more US crude oil exported to Europe, S&P Global Platts, a
consultancy, plans to include WTI Midland in Brent spot pricing system, and Argus,
a consultancy, has also introduced a pricing mechanism reflecting the relationship
between supply and demand of US crude oil exports, which means that US crude oil
exports are playing an increasingly important role in global crude oil trade.
2 Outlook of Global Crude Oil Trade in 2021 and Medium
and Long Term
2.1 The Pandemic Has Eased and Crude Oil Trade is
Expected to Regain Growth
In 2021, with mass vaccination, the global pandemic situation gradually improved,
and the oil demand recovered steadily. Compared to 2020, it is estimated that the
global oil demand will increase by about 5–6 mmbd. Moreover, about 2 mmbd of
new refining capacity will be put on line in Asia–Pacific and Middle East (see Fig. 9)
this year. In this situation, the global crude oil trade is expected to come back on
Analysis on the New Pattern of Global Crude Oil Trade
153
Fig. 6 Changes in the flow direction of US crude oil exports. Data source EIA, UNIPEC Research &
Strategy (URS)
track. In 2021, the total volume of global crude oil trade is expected to be 44.4 mmbd,
which will increase about 2.2 mmbd over the previous year, up 5%.
In the medium and long term, the unprecedented COVID-19 has a profound and
complex impact on the refining. This harsh winter in the world refinery may last
longer, the new round of integration and reorganization of the refining may accelerate,
and the eastward movement trend of the refining may be more significant. In addition,
since the outbreak of the pandemic, some large companies have announced that their
employees can work from home permanently, which will have a permanent negative
impact on some oil consumption. In addition to these, the environmental protection
policies become stricter, the goal of carbon neutrality is arduous, and the peak of
global oil demand may come ahead of schedule, thus posing greater pressure on oil
trade.
Fig. 9 Global new capacity changes (by region). Data source Reuters, UNIPEC Research &
Strategy (URS) (* indicates the predicted value)
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X. Xia and X. Huang
2.2 The Middle East Remains the World’s Largest Crude Oil
Export Region
In 2021, OPEC+ is still implementing the largest production reduction agreement in
history. At present, the willingness of oil producers to limit production and protect
prices is still very strong, and OPEC+ will still adjust its production policy through
frequent meetings. It is expected that OPEC will still maintain a relatively high scale
of production reduction in the first half of the year. In the second half of the year,
with the recovery of oil prices and demand, OPEC will gradually relax the quota
of production reduction, and the overall output and export volume may increase. In
addition, after Biden’s administration took office, the US gradually released positive
signals of Iran nuclear talks. The US and Iran constantly test each other. At present,
the situation in Iran is still full of variables. However, with the consideration of the
political will of the US government and the actual needs of the Iranian government
for oil export, the possibility of reaching an agreement between the two sides is still
high this year, and Iran’s oil is expected to return to the market this year, and some
Iran’ crude oil has already flowed into the market through some grey channels. In
addition, the ICE Murban crude oil futures contract was listed on March 29, 2021, and
the UAE announced that it would cancel the restrictions on all crude oil destination
ports in the country, which will increase the tradable Middle East resources to a
certain extent. Overall, in 2021, the export volume of crude oil in the Middle East
is expected to increase by about 800 kbd to 20.3 mmbd. Although it is lower than
the pre-pandemic level, the Middle East is still the largest crude oil exporter in the
world.
In the medium and long term, the growth rate of crude oil exports in the Middle
East has slowed down, and its share in the global crude oil export market may show
a downward trend. On the one hand, the oil consumption in the Middle East is
increasing. The Saudi Jazan Refinery (20 million tons/year) and Kuwait Al-Zour
Refinery (30.75 million tons/year) in the Middle East are expected to start at the end
of 2021. The refining capacity of oil producers such as Iraq will also increase, but
the amount of crude oil available for export may decrease; on the other hand, the
geopolitical turmoil in the Middle East and the adjustment of oil policies of major oil
producers will have a certain impact on their oil production and trade. It is predicted
that the market share of crude oil exports in the Middle East will gradually decline
in the next 5–10 years.
2.3 American Crude Oil Export Share Will Still Increase
With the recovery of oil prices, US crude oil production is expected to increase gradually in 2021. However, US shale oil producers still pay great attention to cash flow and
shareholder returns. Most small and medium-sized producers slightly increase their
capital expenditures, and the number of DUCs is greatly consumed. It is expected that
Analysis on the New Pattern of Global Crude Oil Trade
155
US shale oil production will be difficult to recover to the pre-pandemic level, and the
growth of crude oil exports will be limited. On the Canadian side, Alberta has lifted
the production restriction, and several oil sands projects have been put into production. In addition, the pipeline transportation capacity of Canada has been increasing
continuously. It is estimated that the crude oil output of Canada will increase in 2021,
and the export will also slightly increase by 100 kbd to 3.45 mmbd.
In the medium and long term, the US crude oil output is expected to make the
breakthrough, and the export still has growth potential. The US crude oil resources
will flow more to Asia–Pacific region and Europe, and its export share in the world
will gradually increase. The shale oil revolution, the promotion of LSFO and the
strong demand for naphtha will promote the global tradable crude oil resources to
become lighter, while the US low-sulfur crude oil export still has room for growth,
which will have a far-reaching impact on the international oil trade pattern. The
growth of Canadian oil sands production and the improvement of transportation
capacity will promote the export of Canadian crude oil to China, India and other
countries outside the region, with more diversified export targets.
Crude oil in Latin America has always been favored by buyers in Asia–Pacific
region and North America. With the recovery of oil prices, Brazil’s crude oil production will gradually return to the pre-pandemic level, and several pre-salt oilfields
are expected to be put into production this year, becoming the main supply growth
potential in Latin America. However, Venezuela has been caught in protracted turbulence, which has a serious effect on the normal operation of oilfields, ports and oil
pipelines. Even worse, U.S. sanctions bring down its crude oil output and export
volume to a record low. Today, the Biden administration is in no hurry to lift the
sanctions imposed on Venezuela. It is predicted that Venezuela’s crude oil export
volume will maintain low level in 2021. Overall, it is estimated that the crude oil
export volume in Latin America will increase by 100 kbdy to 4 mmbd in 2021. In
the medium and long term, as the crude oil supply in Latin America still has growth
potential, the medium and heavy sulphur-bearing crude produced will be just needed
by some refineries in the US and Asia–Pacific, and the export is expected to continue
to increase in the future.
2.4 Asia-Pacific Remains the Focus of Global Crude Oil
Trade
The Asia–Pacific region is still the major region with new capacity in the world.
The atmospheric and vacuum distillation unit of ZPC Phase II (20 million tons/year)
was commissioned in November last year and has officially start operation in mid2021. Shenghong Petrochemical (16 million tons/year) is expected to be put into
production at the end of this year, and local refineries such as Haoye, Xinhai and
Zhonggu also plans to expand the capacity. It is estimated that the crude oil import
volume in Asia–Pacific region will rise to 26.5 mmbd in 2021, with a year-on-year
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increase of 1.35 mmbd, and the Asia–Pacific region remains the largest crude oil
import region in the world. However, the Chinese government has recently tightened
the crude import quotas of private refineriws and refined oil export quotas, so the
growth rate of crude oil imports may slow down in the future.
In terms of regions, although OPEC began to cut production on a large scale in
May, the main design oil of newly-built large refineries in Asia–Pacific region is
still Middle East crude oil, and the Middle East is still the most important import
source region in Asia–Pacific. It is estimated that in 2021, Asia–Pacific will import
15.6 mmbd of crude oil from the Middle East, an increase of about 700 kbd on
year-on-year basis, accounting for 59% of the total Asia–Pacific imports. Although
Libya’s crude oil exports have resumed, its oil production and export are still facing
uncertainties due to protracted turbulence. In 2021, Asia–Pacific will import 3.2
mmbd of crude oil from Africa, with an increase of 130 kbd on year-on-year basis.
The import volume accounts for 12% of the total imports in Asia–Pacific, making
Africa the second largest source of imports in Asia–Pacific. ESPO crude oil is still
the most imported crude oil in China’s refinery. In addition, with the implementation
of IMO new sulfur limitation regulations, the amount of Ural crude oil processed in
Europe is reduced, and more Ural crude oil flows into complex refineries in Asia–
Pacific region. In 2020, the amount of Ural crude oil imported in Asia–Pacific region
is almost four times that of 2016, which is expected to continue to increase in 2021.
In 2021, Asia–Pacific is expected to import 2.9 mmbd of crude oil from the CIS
region, with an increase of 300 kbd on year-on-year basis, accounting for 11% of
the total imports of Asia–Pacific. Brazilian medium crude oil is also one of the main
imported oils for China’s local refineries, but the import volume has declined slightly
recently. The US imposed sanctions on Venezuela, and it is difficult for Venezuela
to resume normal exports in the short term. It is estimated that the amount of crude
oil imported from Latin America in Asia–Pacific will increase slightly by 200 kbd
to 2.5 mmbd in 2021, accounting for 9% of the total imports. US crude oil exports
are still on the rise, the tension between China and the US has eased, and China’s
imports of US crude oil are expected to continue to increase. Moreover, the strong
demand for naphtha in the Asia–Pacific region further supports US light oil imports.
It is estimated that in 2021, crude oil imports from the US in the Asia–Pacific region
will increase by about 300,000 bpd to about 1.75 mmbd, accounting for 7% of the
total imports in the Asia–Pacific region. In addition, the output of Johan Sverdrup,
a giant Norwegian oilfield, is stable at about 500 kbd, and it is expected that the
amount of crude oil imported from North Sea in Asia will continue to increase. In
the medium and long term, after 2025, the new refining capacity in the Asia–Pacific
region will slow down, and the growth rate of imported crude oil will decline in the
future, but Asia–Pacific will remain the focus of global crude oil trade.4
4 Ziyang et al. (2018).
Analysis on the New Pattern of Global Crude Oil Trade
157
2.5 The Uncertainty of Global Crude Oil Trade Has
Increased, and It Is Under Pressure in the Medium
and Long Term
Basically speaking, Venezuela, Libya, Nigeria and other oil producers have seen
an unstable oil production, declining output, and sometimes even production halts
of oilfields in recent years. In addition, there is still great uncertainty for Iranian oil
supply to back on track. What’s worse, the geopolitical situation in the Middle East is
tense. Saudi oil facilities are often attacked by armed forces, which makes the global
crude oil supply more uncertain. These uncertainties have aggravated the uncertainty
of crude oil trade and will persist for a long time. Besides, although the production
capacity of complex refineries in the east of Suez increased, and simple refineries in
Europe and America have been shut down on a large scale, the supply and demand
pattern of light and heavy crude oil resources may be mismatched at certain times,
because most of the newly added refining capacity is for processing medium and
heavy crude oil, while new newly added crude oil supply is mainly light and medium
crude oil, which also limit the development of crude oil trade to a certain extent.
In the post-pandemic era, the macro environment is facing more changes and challenges. Specially to face the global climate change, major countries or economies
have set carbon emission reduction targets. The world economic situation is in the
process of transformation and exploration of old and new kinetic energy. As the
economy with the highest economic growth rate, China put forward the goal of
“striving to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by
2060” in September 2020. The Biden administration brought the United States back
into the Paris Agreement on climate change, and Biden signed an “Executive Order on
Tackling the Climate Crisis at Home and Abroad”, thereby the US will further accelerate its transition to a clean energy economy. Under the guidance of policies, various
industries, including oil companies, have embarked on the road of transformation,
striving to transform from high-carbon traditional energy companies to low-carbon
comprehensive energy companies. International oil companies have begun to lay out
renewable energy and electric vehicles to seize the opportunities in low-carbon business and clean energy market. The market generally predicts that the peak of global
oil demand will come ahead of schedule, fuel demand will gradually decline, and
chemical demand will become the main driving force of oil demand. Therefore, the
pattern of petroleum and petrochemical industry will undergo profound adjustment,
and crude oil trade will encounter greater challenges in the long term.
References
BP (2020) Statistical review of world energy
Pei W, Han L (2016) The eastward shift of refining focus leads to increasingly fierce market
competition. China Petrochem News
158
X. Xia and X. Huang
Zhen W, Meng H (2018) The impact of Sino-US economic and trade frictions on bilateral energy
cooperation. Int Petrol Econ 2018(10)
Ziyang H, Tong Z, Junjie Y, Rulang W (2018) World crude oil trade pattern and China’s current
situation and the countermeasures. Sino-Global Energy 2018(23)
Part III
Natural Gas
Production and Consumption of Natural
Gas in China and Its Prospects
Rui Chen and Wenyu Sun
During the 13th Five-Year Plan period, China’s natural gas market developed rapidly,
especially in the middle and late period, the increment of natural gas consumption
reached a record high. In 2020, as the closing year, the “black swan” events occurred
frequently. The COVID-19 all over the world, and the oil price plummeted. As a
result, the growth rate of China’s natural gas consumption slowed significantly, the
domestic natural gas production continued to grow rapidly, and the growth rate of
gas import slowed sharply. Therefore, the external dependency declined slightly, and
the national natural gas supply and demand were loose. It is predicted that during
the 14th Five-Year Plan period, China’s macro economy will tend to a good prospect
and environmental protection policies will be better, thereby China’s natural gas
consumption will maintain rapid growth. The year 2021 is the first year of the 14th
Five-year Plan period. In this year, the growth rate of China’s natural gas demand
picks up, the domestic natural gas maintains a rapid growth rate, and the growth rate
of natural gas imports rebound markedly.
R. Chen (B) · W. Sun
CNPC Economics &Technology Research Institute, Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_9
161
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1 Present Situation of China’s Natural Gas Market
Demand
1.1 China’s Natural Gas Consumption has Grown Rapidly,
and the Energy Consumption Ratio Achieved Sustained
Year-Over-Year Growth Once Again
Since 2000, China’s natural gas market has entered a stage of rapid development.
During the 13th Five-Year Plan period, China’s natural gas market saw a rapid development, with an average annual consumption increment of 27.4 billion cubic meters
and a growth rate of 11.5%. Especially in the middle and late period of the 13th
Five-Year Plan period, due to the improvement of macro economy and environmental protection policies, China’s natural gas demand increased rapidly. In 2018,
the natural gas consumption increased by 40.2 billion cubic meters, hitting a record
high. In 2020, affected by the COVID-19, the growth rate of China’s natural gas
consumption slowed down. During this time, dual circulation strategy, tax reduction
and fee reduction, and environmental protection policy have become the main driving
forces for the growth of China’s natural gas consumption in the short term. In 2020,
the natural gas consumption was 326.2 billion cubic meters (See Fig. 1), with an
increase of nearly 22 billion cubic meters, and the growth rate slowed down to 7.1%.
With the rapid growth of China’s natural gas consumption, the proportion of natural
gas in total primary energy consumption has increased year by year, accounting for
8.3% in 2019, which took the lead in achieving the 8.0% target of the 13th Five-Year
Plan, and further increased to 8.7% in 2020.
From the consumption trend of the whole year in 2020, the growth rate of China’s
natural gas consumption was picking up quarter by quarter, showing a trend of low
before and high after. The first quarter is the peak season of China’s traditional natural
gas demand, but affected by the pandemic, natural gas consumption has experienced
a historic low-speed growth, with a growth rate of 1.8% and an increase of 1.5 billion
cubic meters. In the second quarter, the pandemic situation in China was gradually
controlled, and the macro economy gradually recovered. In the first quarter, the GDP
growth rate rose from −6.8 to 3.2%. Meanwhile, factors such as tax reduction and
fee reduction, “dual circulation” strategy and environmental protection had obvious
impacts on the market. The growth rate of China’s natural gas consumption rose
to 6.2%, with an increase of 4.2 billion cubic meters. In the third quarter, China’s
macro-economy continued to improve and the influence of policies became more and
more obvious, with the growth rate rising to 7.2% and an increase of 5 billion cubic
meters. In the fourth quarter, the domestic natural gas market demand continued to
grow rapidly. In addition, the heating demand increased significantly, with the growth
rate rising to 12.9% and an increase of 11 billion cubic meters.
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Fig. 1 Natural gas consumption and its proportion in China over the years
1.2 The Growth Rate of Major Gas Industries Slowed Down
to Varying Degrees Compared with the Previous Year,
and that of Industrial and Power Generation Gas
was Relatively Fast
Affected by the natural gas utilization policy and environmental protection policy,
China has gradually formed four major gas fields, among which urban gas, industrial
gas and power generation gas are the most important gas industries in China, and the
demand for fertilizer and chemical industry gas is relatively small. In 2020, affected
by pandemic and other factors, the growth rate of major gas industries slowed down
to varying degrees. In the whole year, the gas consumption of urban gas was 100.4
billion cubic meters, an increase of 5.1%. The industrial gas consumption was 129
billion cubic meters, an increase of 9.3%. The gas consumption for power generation
was 57.1 billion cubic meters, an increase of 7.7%. Chemical fertilizer and chemical
industry used 40 billion cubic meters of gas, an increase of 4.5%. From the perspective
of utilization structure, urban gas consumption accounted for 30.8% of China’s total
natural gas consumption, industrial fuel accounted for 39.5%, power generation
accounted for 17.5%, and fertilizer and chemical industry accounted for 12.2%.
Overall, urban gas consumption kept increasing, but the growth rate slowed down
significantly. In 2020, the construction of natural gas infrastructure continued to
advance, and the gas-consuming population grew steadily. It is estimated that the
urban gas-consuming population will increase from 390 million last year to nearly
410 million. 2020 is the target year of “the Three-year Action Plan to Win the Battle
of Blue Sky”. The Beijing-Tianjin-Hebei region, the Fenhe-Weihe River Plain area,
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the Yangtze River Delta and other key areas continued to promote the coal-to-gas
projects and projects of providing access to all administrative villages in the region,
which drives the steady growth of heating and people’s livelihood gas consumption.
Business services and tourism were greatly impacted by the pandemic situation, and
the gas consumption of business service industry was much lower than last year.
The improvement of domestic macroeconomic situation has led to the rebound of
logistics demand and the low domestic LNG price, which has led to the growth of
LNG automobiles and ships and other related industries’ gas demand.
Industrial fuel gas consumption increased steadily, with growth rate slowdown.
In 2020, China intensified macro-policy regulation and control, and continuously
pushed forward tax reduction and fee reduction and strengthened local infrastructure,
so as to drive the growth of demand for steel, glass and other products, and promote
the gradual recovery of industrial gas, but the overall situation is not as good as
2019. In 2020, the average price index of Chinese glass was 1235 (The Price Index
of Chinese Glass), up 7.6% year-on-year. Especially since August, the price index
of glass has risen rapidly. From August to December, the price index achieved 1,395
on average, up 17.7% year on year.
Gas consumption for power generation increased rapidly. Driven by the relatively
low price of natural gas, the steady increase of installed capacity of gas power plants,
and the recovery of macro economy, the gas consumption for power generation has
increased rapidly. The policy on on-grid electricity price and the electricity market
reform have restrained the rapid growth of power generation gas to a certain extent.
Guangdong, Tianjin, Zhejiang and Shanghai have lowered the regional price of ongrid gas power due to the decrease in fuel costs. At the same time, with more gas
power pouring into electricity market transactions, the competition among power
sources is becoming more and more furious.
China also witnessed a steady increase in gas consumption for fertilizer and chemical industry. Driven by the national grain strengthening strategy and agricultural
encouragement policy, the demand for chemical fertilizer increased. In addition, the
loose supply of natural gas resources and low gas price during the year also exerted an
influence on the rapid growth of the gas consumption for chemical fertilizer. In 2020,
the average operating rate of urea enterprises was 68.6% (Domestic Urea Operating
Rate), which was 6.5 percentage points higher than that in the same period of last year.
In the chemical industry, due to the lack of methanol demand and falling prices, the
demand for chemical gas was relatively low throughout the year. The average price
of excellent methanol products in the whole year was 1,769 yuan/ton (The Annual
Price of Excellent Methanol Products), which dropped by 17.6% year-on-year.
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1.3 The Growth Rate of Natural Gas Consumption in Various
Regions has Dropped Significantly Compared
with the Previous Year
Affected by economic development, degree of infrastructure improvement and policies, the consumption of natural gas varies greatly in different regions of China. Bohai
Rim region, as the largest natural gas consumption area in China, consumed 75 billion
cubic meters in 2020, accounting for 23% of the national natural gas consumption,
with a growth rate of 11.6%. It is mainly due to the steady advancement of the
conversion of residential and industrial coal to gas, the extension of heating at the
beginning of the year, and the strong demand of industrial gas. In the Yangtze River
Delta region, since the production and operation of export-oriented enterprises were
seriously affected by the damage of the global industrial chain, the gas demand of
related industries was inhibited. Therefore, the gas consumption was 57 billion cubic
meters, with a growth rate of −0.2%, accounting for 17%. In the southeast coastal
area, the consumption was 45.5 billion cubic meters, with a growth rate of 12.9%,
accounting for 14%. The reason is that the large import and trade volume of LNG in
the area has promoted the reduction of resource costs, the successful transformation
of export-oriented enterprises in the area, and the steady advancement of residential
and industrial coal-to-gas projects, which drives the steady increase of gas consumption in the area. As the macroeconomic recovery in the central and western regions
took the lead, and the industrial demand was strong, there was a significant increase in
industrial gas consumption. As a result, the consumption here increased rapidly, with
a growth rate of 12.0%. In the southwest and northwest regions, with the increase of
the operating rate of LNG plants and the increase in gas consumption of urea enterprises, the gas consumption maintained medium-speed growth, with growth rates of
5.6% and 5.0% respectively. In the central and southern China region, the consumption of natural gas increased by 4.4% year-on-year under the influence of pandemic
situation and macro-policy control. In Northeast China, under the influence of the
weak macro-economy, the replacement of coal with natural gas, and the steadily
increasing gas supply of the China-Russia east-route natural gas pipeline, the natural
gas consumption grew at the rate of 1.8%.
2 Present Situation of Natural Gas Supply in China
2.1 China’s Natural Gas Production has Grown Rapidly
With the rapid growth of China’s natural gas demand, China’s natural gas output
has also increased rapidly since 2000. In recent years, China issued the Seven-year
Action Plan for Enhancing Reserve and Productivity, and major natural gas producers
expanded domestic investment and intensified exploration and development, which
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R. Chen and W. Sun
Fig. 2 China’s natural gas output and import over the years
promoted the growth of natural gas production in China, especially the shale gas
production increased significantly. In 2020, China’s natural gas output was 192.6
(National Development and Reform Commission) billion cubic meters (See Fig. 2),
an increase of 8.4% year-on-year and an increase of 14.9 billion cubic meters. The
natural gas output accounted for 57.8% of China’s total resource supply, up 2.0
percentage points from the previous year. Among them, the output of coal gas was 4
billion cubic meters, an increase of 300 million cubic meters compared with last year;
that of coalbed gas was 6.5 billion cubic meters, an increase of 8.3% year-on-year;
that of shale gas exceeded 20 billion cubic meters, up 33.3% year on year.
2.2 The Growth Rate of Natural Gas Imports Dropped
Significantly from the Previous Year, and the Degree
of Dependence on Foreign Imports Decreased Slightly
Year-on-Year
In order to ensure the energy supply, China has continuously developed new natural
gas import channels and strived to diversify imports. During the 13th Five-Year Plan
period, the China-Russia pipeline was put into operation, and China officially built
four natural gas import channels in northwest, southwest, northeast and sea. The
overall natural gas import increased rapidly, with an average annual increase of 15.9
billion cubic meters at an increase rate of 18.0%. In 2020, affected by the rapid
growth of domestic gas and the slowdown of demand growth, the growth rate of
China’s natural gas imports dropped significantly, with the annual import volume
of 140.8 (General Administration of Customs of the People’s Republic of China)
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167
Fig. 3 China’s natural gas import over the years
billion cubic meters. The growth rate was 2.0% and the external dependency was
43.2% (See Fig. 3), down 2.2 percentage points from the previous year.
The import volume of pipeline natural gas showed negative growth for the first
time. In 2020, the import volume of pipeline gas was 47.6 billion cubic meters,
down 6.9% year-on-year. It accounted for 34% of China’s total natural gas imports.
China’s pipeline natural gas mainly comes from Turkmenistan, Uzbekistan, Kazakhstan, Myanmar and Russia. Among them, the import volume from Turkmenistan,
Uzbekistan and Myanmar decreased by 14.0%, 32.5% and 11.2% respectively. The
gas supply in the China-Russia east-route natural gas pipeline has increased steadily.
In the future, with the increase of the gas supply of Russian imported pipelines, the
proportion of natural gas in other imported pipelines will decline to varying degrees.
The import of LNG increased rapidly. In 2020, the import volume of LNG was
67.1 million tons (about 93.2 billion cubic meters), a year-on-year increase of 11.4%.
It accounted for 66% of China’s total natural gas imports, up 3.2 percentage points
over the previous year. The reasons are as follows. First, China’s LNG receiving
capacity has grown rapidly, and five LNG receiving stations have been expanded
throughout the year, thereby adding 10.85 million tons of LNG receiving capacity.
Second, the spot price of LNG in Northeast Asia is in a historical position, which
promotes gas suppliers to actively import LNG spot. The annual average spot price
of LNG in Northeast Asia was $3.82/MMBtu, and the lowest price dropped to $
1.75/MMBtu. Spot imports amounted to 26.96 million tons, up 26.3% year on year.
It accounted for 40.2% of China’s LNG imports, up 6 percentage points over the
previous year. In terms of import sources, China mainly imports LNG from Australia,
Qatar, Malaysia and other countries, among which most LNG is imported from
Australia. In addition, LNG import entities are diversified. Affected by factors such
as the opening of the third party of infrastructure and the low spot price of LNG, the
urban gas and power enterprises such as Enn Group, Guanghui Energy, Foran Energy
and Guangdong Yudean Group actively carried out LNG import business, forming
the “second echelon” of LNG import, and the import volume increased significantly
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Fig. 4 China’s natural gas import price
compared with the previous year. The annual LNG import volume of the second
echelon was 7.38 million tons (about 10.3 billion cubic meters), up 74% year-onyear. It accounted for 10.7% of China’s LNG import volume, up 3.8 percentage
points over the previous year.
The average import price of natural gas dropped sharply. China’s imported natural
gas is closely linked with oil prices. In 2020, the oil prices dropped sharply, and
suppliers imported a large number of low-price LNG. Therefore, the imported natural
gas prices in China dropped sharply in 2020. The average CIF value of imported
pipeline natural gas was 1.44 yuan per cubic meter (See Fig. 4), down 18.9% yearon-year, and the dutiable price was 1.57 yuan per cubic meter. The average CIF value
of imported LNG was 1.65 yuan per cubic meter, down by 26.6% year-on-year, and
the dutiable price was 1.79 yuan per cubic meter.
2.3 The Supply and Demand of Natural Gas Market is
Generally Loose
Affected by the sharp slowdown in the growth of natural gas demand and the rapid
increase in supply, China’s natural gas resources supply was generally loose in 2020.
In the first half of the year, in order to ensure the smooth operation of resources and
pipeline network, major gas suppliers reduced domestic gas production, imported
pipeline natural gas in accordance with the take or pay agreement, and delayed
delivery of long-term LNG. In the second half of the year, market demand generally
sustained sound growth and oversupply gradually narrowed. In December, due to the
unexpected growth of market demand, the reduction of resources supply in Central
Asia and the coordination of pipe network, supply and demand were tight in some
periods. The annual supply was 333.4 billion cubic meters, a year-on-year increase
of 6.8%. Among them, the gas used by Hong Kong and Macao was 5.1 billion cubic
meters, up 58.4% year-on-year.
Production and Consumption of Natural Gas …
169
3 Prospect on Natural Gas Supply and Demand in China
3.1 In 2021, China’s Demand Will Grow Steadily
and the Growth Rate Will Pick Up
The year 2021 is the first year of the 14th Five-year Plan period. In this year, it
is estimated that the national natural gas consumption will be 354.2 billion cubic
meters, up 8.6% year-on-year. The main reasons include: First, the international
pandemic situation is expected to continue to improve, driving the global economy
and consumption to pick up, and the global industrial chain to continue to recover.
Second, the country will continue to implement the strategy of expanding domestic
demand, promote the upgrading of manufacturing industry and enhance the vitality
of the domestic economy. Third, the environmental protection policies will be e
continuously implemented. 2021 is the target year of Northern Winter Clean Heating
Plan (2017–2021), and the key areas of “2 + 26” will continue to promote clean
heating renovation. Considering that all localities adopt clean coal or electric heating
according to local conditions, and the gas subsidy is limited, the growth rate of heating
gas in northern areas will drop somewhat. Meanwhile, in order to improve people’s
quality of life, the middle and lower reaches of the Yangtze River, Central China and
other places will promote heating in winter, which will drive the growth of residents
and heating gas consumption in southern areas.
The gas demand of various industries has increased steadily. The demand for
urban gas is growing steadily, and is expected to increase by 8.6% year-on-year to
109 billion cubic meters. With the advancement of urbanization, the demand for gas
in urban residents, business services and other fields keeps growing naturally. The “2
+ 26” key areas will continue to promote clean heating renovation projects, and the
governments and enterprises in southern areas such as Wuhan, Shanghai and Nanjing
will actively promote residential heating, which will drive the growth of heating gas
demand in China. At the same time, with the control of the pandemic situation in
China, the service industries such as catering and tourism continued to recover, which
led to a rapid increase in the gas demand for business service industry. Because of the
continuous recovery of logistics, the low domestic LNG price, new energy vehicles
and other factors, the demand for transportation gas increased steadily. The demand
for industrial gas grew steadily, up 9.8% year-on-year to 141.7 billion cubic meters.
In order to continuously improve the environmental quality, the central and local
governments will continue to carry out the treatment of industrial coal stoves and
kilns. Internationally, the global macro-economy and industrial chain have gradually recovered, driving the growth of gas consumption of export-oriented enterprises. Domestically, “new infrastructure” policy and dual circulation strategy will
drive the rapid growth of gas demand in steel, glass, ceramics and other industries.
The gas demand for power generation grew rapidly, with an increase of 8.6% yearon-year to 62 billion cubic meters. It is estimated that the national power demand
will grow rapidly in 2021. Considering the newly put into operation of gas-fired
power plants last year and the addition of gas-fired power projects in Guangdong’s
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energy planning, the installed capacity of gas-fired power plants will still maintain
steady growth. In addition, as more gas power will pour into the electricity market
in Zhejiang, Guangdong, Jiangsu and other places, the gas price will directly affect
the generation of gas and electricity. On the whole, the demand for gas for power
generation will keep growing rapidly in 2021. Gas consumption for chemical fertilizer and chemical industry grew steadily, with a year-on-year increase of 4.5% to
41.5 billion cubic meters. In 2021, China will continue to implement the agricultural
policies to strengthen agriculture and benefit farmers and bring prosperity to them.
However, due to the high start-up load in the previous year, it is expected that the
gas demand for fertilizer will grow steadily, and the growth rate will drop significantly from the previous year. In the chemical industry, with the improvement of
the economic situation and pandemic situation in 2021, the demand for methanol
gas will rise. In addition, the resources are relatively loose. Therefore, the demand
for methanol gas is expected to rise. In the consumption structure of natural gas,
urban gas accounts for 30.8%, industrial fuel accounts for 40%, power generation
gas accounts for 17.5%, and chemical gas accounts for 11.7%.
3.2 In 2021, China’s Natural Gas Production Grew Steadily,
the Growth Rate of Imports Rebounded, and the Supply
and Demand of Natural Gas Continued to be Loose
China’s natural gas output will grow steadily. Domestic production enterprises will
continue to increase their reserves and production. However, due to the loose supply
and demand of natural gas in the previous year, the reduction and limited production of domestic gas pressure, and the low oil price, gas suppliers have reduced
their upstream investment, and the growth rate of national natural gas production is
expected to decline in 2021. It is estimated that the national natural gas output will
be 204 billion cubic meters, up 5.9% year-on-year, down 2.5 percentage points from
the same period of last year; domestic gas will account for 55.0% of the natural gas
resources supply, slightly down by 1.6 percentage points from the previous year.
The growth rate of natural gas imports rebounded. In 2021, the import volume of
China-Russia east-route natural gas pipeline increased rapidly, and that of Central
Asia gas rebounded, which led to the rapid growth of pipeline gas import volume.
The expansion projects of LNG receiving stations in Rudong of Jiangsu, South Port
of Tianjin and Zhoushan of Zhejiang will be completed, and the projects of Zhongtian
Energy in Chaozhou of Guangdong, Jiangyin of Jiangsu and Wenzhou of Zhejiang
will be put into operation, with an additional LNG receiving capacity of 21.3 million
tons. By then, the total LNG receiving capacity in China will exceed 100 million
tons. Some newly signed LNG contracts began to perform, such as the LNG contract
signed by Enn Group and BP. Import of LNG will increase steadily. With the increase
of import entities and the improvement of the third-party openness of infrastructure,
the competition between imported pipeline natural gas and LNG will intensify, which
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171
will further affect the structure of imported gas sources in China. On the whole, it
is estimated that the annual natural gas import volume will be 158.5 billion cubic
meters, up by 12.5% year-on-year, and the external dependency will be 44.8%, up
slightly from the previous year. Among them, the imported pipeline gas will be 55
billion cubic meters, a year-on-year increase of 15.6%; Imported LNG will be 74.51
million tons (about 103.5 billion cubic meters), up 11.0% year-on-year.
3.3 During the 14th Five-Year Plan period, China’s Natural
Gas Will Continue to Grow Rapidly, but the Growth Rate
Will Slow Down
China will continue to introduce environmental protection policies related to atmospheric control, and the control efforts are expected to be reinforced. The Ministry of
Ecology and Environment put forward that the prevention and control of air pollution should be carried out continuously during the 14th Five-Year Plan, and the
synchronization of increasing gas and reducing coal should be adhered to (Ministry
of Ecology and Environment of the People’s Republic of China). China proposes to
strive to peak carbon dioxide emissions by 2030 and achieve carbon neutrality by
2060, which will further accelerate the energy transformation. The white paper, titled
Energy in China’s New Era, (The State Council Information Office of the People’s
Republic of China) puts forward that China will take the clean and low-carbon as
the leading aspect of energy development, promote the green energy production
and consumption, optimize the energy production layout and consumption structure,
and accelerate the increase of the proportion of clean energy and non-fossil energy
consumption. Generally speaking, during the 14th Five-Year Plan period, opportunities and challenges of China’s natural gas development coexist, which is an important
“window period” for the development of natural gas market. It is estimated that in
2025, China’s natural gas consumption will increase to 420–440 billion cubic meters,
with an average annual increase of 20.8 billion cubic meters and a growth rate of
5.7%. Among them, the industrial sector has great demand potential. The national
environmental protection policy strongly supports burning gas instead of coal in the
industrial field, and in some areas, industrial enterprises using highly polluting fuels
are suspended or limited production and other remedial measures, thus promoting
fuel upgrading in the industrial field. China’s estimated consumption of loose coal
exceeds 600 million tons, of which loose coal accounts for a relatively high proportion in the industrial sector, and there is a large space for natural gas substitution.
Urban gas consumption will continue to maintain steady growth. Among them, gas
for residential use will continue to grow steadily. Driven by environmental protection
policies, heating gas will maintain a rapid growth rate. The increase of transportation
gas mainly comes from LNG heavy trucks. LNG vessels have better development
prospects driven by stricter environmental protection policies. There is a vast space
for generating gas, but there is great uncertainty. Natural gas power generation has
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the advantages of environmental protection, high efficiency, flexible start-stop and
convenient peak shaving for the power grid, and can be coordinated with renewable
energy in the future. In the prohibited zone for highly polluting fuel, gas-based cogeneration has a brighter future and is more likely to replace coal-fired heating boilers
and industrial heating boilers. Natural gas distributed energy is characterized by high
energy efficiency, and cleanness and environmental protection. The project economy
has improved obviously in recent two years. The future development of natural gas
power generation in China is vast. However, the increment of gas consumption in
chemical industry is limited. The chemical industry has overcapacity, low overall
prosperity and poor economy. It is expected that the natural gas chemical industry
will develop slowly. In the field of petrochemical industry, China’s environmental
protection policy will continuously improve the quality of oil products in the future,
and the demand for oil refining processes such as hydrogenations will increase significantly. With the expectation of oil price recovery, natural gas will still have certain
economic advantages over LPG, and it is expected that the gas demand in China’s
petrochemical industry will maintain steady growth in the medium and long term.
Technology in new chemical fields such as natural gas to olefin is developing rapidly,
and it may become a growth point of gas consumption.
In addition, China will continue to promote the construction of natural gas production, supply, storage and sales system. It is expected that the domestic natural gas
supply will continue to grow steadily. The China-Russia east-route natural gas
pipeline gradually reaches target output, which will drive the continuous increase
of the gas volume of imported pipelines. The rapid construction of LNG receiving
stations will drive the increase of LNG imports. During the 14th Five-Year Plan
period, the supply and demand of China’s natural gas market will be relatively loose.
In addition, China’s market-oriented reform will continue to advance, and the natural
gas market will be more diversified.
References
The Price Index of Chinese Glass [eb/ol]. Wind Database
Domestic Urea Operating Rate [eb/ol]. Wind Database
The Annual Price of Excellent Methanol Products [eb/ol]. Wind Database
National Development and Reform Commission [eb/ol]. https://www.ndrc.gov.cn/fgsj/tjsj/jjyx/
mdyqy/.
General Administration of Customs of the People’s Republic of China. Statistical Newsletter
[eb/ol]. http://www.customs.gov.cn/customs/302249/zfxxgk/2799825/302274/302275/3511738/
index.html.
Ministry of Ecology and Environment of the People’s Republic of China. Regular Press Conference
of Ministry of Ecology and Environment in February [eb/ol]. http://www.mee.gov.cn/xxgk2018/
xxgk/xxgk15/202003/t20200310_768300.html.
The State Council Information Office of the People’s Republic of China. White Bookof Energy in
China’s New Era [eb/ol]. http://www.scio.gov.cn/zfbps/32832/document/1695117/1695117.html
Progress and Prospect
on Market-Oriented Reform of Natural
Gas Industry in China
Jun Bai
1 Background of Market-Oriented Reform of Natural Gas
Industry
Natural gas is an important source of energy and chemical raw material, and it is
an integral component in economic and social operation. The goal and direction of
natural gas industry reform depends on the overall goal and direction of national
economic and social reform. The market-oriented reform of natural gas industry is
rooted in the arduous exploration and practice of China’s socialist market economy
system construction.
1.1 Deepening the Understanding of the Role of Market
Force is the Basis for Natural Gas Industry Reform
After the founding of the People’s Republic of China in 1949, the recognition of public ownership and planned economy as the essential characteristics
of socialism gradually formed. Many achievements have been made in national
economic construction through central planning and concentrated efforts. However,
the internal contradictions in the system have also been accumulating, and the
economic and social operation and people’s life have finally reached an unsustainable
level, which forced a reform and opening-up, in the form of the first round of marketization in the late 1970s. In 1984, the Third Plenary Session of the 12th Communist
Party of China (CPC) Central Committee pointed out that China’s economic system
is a planned commodity economy based on public ownership, which deviated from a
J. Bai (B)
Beijing Gas Research Institute, Beijing, China
e-mail: jimjunbai@sina.com
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_10
173
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J. Bai
traditional understanding that socialism is equivalent to planned economy with products production and allocation but without products trading in the past. In 1987, the
13th National Congress of CPC pointed out that the socialist commodity economy
is the internal unity of planning and market, in which the state regulates the market
and the market guides enterprises. In 1992, the 14th National Congress of the CPC
further put forward the goal of establishing a socialist market economy system, which
acknowledges that the market plays a fundamental role in resource allocation under
the macro-control of the state. The system regarded both planning and market as
economic tools, effectively ending the dispute over the choice of either planning or
market. In 1997, the 15th National Congress of the CPC followed the expression
of the 14th National Congress. Since then, from the 16th National Congress of the
CPC in 2002, the 17th CPC National Congress in 2007 to the 18th CPC National
Congress in 2012, in addition to the expression that the market plays a fundamental
role in allocating resource, the modifiers of “making better use of”, “giving better
play to the system” and “to a greater extent and to a wider scope” have been added
in front, showing a progressive trend of gradual clarity and strengthening. In 2013,
the Third Plenary Session of the 18th CPC Central Committee went further and
clearly pointed out that that it will let the market play a decisive role in allocating
resources, let the government play its role better. This expression continued in the
19th National Congress of CPC in 2017. In addition to the above description of the
role of market and government planning, the Fifth Plenary Session of the 19th CPC
Central Committee in 2020 added the expression of “promoting a better integration
of an effective market and a accomplished government”. The process of the change
shows that the understanding of the role of market is gradually deepening along with
the development of practice, and the market allocation of resources is a more efficient
way than central planning (Bai 2019a).
1.2 The Market-Oriented Reform of Natural Gas Industry Is
an Integral Part of China’s Economic Reform
It is precisely because of the release of market power that China has achieved a
miracle of ultra-long-term rapid economic growth, during which the government
gained more and more financial resources and people’s income also improved. In
2020, China announced that it has eliminated absolute poverty. With the development and expansion of many emerging industries, the efficiency of competitive
industries is constantly improving, and various ownership economies are constantly
growing, making greater contributions to economic growth, employment, income,
taxation, and scientific and technological innovation. After many rounds of reform,
state-owned enterprises gradually concentrate on resources, monopoly and strategic
industries. The market-oriented reform adopts gradual reform ideas of addressing
easier issues before difficult ones, starting pilot before popularization and opening
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up incremental market before changing existing ones. The liberalization of products and services prices has continuously increased, reaching 97% of all products
and services by 2015. The scope of Central Government Pricing Catalog has been
further narrowed. The government’s control over the price and quantity of products
and services is now mainly concentrated in a few fields of energy and resources,
monopoly business and important production factors such as land, capital and labor,
and the economic system reform has entered a deep-water zone where tough challenges must be met squarely. Compared with other commodities, the market-oriented
reform of energy commodities such as oil, gas and power lags behind. There are two
reasons. On the one hand, energy provides basic support for all industries of economy
and all aspects of society, having a very wide range of influences. Since the beginning
of the twenty-first century, the natural gas industry has entered a stage of large-scale
and rapid development, not only its share in the energy market has continued to
rise, but also its importance in people’s daily life, as gas in widely used in houshold
cooking and heating. Therefore, the occasional shortage of natural gas supply has
caused some hindrance to the reform process. On the other hand, competitive business and monopoly business in the energy field are often intertwined, with a few large
scale enterprises dominating the sector and having strong influence over government
decision-making, so the reform is complicated, which requires greater determination
and courage to proceed (Bai 2017).
1.3 The Market-Oriented Reform of Natural Gas Industry Is
a Necessary Move to Solve Practical Problems
in the Energy Sector
The main practical problems in China’s energy industry include increasing energy
security risks, insufficient clean and low-carbon development, inefficient operation
of the industry and inadequate service awareness.
China’s energy security risks are mainly oil and gas supply security risks, among
which oil is the biggest problem. However, as the energy system transitions to a
cleaner energy mix, more and more attention has been paid to the security of natural
gas supply. China began to import natural gas in 2006, and had become the world’s
largest importer of natural gas by 2018. The dependence of natural gas on foreign
countries is rising rapidly and continues to rise. In the era of economic globalization,
resources are allocated globally, and countries learn from each other’s strengths and
make up for their shortcomings. High dependence on foreign countries does not
mean insecurity, but the risk factors affecting supply security will increase. During
the winter heating season in both 2016 and 2017, China’s natural gas imports from
Central Asia were temporarily in short supply, which triggered a chain reaction of
consumption squeeze in China. The matters like Asian natural gas price premium and
volatile spot prices also pose challenges to the smooth operation of domestic natural
gas industry. Given its market size, infrastructure and geographic location, China
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could lead the process of Asian natural gas liberalization through domestic natural
gas marketization reform, and promote the integration of regional and global natural
gas markets, thus better ensuring the security of regional energy supply and promoting
the development of global natural gas market (Bai and Zhang 2020).
China’s energy consumption is dominated by coal. The long-term, continuous,
large-scale and high-intensity use of coal has already exceeded the ecological environment tolerance limit, causing serious side effect. The demand for clean energy
and the calls for low-carbon energy transition is gaining clout. In 2012, the report of
the 18th National Congress of CPC first proposed to promote the energy production
and consumption revolution. In 2014, the CPC Central Financial and Economic
Leading Group put forward a new energy security strategy, calling for “revolution” in energy consumption, supply, technological development and institutional
setup, in addition to a call for all-around international energy cooperation. In 2015,
the 13th Five-Year Plan proposed by the CPC Central Committee called for establishing a clean, low-carbon, safe and efficient modern energy system. This series of
top-level designs laid the foundation for a policy trend of controlling and reducing
coal consumption, reducing oil and increasing gas and vigorously developing renewable energy. In recent years, the proportion of coal in the energy mix has decreased,
oil has been relatively stable, natural gas has continued its rise, and non-fossil fuels
have grown rapidly. However, by 2020, the proportion of coal was still as high as 57%.
Although the proportion of installed coal-fired power capacity has dropped below
50% for the first time, its proportion in electricity output still exceeded 60%. Under
the grand background of global energy transition and coping with climate change,
China needs to accelerate the process of replacing high-carbon energy with lowcarbon energy, while taking into account the stability, reliability, safety, flexibility
and economy of energy system. In the case that renewable energy alone is still far
from enough in meeting the multiple development goals of the energy system, it is
necessary to give full play to the relatively clean, low-carbon, stable, reliable, flexible
and efficient value of natural gas, and promote the quality and efficiency development
of the natural gas industry through market-oriented reform.
Since the reform and opening up, China’s oil and gas industries has undergone
many adjustments and reorganizations. The separation of government and enterprises
has been gradually implemented; the independent management rights of enterprises
have been gradually expanded; the exploration of establishing a modern enterprise
system has continued. Major petroleum and petrochemical enterprises have carried
out joint-stock reform and public listing, the market adaptability of which has been
enhanced. In addition, the pace of “going out” has accelerated, and the industry
system has gradually evolved towards marketization. However, the oil and gas industries are not fully market-driven, many factors such as lack of competition, price
control, cross-subsidy, inherited financial and human resource burdens, improper
administrative intervention, poor assessment and incentive mechanism, and rigid
employment mechanism, have caused enterprises to pay insufficient attention to
efficiency and profit objectives or fail to focus on them. According to “the Report
on Global Competitiveness of Energy Enterprises 2017” (Renmin Univ and NDRC
2018), China’s major oil and gas enterprises have been equal to or even surpassed
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international oil and gas companies such as BP, Shell and ExxonMobil in terms of
assets and operating income, but they paled in comparison in terms of efficiency indicators such as asset return, investment income and per capita contribution. Without
further market-oriented reform, it is difficult for oil and gas enterprises to adapt to
the needs of participating in global competition and the requirements of domestic
market economic system construction.
The theme report delivered to the 19th CPC National Congress stated that “the
principal contradiction facing Chinese society in the new era is the gap between
unbalanced and inadequate development and the people’s ever-growing need for a
better life. People’s needs for a better life are becoming more and more extensive.
When the basic material life is met, the people’s pursuit of material life quality will
increase, the expectation of better air quality, water quality and ecological environment will get higher and higher, and people will pay more and more attention to the
spiritual pursuit of democracy, rule of law, freedom and fairness. The competition in
the oil and gas industries is insufficient and unfair, the supervision of monopoly is
either not in place or not enough, and the abuse of market power occurs frequently.
Oil and gas consumers lack the right to choose, they receive poor service or no service
at all in some cases. What’s worse, the prices and costs of oil and gas commodities
are unreasonable, industry laws and regulations are flawed, and oil and gas production, storage, transportation, processing and utilization also have different levels of
potential safety and environmental risks, and occasional accidents and explosions
have undermined public confidence in the industry. It is necessary to further deepen
the reform to better meet the expectations of the people.
2 Progress in Market-Oriented Reform of Natural Gas
Industry
The goal of market-oriented reform of natural gas industry is to let the market determine the price of natural gas, let the price guide the flow of natural gas resources, and
reduce improper government intervention. Based on the operating characteristics of
the natural gas industry, the government has determined the basic reform idea of
“freeing up competitive business and stepping up regulations over monopoly business”. In the competitive upstream exploration and production, import and export,
downstream processing, sales and utilization, etc., sufficient and effective competition is required. Supervision will be strengthened on the midstream storage and
transportation to ensure that the monopolied operations are fairly open to upstream
and downstream market players. According to the development degree of market
competition, the price control of upstream and downstream markets will be loosened
in an orderly manner, and a market-oriented operation mechanism will be gradually formed in which both supply and demand sides independently choose trading
partners and independently decide the price and quantity of natural gas (Bai 2018).
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2.1 The Reform of Upstream Exploration and Production
Has Been Limited
In the upstream area of China, the basic pattern of China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (Sinopec) engaging in onshore
exploration and production and China National Offshore Oil Corporation (CNOOC)
engaging in offshore exploration and production across the country has been formed
for more than two decades. In addition, Shaanxi Yanchang Petroleum, a small
regional player, is also engaged in oil and gas exploration and production in northern
Shaanxi province. Encouraged by the great breakthrough in shale oil and gas development in the US, China has also increased the exploration of unconventional oil and
gas, and tried to introduce new market players by means of relaxing access to new
oil and gas blocks through competitive bidding. The acquisition of oil and gas exploration rights has gradually changed from “first come first serve” to “bidding, auction
and listing”. In June 2011, the shale gas exploration right was first publicly tendered,
and in December of the same year, the State Council approved shale gas as the 172nd
mineral, aiming to make a room for its independent development. In 2012, the second
round of bidding for shale gas exploration rights started. In 2015, the conventional
oil and gas exploration block was listed for bidding for the first time. In 2017, the
tender for coalbed gas exploration blocks and the auction for shale gas exploration
blocks were held for the first time. “The Negative List for Foreign Investment Market
Access” issued in 2019 abolished the restriction on foreign participants that oil and
gas exploration and development was limited to joint ventures and cooperation,
opening the door wider for foreign participation. On December 31, 2019, the Ministry
of Natural Resources promulgated “Opinions on Promoting the Reform of Mineral
Resources Management (Trial)”, which promoted competitive transfer of all exploration rights, integrated exploration and production activities under a single license,
unified the threshold for domestic and foreign-funded enterprises to enter exploration
and production market, and simplified reserve management methods.
These are useful attempts to explore the reform of upstream exploration and
production. Although new upstream entrants have not achieved any obviously meaningful result and the market structure has not changed significantly, the ten-year
endeavour has increased the consensus on reform, and the experience and lessons
learned have also provided inspiration and reference for launching more targeted
market-oriented reform measures in the next stage. There are several main reasons for
the limited results of reform and opening up in the upstream exploration and production market: first, oil and gas exploration and production is a long-term, high-tech,
capital-intensive and high-risk activity, setting a high threshold for entry; second, the
enrichment degree and exploration and production conditions of domestic natural
gas resources are relatively poor, and the cost is relatively high; third, the blocks
with oil and gas exploration and production potentials have been mostly applied
and registrated, and the potentially favorable oil and gas resource blocks that can
be tapped by new market entities are scarce; fourth, exploration rights acquisition
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and transfer mechanism is not working; fifth, the support policies are not strong, the
complimentary measures are not enough, and the implementation is inadequate.
2.2 Natural Gas Import Has Partly Opened
Since the import of liquefied natural gas (LNG) began in 2006, a pattern dominated
by CNOOC and other two major oil companies has been formed. Although there is
no quota control in natural gas imports, the inadequate receiving capacity and slow
progress in fairly opening up of LNG receiving station facilities restrict LNG import.
The signing of long-term supply contract is one of the preconditions for approval of
new imported LNG receiving station projects. At the early stage of the development
of domestic natural gas market, domestic understanding of the operations of international LNG market is limited, developing downstream user market is difficult, and
there are many restrictions for the construction and operation of receiving stations.
Only the three major oil companies familiar with domestic and foreign oil and gas
industry chain have the ability to engage in LNG receiving station business, while
others flinched at the idea of venturing into it. At present, the conditions and procedures for approval of new receiving station project haves been relaxed and simplified
to some degree. Still, project of new LNG receiving station with an annual capacity
of more than 3 million tons is still subject to the examination and approval by the
central government, but the signing of a long-term supply contract is no longer a
prerequisite. Other imported LNG receiving station projects (including the expansion of existing stations at the original site) have been delegated to the provincial
government for approval.
Unlike upstream projects whose fastest development cycle from exploration to
production often takes at least 8–10 years, a LNG receiving station can be put into
operation within 3–5 years while a floating LNG receiving station can be ready for
use as fast as 1–2 year. Building LNG receiving station and gaining direct access
to international gas supplies have become the fastest way to enter domestic natural
gas supply market. Recently, coastal areas have seen an acceleration of construction or expansion of imported LNG receiving stations, storage and transfer stations
or peak shaving stations, increasing supply capacity of natural gas and adding new
suppliers to the market that has long been dominated by the three oil majors. Jovo’s
small Dongguan LNG Station was put into operation in 2012 after the company
retooled its LPG facility in the Pearl River Delta; Enn’s Zhoushan Receiving Station
started receiving LNG carriers in 2018, and its complimentary pipeline was put into
operation in 2020, sending gas more efficiently from the island station to Zhejiang
province than LNG trucks. In 2019, Shenzhen Gas readied a small LNG peaking
station; and expansion of Guanghui Energy’s Qidong LNG Transfer Station and
Shenergy’s Wuhaogou LNG Station were also completed; Beijing Gas’s Tianjin
South Port LNG Emergency Reserve Station and Chaozhou Huaying LNG Receiving
Station are under construction. Although the import volume of LNG by new market
entrants is still small, it has already played a positive role in promoting competition
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in the coastal natural gas market. Meanwhile, the newly established China Oil & Gas
Piping Network Corporation (hereinafter referred to as PipeChina) is exploring fair
opening of its surplus LNG receiving capacity to third parties, creating some opportunities for more new entrants to enter the natural gas trade field. The competition
of natural gas supply in coastal areas is set to increase.
The import and export of pipeline natural gas remains almost exclusively in the
hand of CNPC, except a small stream flowing to Hong Kong and Macao, supplied by
CNOOC, and a negligible import volume from Kazakhstan by Xinjiang Guanghui
Energy.
2.3 A Breakthrough Has Been Made In Pipeline Grid Reform
After the Third Plenary Session of the 18th CPC Central Committee in 2013,
the consideration of independent pipelines increased. In 2017, the CPC Central
Committee and the State Council clearly stated in “Opinions on Deepening the
Reform of the Oil and Gas System” that it is necessary to promote the independence of trunk pipelines of large state-owned oil and gas enterprises step by step and
realize the separation of pipeline transportation and sales. In March 2019, the Central
Committee for Comprehensive Deepening Reform passed the Opinions on Reform
and Implementation of Operation Mechanism of Petroleum and Natural Gas Pipeline
Network, which clearly required the establishment of oil and gas pipeline network
companies with state-owned capital holding and diversified investment entities, and
promoted the formation of an oil and gas market with multi-entity and multi-channel
supply of upstream oil and gas resources, efficient collection and transmission of the
unified pipeline network in the midstream and full competition in the downstream
sales market. PipeChina was established on December 9, 2019, and officially took
over the main oil and gas pipelines, some gas storage and LNG receiving station
assets of the three major oil companies and started operation on October 1, 2020,
realizing the unbundling of storage and transportation with oil and gas sales, which
is a key breakthrough in China’s oil and gas system reform, and created an important
basic condition for implementing the reform idea of freeing up upstream and downstream sectors while stepping up regulations on pipeline monopoly in the middle
(Bai and Zhang 2019).
Even though the three oil majors are still shareholders of PipeChina, the
newly-established pipeline monopoly has shown its motive to explore a new trail
different from the past. It quickly started providing services to shippers, taking
applications for transporation service and the use of LNG receiving stations, and
making some information public. In addition, according to the relevant requirements by government of the opening of existing facilities and information disclosure,
PipeChina explores and improves the disclosure of related basic information, residual
capacity, service price and quantity of oil and gas pipeline network. PipeChina
has successively signed cooperation agreements with Guangdong, Hainan, Hunan,
Fujian and Gansu on investment, construction and operation of provincial pipeline
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networks, effectively taking control of those provincial pipeline grids. It aims to
gain control or access to other provinces and many of the negotiations are under way
(Bai 2020b, c).
PipeChina actively develops the demand for oil and gas storage and transportation, proactively promotes the construction and opening of infrastructure, and facilitates free flow of oil and gas resources in a wider range. These efforts have
brought unprecedented changes in the market, helping some local natural gas markets
secure the supply of “dual gas sources” or “multiple gas sources” for the first time,
increasing competition and improving the security and reliability of supply. With
the help of PipeChina infrastructure, LNG imported by CNOOC are supplied for
the first time to more than ten provinces such as Guizhou, Hunan, Hubei, Shandong and Anhui in the form of pipeline gas. Sinopec as a result is able to divert
its gas from south China to the north and gas from the seaborne to the south, and
brings Sichuan shale gas into Guizhou via pipelines. Guanghui Energy’s Qidong
LNG Receiving Station is able to get interconnected with PipeChina for two-way
gas transportation, and supplies its LNG the northern part of Jiangsu market through
PipeChina pipelines. Towngas relies on PipeChina pipelines to get its gas out of
underground storage to its downstream enterprises. Xinjiang Kingho Energy Group
delivered Xinjiang coal-based gas to Xinjiang, Shandong, Henan and other places
for the first time through PipeChina, marking its first direct coal-based gas sales to
customers. Although these positive changes are still very limited in terms of impact,
not enough to change the existing market structure, it is a good start for establishing
a competitive natural gas supply structure.
2.4 The Reform of the Downstream Distribution Has Been
Slow
More than 60% of China’s natural gas supplies is directly sold to large users such
as power generation, industrial, chemical industry and fertilizer-makers by upstream
supply enterprises, and less than 40% of natural gas is distributed and sold to end users
by urban gas distributors. Generally, the government grants monopolized distribution
right in each city. There are more than 3,000 urban gas distribution entities in China,
with state-owned, private, foreign-funded and mixed ownership coexisting, and in
some cases there are more than one distributor in the same city. These distributors
vary in scale, and their operating and service capabilities are uneven. “The Negative
List for Foreign Investment Market Access” issued in 2019 abolished the restriction
that urban gas distribution in the city with a population of over 500,000 must be
controlled by China partners. As a result, merger, acquisition and reorganization of
urban gas distributing enterprises increased. Moreover, upstream supply enterprises
have actively entered the distribution field, increasing competition for the right to
distribute gas in cities.
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In order to reduce transmission and distribution levels of the pipeline network and
reduce natural gas cost for end users, both “Opinions on Accelerating the Utilization
of Natural Gas” in 2017 and “Opinions on Promoting Coordinated and Stable Development of Natural Gas” in 2018 encouraged and supported natural gas users to choose
their own suppliers, supply routes and forms. In recent years, many places in China
are trying to expand the scope of direct gas supply to large users, and they lowered the
standards and thresholds that define a large user. In 2019, Shandong determined that
large users are those whose annual gas consumption is more than 50 million cubic
meters; in 2020, Zhejiang and Guangdong deemed that any user whose annual gas
consumption surpasses 20 million cubic meters and 10 million cubic meters, respectively, to be big gas users. Singling out large users for direct gas supply from existing
customer base of urban gas distributing enterprises is often in conflict with the franchise agreement signed by the government and urban gas distributing enterprises,
as it directly shrinks the scale and revenue of urban gas distributing enterprises and
causes many controversies. Relevant government departments have been exploring
to strengthen the supervision of urban gas business behavior, and to prevent city
gas distributors from abusing their monopoly position and infringing on consumers’
interests (Bai 2019b). As a seperate tightening measure on distribution monopolies, in
June 2019, “Guiding Opinions on Standardizing Fees for Installation of Urban Gas
Projects” required to create conditions to speed up the establishment of a competitive market for installation of gas projects. In general, most gas consumers don’t
have the luxury to choose their natural gas suppliers as there are barely any actions
to unbundle competitive businesses with monopolistic ones due to the involvement
of complex issues including franchise agreement and cross-subsidies.
2.5 The Reform of Natural Gas Pricing Forges Ahead
into a Mixed State
Compared with electricity and oil price marketization reform, China’s natural gas
wholesale price marketization reform started later, but the pace of progress was faster.
The market-oriented reform of natural gas price adopts a cautious approach of overall
design first and step-by-step implementation second, pilot reform first and popularization second, incremental reform first and existing interest reform second, nonresident first and resident second. The price control is gradually relaxed, the marketoriented pricing scope is gradually expanded, and the price elasticity is gradually
enhanced.
Before 2011, the ex-factory natural gas price and pipeline tariff were set separately, and the price management was complicated and rigid. Different ex-factory
prices were set for different types of users even though they use the same source of
supply, and everypipeline has an unique service price. At the end of 2011, the citygate gas price of non-residential use linked with alternative energy was piloted in
Guangdong and Guangxi, combining ex-factory price and pipeline tariff. At the same
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time, prices of shale gas, coalbed gas, coal gas and LNG, which accounted for a small
market share, are liberalized. In June 2013, a nationwide push started to price gas
more closely with alternative energy for additional non-residential gas consumption
while maintaining previous pricing for existing non-residential gas consumption,
ant aimed at completing the unification of the two-tiered pricing methods nationwide
within three years. In April 2015, the citygate prices of existing gas and incremental
gas were successfully merged, all linked to alternative energy, and the prices of
gas directly supplied to big users except fertilizer enterprises were all liberalized. In
November 2015, price ceilings for non-residential gas was replaced by “a benchmark
price + a floating range”, adding flexibility to pricing despite it only took effect one
year later. In 2016, the price of gas for fertilizer-making and gas storage facilities
was liberalized, and a pilot reform of citygate price marketization was also carried
out in Fujian Province. In 2017, it was made clear that all gas sold or bought through
certain trading platforms would no longer be regulated, another step to liberalize
natural gas prices. In June 2018, the citygate price of residential gas and that of nonresidential gas were aligned, indicating the price flexibility has extended to household gas users. In May, 2020, the pricing of natural gas was removed from “Central
Government Pricing Catalog”. However, due to the lack of sufficient competition in
gas supplies, the current policy of partial liberalization and partial control of citygate price was retained, in a unremarkable note of the Central Government Pricing
Catalog. It reiterated the prices of offshore gas, shale gas, coalbed gas, coal gas,
LNG, gas directly supplied to users, gas purchased and sold by gas storage facilities,
gas publicly traded on certain trading platforms, and imported pipeline natural gas
put into operation after 2015 are determined by the market, adding that the citygate
price of natural gas in provinces where competitive conditions are ready will be
determined by the market. The citygate prices of other domestic onshore pipeline
natural gas, and imported pipeline natural gas put into operation before the end of
2014 will continue to be regulated according to the current price mechanism, and the
timing of the deregulation of their prices will depend on the natural gas marketization
reform progress.
The price for natural gas after it flows past citygate stations is formulated and
regulated by local governments, and there are great locational differences in the
implementation. Generally speaking, local governments control the sales price of
urban natural gas strictly, and the price of residential gas is particularly rigid.
The local governments may not pass on the rise in citygate price to end users timely or
fully due to various considerations. When local government formulates and adjusts
sales price, on the one hand, it takes into account the changes of citygate price and
liberalized market price; on the other hand, it also considers various other factors
such as gas distribution cost, residents’ affordability, gas enterprise operation status
and local financial and economic status. In recent years, various localities have made
efforts to improve public hearing procedures on pricing, simplify the classification
of gas consumption, establish dynamic pricing adjustment mechanism and forcing
a differentiated seasonal pricing system, etc., but generally speaking, there is still a
long way to go before a market-oriented pricing system can be put in place.
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2.6 The Regulatory Supervision of the Natural Gas Industry
Has Measured Improvement
Competition policy is the basic policy of market economy. Perfecting the fair competition review system is the first step for government departments to carry out supervision work, that is, to examine whether their policies and actions meet the requirements
of fair competition. In 2016, the State Council issued “Opinions on Establishing the
Fair Competition Review System in the Development of Market System” to prevent
policy-making organs from abusing administrative power to exclude and restrict
competition. This Opinions laid the foundation for natural gas market supervision
and fair competition review.
The supervision of natural gas industry involves two aspects: supervision content
and supervision system. In terms of supervision content, it includes both price and
cost supervision in pipeline transportation and distribution, fair and open service
supervision, and fair competition supervision in competition business, with some
of the authorities scattered in different departments; The supervision system mainly
involves the buildup of supervision team and supervision ability.
Firm steps have been taken in the fair opening of natural gas infrastructure and
the supervision and examination of service prices and costs. A complete institutional
framework has been established for price and cost supervision in pipeline transportation and distribution, and a basic regulatory principle of “permitted cost plus reasonable income” has been established. In October 2016, the NDRC issued “Measures
for Supervision and Examination of Natural Gas Pipeline Transport Cost (Trial)”
and “Management Measures for Natural Gas Pipeline Transport Pricing (Trial)”. In
June 2017, “Guiding Opinions on Strengthening Gas Distribution Price Regulation”
was formulated. In June 2019, “Guiding Opinions on Standardizing Fees for Installation of Urban Gas Projects” was promulgated, forming a full coverage of price
and cost supervision of pipeline system, and some localities have also introduced
corresponding implementation measures. In view of the fact that PipeChina has been
established and is in operation, in March 2021, the NDRC publicly solicited opinions
on the revised “Measures for the Management Measures for Natural Gas Pipeline
Transport Pricing (Trial)” and “Measures for Supervision and Examination of Natural
Gas Pipeline Transport Cost (Trial)”. It later adopted a new pricing method, scrapping
the existing unified tariff rate for each operator and replacing it with unified tariff
rate for each region. It kept the 8% IRR unchanged, extended the depreciation and
amortization period, and refined depreciation standards for fixed assets. These two
measures took effect on January 1, 2022. The fair and open supervision of natural gas
infrastructure originated from the trial implementation of “Supervision and Administration for the Fair and Open Supervision of Oil and Gas Pipeline Network Facilities”
in February 2014. In 2019, the government adopted a revision and started a formal
implementation, marking an improvement in terms of pertinence, guidance and operability of the supervision work. The national energy regulatory agency has set up an
oil and gas industry supervision team, trained a group of supervisors, and made some
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progress in promoting fair opening of oil and gas pipeline network infrastructure and
information disclosure.
Fair competition supervision work are mainly done by the national market supervision and management organization system. In 2018, the State Council established
the State Administration for Market Regulation, which merged and integrated the
functions of price supervision, anti-unfair competition and anti-monopoly that were
originally dispersed in the NDRC, the Ministry of Commerce and the former State
Administration for Industry and Commerce, streamlining market supervision and
gradually carrying out the work of establishing rules and regulations. This laid a
basic upper-level organizational guarantee for fair competition supervision. However,
the fair competition supervision force in the natural gas field is in short supply at
present. Urban gas distribution service is one of the key areas that local market supervision departments pay attention to, and abuses of monopoly position by urban gas
distributing enterprises have been exposed and punished repeatedly in recent years.
3 Prospect on Marketization Reform of Natural Gas
Industry
The marketization reform of natural gas industry has made progress. The guiding role
of price signals on the flow of natural gas resources has gradually increased. However,
problems such as price distortion, lack of competition, improper intervention and
weak supervision still exist. According to the established reform idea put forward
by the central government, the market-oriented reform of the natural gas industry
needs to go further, thereby speeding up the construction of a competitive market
structure, and striving to eliminate structural and institutional obstacles. In addition,
the government should increase the transparency of policy making and information
disclosure, create a fair, open and competitive market environment, and constantly
expand the decisive role of the market in the allocation of natural gas resources.
3.1 Further Creating Conditions for the Formation
of Competition in Natural Gas Supplies
“The Opinions on Deepening the Reform of the Oil and Gas System” requires to
implement a competitive transfer system of exploration blocks and a stricter exit
mechanism, strengthen the management of safety and environmental protection qualifications, and allow qualified market entities to participate in conventional oil and
gas exploration and production under the premise of protective development, and
gradually form an exploration and production market where large state-owned oil
and gas companies, as a leading force, and non-SOEs work together. “The Opinions
on Reform and Implementation of Operation Mechanism of Petroleum and Natural
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Gas Pipeline Network” also requires the formation of multi-entity and multi-channel
supply of upstream oil and gas resources.
In order to make full use of domestic natural gas resources and improve the efficiency of upstream exploration and production, it is necessary to learn from the
reform experience and lessons in recent years, eliminate those hidden obstacles for
private and foreign-funded enterprises to enter the upstream market, lower the entry
threshold, and focus on supporting new market participants to participate in exploration activities through various means such as sharing exploration risks, reducing
taxes and fees, and reducing funds tied up. Further improvement should be made for
the exit mechanism of conventional natural gas, shale gas and coalbed gas blocks,
all those that have been auctioned off but have not yet reached the prescribed exploration investment and workload standards should be recovered, which can then be
reauctioned and the previous rights holders are no longer allowed to participate. The
investment standards and requirements of natural gas exploration rights should be
gradually improved. The payment of taxes and fees during the exploration period
should be reduced or delayed, and these payment shall be made only after the projects
enter development stage. Special support should be given to enterprises participating
in domestic exploration and development for the first time. The implicit constraints
of foreign capital and private enterprises participating in domestic exploration and
development should be further cleaned up. The collection of geological data should
be improved. When the right holders exit, the relevant geological data should be
collected and provided to new right holders free of charge. Trading market for exploration and production rights should be established, and the rules of transfer, reserves
and value evaluation should be improved. Oil and gas field service including engineering technology, engineering construction and equipment manufacturing affiliated with three oil majors need to be spinned off, so that they can participate in
competition as independent market players, and promote a fair and open oil and
gas service market. The incentive policy of biomass gas production should also be
improved and renewable hydrogen production should be supported.
In the short term, diversification of supply entities depends on further opening
of import market, with emphasis on supporting new market entities to build and
operate LNG receiving stations independently at their own risk, expanding the scale
of storage tanks and ensuring fair opening of surplus capacity of all receiving stations.
The shoreline for newly built LNG receiving stations will be given first to the new
market players, ensuring the interconnection between the receiving station projects
and PipeChina’s enormous pipeline system. In addition, existing LNG receiving
stations are encouraged to introduce new investment entities and share infrastructure
capabilities. What’s more, all kinds of capital should be supported to participate in
overseas natural gas development and natural gas liquefaction project investment, and
the introduction of overseas natural gas resources to China in various forms of cooperation is encouraged. When necessary, window guidance and coordination should
be given to LNG procurement to avoid vicious competition. In order to promote
the flexibility in natural gas market and the formation of natural gas price discovery
center, China should keep an open mind towards LNG export. On the premise of
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ensuring the import interests of the existing pipeline natural gas of state oil companies, support should be given to new market entities to carry out pipeline natural gas
cooperation projects with neighboring countries, and broaden cooperation channels
and modes.
3.2 Establishing an Interconnected Pipeline Network That
Opens Fairly to All Users
PipeChina brings together the assets of major long-distance pipelines, some gas
storage and LNG receiving stations of CNPC, Sinopec and CNOOC, with large
scale capacity and good financial foundation. PipeChina has the core capability of
dispatch, transportation and storage of oil and gas nationwide, which can meet the
needs of national oil and gas strategic operation. By demonstration of standardized
management, efficient operation, strong security and good service, PipeChina can
further expand the scale of asset management and direct control ability by merging or
holding provincial long-distance pipeline network enterprises in direct negotiations.
By participating in other provincial long-distance pipeline network enterprises or
conducting business cooperation with them, the coverage and influence of pipeline
transportation services can be expanded. Whether or not the provincial long-distance
pipeline network is connected with PipeChina, its operators can only engage in
transportation and storage services and do not participate in natural gas purchase
and sale activities. Provincial pipeline operators must be regulated according to the
mode of “permitted cost plus reasonable income”, and they need to fairly open their
pipeline service to users. In addition, they are encouraged to maintain interconnection
with PipeChina, and ensure that natural gas commodities can flow freely between
different pipeline networks according to needs. In case of emergency, the government
has the right to uniformly dispatch and coordinate the operation of pipeline networks
at all levels to form a comprehensive network.
The operation of PipeChina is in its initial stage, and there are still many rooms for
improvement. As a state-owned enterprise with strong monopoly, PipeChina should
accept the supervision of the government and the public. It should ensure the safe
and stable operation of infrastructure, and reasonably control the investment and
production operation costs. In addition, PipeChina should improve operation efficiency, strictly implement the government-approved operation management systems
such as shipper access, capacity allocation, scheduling and balance, and emergency
coordination. In addition to these, PipeChina should disclose operational information
as detailed as possible to the public, and provide timely and fast transportation and
storage services to all users fairly and justly, thus becoming the adhesive and booster
for promoting efficient cooperation between upstream suppliers and downstream
users. (Bai et al. 2021; Yang 2020; Ye 2020, 2021a, 2021b, 2021c).
In view of the serious shortage of domestic natural gas pipeline network and
storage facilities, while giving play to the role of the main force of PipeChina,
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other market players should not be excluded and restricted from participating in the
investment, construction and operation of pipeline facilities. Other market entities
should be able to participate in new projects of PipeChina, or independently invest,
build and operate storage and transportation facilities according to market demand, on
the premise of meeting the requirements of national unified planning, interconnection
and non-participation in natural gas purchase and sale. Government departments
should implement non-discrimination and fair treatment in all aspects of project
application and approval.
3.3 Promoting the Formation of Fair Competition in Natural
Gas Distribution and Sales
Urban gas distributors, power generation, industry, fertilizer and other gas-using
enterprises can all be regarded as large gas demand forces, but urban gas
distributing enterprises bring together the gas demand of residents, industry and
commerce, schools, hospitals, government agencies and other end users, acting as
natural gas retailers. Urban gas distributors are municipal public utilities, mainly
operating in accordance with “Administrative Measures on the Franchise of Municipal Public Utilities” and “Administrative Measures for Franchise of Infrastructure
and Public Utilities”. They are required to provide universal and non-discriminatory
public services to all users in the agreed service area, and the service quality should
meet the agreed quantity, quality and standards. Urban gas service has become
one of the important reference indicators for business environment assessment in
various places. Promoting the reform of distribution should take into account the
characteristics of the business model of urban gas distributing enterprises (Lv 2019).
When increasing direct gas supply to large users in urban gas franchise areas,
considerations should be given firstly to respect the franchise agreement, and both
government and enterprises must strictly fulfill the agreed terms of the franchise
agreement, and must not change or violate the agreement without authorization
undermining the credibility of either government or enterprises. On the premise
of full voluntary and equal consultation, both parties can discuss the adjustment of
direct gas supply for large users and franchise agreement. The second consideration
is to properly deal with the impact of cross-subsidies, clarify the scale and structure
of cross-subsidies for all types of users, reasonably share the burden of subsidies,
and gradually reduce and eventually eliminate cross-subsidies among all types of
users, in line with a principle that service charges should match costs.
Given that diversification and full competition of natural gas suppliers have yet
to materialize, the separation of distribution and sales and opening sales to competition will make the unequal negotiation status between supply and demand sides more
prominent. Therefore, the government should actively promote the diversification and
full competition of natural gas suppliers so as to create conditions for the unbundling
of distribution and sales and opening sales to competition. The unbundling should
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be explored according to local conditions. For newly signed franchise agreement at
county (city) level involving a wide geographical scope, a large number of users and
a large volume of gas consumption, only a distribution franchise should be granted,
and the gas distributor should be supervised under the principle of “permitted cost
plus reasonable income”. The gas distribution operator should open gas distribution
services fairly, and does not engage in natural gas sales. For existing bundled service
franchise agreement at the county (city) level involving a wide geographical scope,
a large number of users and a large volume of gas consumption, when the agreement expires, the new agreement will only grant a franchise of gas distribution, the
gas distributor is not allowed to engage in natural gas sales, which will be opened
to competition. For existing franchise agreement having yet to expire, the franchisee is encouraged to unbundle distribution and sales, setting up a gas distribution
service company and a natural gas sales company and conduct independent financial
accounting respectively, as one of the conditions for possible franchise renewal. For
township franchise involving narrow geographical scope, small number of users and
small gas consumption volume, gas users, government departments and gas supply
enterprises can negotiate and choose either bundled or unbundled gas service.
3.4 Deepening Price Liberalization Reform in Line
with Market Competition Status
At present, the wholesale price of natural gas is liberalized based on multiple dimensions such as gas source, use, user, time, transaction form and competitive conditions,
which has overlaps and conflict, blurring the applicable interface between unregulated price and regulated price policy. As a result, the due effect of citygate price
regulation is more or less ineffective and price irregularities are caused. Even worse,
the pricing strategies of a few major suppliers have dictated gas price trend, exerting
damaging influence on other small suppliers and consumers. In the next step, it is
necessary to optimize the design of natural gas citygate price system and rationalize
the existing price marketization policies, thus avoiding market disorder caused by
conflicting policies. In addition, it is also necessary to speed up the construction of
competitive market structure, and prepare for a smooth and orderly transition to a
full price liberalization in the future.
It should be considered to cancel the practice of multi-dimensional conditions that
are applicable for price liberalization, regularly carry out classification and grading
evaluation of competition conditions in provincial or regional natural gas markets,
and comprehensively evaluate whether each provincial or regional market has sufficient market competition based on factors such as the number of suppliers, market
share, pipeline network facilities and their status of open access, so as to determine
the applicable entities and scope of market prices and citygate prices respectively.
Citygate prices can be canceled only when competitive conditions are met and a lastresort supply guarantee system be put in place. Through the provincial or regional
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price marketization, the formation of local price discovery centers will be possible,
which will lay the foundation for the formation of national price discovery centers.
This design can promote the optimization and development of the supply structure in
each regional market faster, and form the conditions for the comprehensive marketization of natural gas prices faster, while having no substantial impact on the prices
of gas supplies that have been liberalized, guaranteeing the basic interests of existing
major suppliers, and providing more choices for big gas users.
The government’s direct control over the sales price of urban gas should be gradually reduced, and a normal price adjustment mechanism that allows the sales price
of urban gas move in tandem with the procurement and service costs be established
and improved. In addition, artificially lowering the gas price of residents should be
avoided, rules to adjust the sales price by category in accordance with the principle of
matching service costs to charges, and gradually eliminating cross-subsidies should
be implemented. Moreover, for the use of gas by a small number of low-income
families and social welfare institutions, basic guarantees and direct subsidies and
support should be provided by government so as to fulfill the duties of safeguarding
social justice. Besides, the natural gas sales price flexibility of profit-driven business
users in the city should be expanded. The natural gas sales price should be liberalized
in due course after the unbundling of urban gas distribution and sales (Bai 2020a).
3.5 Strengthening the Supervision on Monopoly
and Promoting Fair Market Competition
Relevant government departments involved in natural gas supervision should first
raise their awareness, and deeply understand the basic position and role of competition policy in China’s market economic system. They should consciously abide by and
implement the requirements of fair competition review system, and clean up departmental documents and regulations that hinder competition. In addition, they should
actively promote the breaking of administrative monopoly where competition is
possible, prohibit collusion and competition restriction by industry associations
and enterprises, and prohibit improper administrative intervention by government
departments on prices and quantities.
For monopolized natural gas pipeline transportation and storage facilities, information disclosure should be taken as the starting point to ensure that users know the
operation status of the pipeline network in time, ensure that pipeline grid operators
provide non-discriminatory capacity allocation, storage and transportation services
to all users, and strictly control the cost and price of pipeline transportation services.
With the help of independent third parties, cost supervision and examination and
revenue verification should be strengthened, and the assessment of service quality
and efficiency should be increased. It should be encouraged for different pipeline
companies to conduct benchmarking and competition in an orderly manner, using
competition as a way of supervision as much as possible. Besides, giving full play
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to the supervisory role of users of pipeline services, industry organizations, media
and the public is of vital importance (Zhang and Bai 2021).
In competitive business, it is necessary to establish fair, open and transparent
market price supervision rules in accordance with the requirements of price mechanism reform implemented in 2015. Regulators should maintain the order of fair
price competition among gas suppliers, gas consumers and the competition between
gas suppliers and consumers, and ensure that users can obtain reasonable economic
benefits from competition. For problems such as insufficient market competition,
unequal status of suppliers and consumers and asymmetric market information, it
is necessary to study and formulate corresponding bargaining rules, price behavior
norms and guidelines, start anti-monopoly investigations in time when suspected
monopoly behavior happens, focus on investigating and dealing with monopolistic
behaviors such as implementing monopoly agreements, abusing market dominant
position and misusing administrative power to restrict or eliminate competition, and
disclose penalty decisions according to law, so as to maintain a fair competitive
market environment.
It is necessary to improve the regulatory capacity of the natural gas and energy
industry (IEA 2019), strengthen the supervision of fair competition in the whole
natural gas industry chain, and promote the coordination among different regulatory
departments, such as the departments for fair competition supervision, infrastructure
opening supervision, price and cost supervision, safety and environmental protection
supervision. Besides, it is necessary to increase information sharing, reduce repeated
submission of information, simplify the regulatory process, and reduce the burden on
the regulated entities. In addition to this, it is also important to promote the reform of
government supervision departments in a timely manner, and adjust the management
system, organizational structure, division of labor and coordination of departments
to better meet the needs of market-oriented reform of the natural gas industry (Wang
and Bai 2017).
4 Conclusions
Market-oriented reform of natural gas industry is rooted in the practice of socialist
market economy in China, it is an inevitable requirement for the market to play
a decisive role in allocating resource and a necessary measure to solve practical
problems in the energy industry. According to the basic reform idea of freeing up
competitive business and stepping up regulations on monopolies, the market-oriented
reform of natural gas industry has progressed in different aspects from exploration
and production, trade, storage and transportation, distribution, pricing to industry
supervision. Competition of upstream exploration and production is still limited, the
diversification reform of natural gas importers has made progress to some extent; a
key breakthrough has been made in the pipeline transportation and storage sector;
the reform of downstream distribution and industry supervision went comparatively
slow, and the price flexibility of natural gas has gradually expanded. In the next
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step, it is necessary to exert all-round efforts from the whole natural gas chain to
create conditions for market competition in gas supplies. It is necessary to establish
a unified transportation network that is interconnected and opens fairly to users, and
promote the formation of fair competition in gas distribution and sales to end-users.
Besides, it is essential to deepen the market-oriented reform of natural gas prices
based on the degree of maturity in terms of competition, and strengthen the supervision of fair competition and regulations on monopolies. In the end, a natural gas
market system with competitive supply of upstream natural gas resources, efficient
transmission pipeline network in the midstream and full competition in the downstream sales market will be formed, which will improve the allocation efficiency of
natural gas resources, ensure the safe and stable supply of natural gas and better meet
the needs of economic and social development and people’s living.
The further market-oriented reform of the natural gas industry needs to break
through many barriers, strengthen the belief that the market plays a decisive role
in resource allocation, and require government departments to be brave in selfinnovation. Any problem that can be solved by the market should be solved by the
market, and the open and transparent decision-making and supervision mechanism
should be improved to maintain a fair competitive market environment, thus establishing an effective market, creating an accomplished government, and promoting a
better integration of an effective market and an accomplished government.
In order to cope with climate change and global sustainable development, China
in September 2020 pledged to strive for a carbon emission peak before 2030 and
achieve carbon neutrality before 2060. The government explicitly requires that the
carbon peak and carbon neutrality targets should be incorporated in the overall layout
of ecological civilization construction, and take the green and low-carbon development of energy as the key starting point. China’s energy consumption scale and
structure, economic and social development level and conditions are quite different
from those of many other countries. There will also be imbalance and uncertainty
in the innovation progress of various energy technologies. The path to carbon peak
and carbon neutrality will not be easy, but China’s development of clean and lowcarbon energy will accelerate. The natural gas industries should value the time and
be self-disciplined. With the acceleration of market-oriented reform, a more liberalized natural gas market should help stimulate innovation, promote competition,
reduce costs, improve efficiency and ensure safety. Besides, the natural gas industry
needs to expand its competitive advantages in fossil energy, enhance the synergy
with the development of renewable energy, and make contribution to the clean and
low-carbon development under the preconditions of ensuring the stability, reliability,
safety, flexibility and economy of the energy system.
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Positioning and Prospect of Natural Gas
Power Generation in Energy
Transformation
Xingshan Zhu, Rui Chen, Hui Fan, and Boqi Zhu
The trend of energy transformation to low-carbon and carbon-free is unstoppable in
the world, and non-fossil energy, especially renewable energy, will gradually become
the main energy source. However, renewable energy sources such as wind and light
have strong instability, and it is impossible to accomplish the important task of energy
transformation independently. The world is rich in natural gas resources, which are
characterized by economy, stability, flexibility, cleanness and low carbon. They are
not only affordable clean and low carbon energy, but also can make up for the shortage
of renewable energy in stability and support the large-scale development of renewable
energy. According to the new energy security strategy of “four revolutions (energy
consumption revolution, energy supply revolution, energy technology revolution,
and energy system revolution) and one cooperation (all-round international cooperation)”, we have to form an energy supply system driven by coal, oil, gas, nuclear, new
energy and renewable energy, with natural gas at an important position. According to
“the Strategy of Energy Production and Consumption Revolutionary (2016–2030)”,
it is pointed out that by 2030, the proportion of non-fossil energy should reach 20%,
and the proportion of natural gas should reach 15%. The new energy demand mainly
depends on clean energy, and the carbon dioxide emission should reach and strive to
reach its peak ahead of time. “The Opinions on Accelerating the Utilization of Natural
Gas” puts forward that we should gradually cultivate natural gas as one of the main
energies in China’s modern clean energy system, and clearly define the positioning
of natural gas. In the chapter of “Accelerating the Reform of Ecological Civilization
System and Building Beautiful China”, the report of the 19th National Congress of
the Communist Party of China, “promoting the energy production and consumption revolution and building a clean, low-carbon, safe and efficient energy system”
X. Zhu (B)
China National Petroleum Corporation, Beijing, China
R. Chen · H. Fan · B. Zhu
CNPC Economics &Technology Research Institute, Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_11
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is regarded an important task to promote green development, and “actively participating in the global environment governance and implementing emission reduction
commitments” are important measures to solve outstanding environmental problems.
In the chapter of “adhering to the path of peaceful development and promoting the
construction of a a human community with a shared future”, it is proposed to “cooperate to cope with climate change and protect the planet Earth, our only homeland”.
President Xi Jinping announced at the 75th Session of the United Nations General
Assembly that China strives to achieve carbon peak by 2030 and achieve carbon
neutrality by 2060. at the Leaders Summit on Climate, President Xi Jinping further
announced that by 2030, China will lower its carbon dioxide emissions per unit of
GDP by over 65% from the 2005 level, increase the share of non-fossil fuels in
primary energy consumption to around 25%, increase the forest stock volume by 6
billion cubic meters from the 2005 level, and bring its total installed capacity of wind
and solar power to over 1,200 GW. “The high proportion of renewable energy needs
a large number of peaking power supplies. Gas power generation will play a key role
in China’s energy transformation.
1 Development Status of Natural Gas Power Generation
in China
1.1 The Installed Capacity of Gas Power Generation Has
Steadily Increased, Accounting for a Relatively Low
Proportion in China’s Power Supply Structure
Since the twenty-first century, the installed capacity of natural gas power generation
in China has steadily increased. By the end of 2020, the installed capacity of natural
gas power generation in China has reached 98 million kW, accounting for about
4.5% of the total installed power capacity in China (See Fig. 1). With the increase of
installed capacity of gas power generation, the gas-fired power generation increased
year by year, from 77.7 to 256.6 billion kWh in 2010–2020, but its proportion in
China’s total power generation was still low. From 2010 to 2020, the proportion of
power generation increased slightly from 1.9 to 3.4%. In recent years, due to the
overall loose supply and demand of electricity in China and the relatively high cost
of gas power generation, the utilization hours of installed capacity of gas power
generation are basically below 2,700, while the utilization hours of coal-fired power
remain above 4,000 h in the same period.
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Fig. 1 China’s installed capacity of gas power generation and its proportion over the years
1.2 The Geographical Distribution of Installed Capacity
of Gas Power Generation Is Uneven, Mainly
Concentrated in the Bohai Rim Region and the Southeast
Coast
Limited by resources, natural gas pipeline construction and economic development
level, the development of gas power generation in China is very uneven, which is
mainly concentrated in Yangtze River Delta, Pearl River Delta and Beijing-Tianjin
region. Guangdong, Jiangsu, Zhejiang and Shanghai are the most densely populated
areas of gas-fired power plants in China, with installed capacity accounting for about
60% of the whole country. The installation types include gas-fired peak-shaving
generator sets and gas cogeneration for industrial heat load. With the promotion
of clean energy heating and coal-to-gas conversion in northern China, the installed
capacity of gas power generation in Beijing-Tianjin region has shown a rapid upward
trend, forming a number of gas cogeneration units for winter heating, such as the four
major central utilities buildings in Beijing, with the installed capacity accounting for
about 15% of the whole country.
1.3 There Are Many Gas Power Generation Investment
Entities and Most of Them Are State-Owned Enterprises
The main investors of gas-fired power plants in China mainly include large stateowned power generation enterprises, local state-owned energy enterprises and stateowned oil and gas enterprises. To advantage of their respective advantages and realize
complementary advantages, most of the gas-fired power plants are jointly built.
Private enterprises have less participation in China’s gas power generation industry.
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China Huadian Corporation’s (CHD) installed capacity of gas power generation
ranks first in China, reaching 15.09 million kW in 2019, with 4 million kW under
construction, which are mainly concentrated in the Yangtze River Delta region. It has
recently increased its development in Guangdong. China Huaneng Group Co., Ltd.
is also one of the power companies with more layout of gas power generation, with
an installed capacity of 1,042 kW in 2019, mainly distributed in the Yangtze River
Delta and northern provinces. The gas power generation installed capacity of these
two companies accounts for 16.7 and 11.5% of the national gas power generation
installed capacity respectively. In addition, CNOOC is the first natural gas supplier
involved in gas power generation business, and it mainly uses offshore natural gas
resources and imported LNG to develop gas power generation in coastal areas. At
present, it has built and operated six power plants in Guangdong, Fujian and Hainan,
with a total installed capacity of 8.46 and 1.38 million kW under construction. In
addition, the installed capacity of local power generation enterprises, such as Beijing
Energy Holding Co., Ltd., Shenzhen Energy Corporation, Zhenjiang Energy Group
Co., Ltd. and Guangdong Yudean Group, has reached 5.06, 2.25, 4.03 and 4.65
million kW respectively.
2 Positioning of Natural Gas Power Generation in China’s
Energy Transformation
2.1 As the Best Flexible Power Supply, the Development
of Renewable Energy in High Proportion Should Be
Supported
Renewable energy generation is characterized by intermittence, randomness and
reverse peak regulation, and the flexibility of the existing power grid cannot support
the large-scale grid connection. At present, the installed ratio of flexible power supply
in China is only 6%, while the ratio of flexible power supply in countries with high
renewable energy is above 20%, and it is as high as 47% in the US. The development
of flexible power supply in China lags behind that of wind power and photovoltaic
power. By the end of 2020, China has installed 280 million kW of wind power and
250 million kW of grid-connected solar power, accounting for 12.7 and 11.4% of the
total installed power generation respectively. According to “the 2020 Energy Outlook
for the World and China” (2020 Version) issued by CNPC, under the scenario that
China will achieve carbon neutrality in 2060, the installed capacity of wind power
and solar power generation in China will reach 47 and 65% respectively in 2035
and 2050, which needs more flexible support and puts forward higher requirements
for the coordinated development of flexible resources, such as “generation-gridload-storage”. At present, the energy storage technology is not mature, the pumpedstorage resources are very limited, and both of them are difficult to undertake the
important responsibility of flexible regulation. Some people think that the flexibility
Positioning and Prospect of Natural Gas Power …
199
transformation of coal generator set in service and gas power generation can bear the
main peak-shaving responsibility. In fact, the peak-shaving capacity and performance
of the flexibility transformation of coal generator set are far less than those of gas
generator set, and the deep peak-shaving will greatly reduce the operation safety,
environmental protection and economy of the units (such as reducing efficiency and
increasing pollutant and carbon emissions). Gas generator set is an ideal flexible
power source with strong peak-shaving ability, fast peak-shaving speed, cleanness
and low carbon (See Table 1). Therefore, gas power generation should be the first
choice of flexible power supply to support the large-scale development of renewable
energy (Jiahai et al. 2020).
Table 1 Comparison of advantages and disadvantages of flexible power resources (According to
Jiahai et al. 2020)
Project
Deep
peak-shaving of
coal-fired power
Gas power
generation
Pumped-storage
Advantages
The technical
means are mature
and universally
applicable. The
minimum output
of the reformed
unit can reach
20–30% of the
rated output
1. Fast startup and
shutdown, and it
takes 9–10 min to
start at full load
2. Less land
occupation and
less water
consumption
3. It is suitable to
adjust the system
in the renewable
energy rich area
4. Suitable for
construction in
load center
It takes 2–3 min to 1. It has fast
start at full load
response speed,
and the charging
and discharging
time is
millisecond
2. Multiple
adjustments
Disadvantage
1. The response
adjustment speed
is slow, and the
cold start takes 5 h
2. The coal
consumption of
the reformed unit
increases, the
service life
shortens and the
pollution
increases
1. High
construction
investment cost
2. High fuel cost
Constrained by
site selection
conditions and
economic
constraints, the
construction scale
is limited
Energy storage on
power supply side
1. Limited by
technical
conditions, there
are no conditions
for large-scale
construction at
present
2. High
construction
investment cost
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2.2 As a Clean and Low-Carbon Thermal Power Source, It
Helps Air Pollution Prevention and Low-Carbon
Development
Compared with coal, natural gas contains almost no sulfur and dust after purification,
and no solid waste is produced after complete combustion, with only a small amount
of NOx emission and 40% lower CO2 emission. The environmental protection effect
of natural gas replacing loose coal has been recognized. However, there are still some
vague understandings on the comparison of environmental protection effects between
ultra-low emission coal-fired and gas-fired power, which need to be clarified.
The research results of many scholars show that (Rui et al. 2020) the environmental
protection effect of gas power generation is still much higher than that of ultra-low
emission coal-fired power generation (See Tables 2 and 3). First, the actual emission
of soot and SO2 from ultra-low emission coal-fired power is still significantly higher
than those of gas power, and the emission concentration is 7–19 times that of gas
power. After new low nitrogen burner and denitration are adopted for gas power,
NOx emission concentration can be stabilized below 15 mg per cubic meter, which
is about 50% lower than that of ultra-low emission coal-fired power. NOx emission
concentration of gas power in developed countries has basically reached 10 mg per
cubic meter or even 5 mg per cubic meter (Thierry et al. 2010), and NOx emission
concentration of some advanced power plants in China have also reached below
10 mg per cubic meter. Therefore, it is not accurate to say that the ultra-low emission
coal-fired power has reached the emission level of gas power. It can only be said
that the ultra-low emission coal-fired power has reached the prescribed emission
standard of gas power, and it also shows that the emission standard for gas power
is too loose. If the standards are strictly formulated or revised, the advantages of
gas power generation will be more obvious. Secondly, ultra-low emission coal-fired
power still has emission of condensable particles such as SO3. There is no standard
for the emission and the emission is not monitored at present. Some experts believe
that it may be related to the formation of smog (Yuan 2014). Finally, ultra-low
emission coal-fired power still has some problems, such as heavy metal pollution
(such as mercury), disposal and utilization of fly ash, disposal and utilization of large
amount of gypsum produced in desulfurization process, emission of desulfurization
wastewater, and radioactive pollution, which pose great hazards to the ecological
environment and even human health (Hui et al. 2020). In the most serious period of
COVID-19 in China in 2020, the production and social activities such as industry
and transportation reduced greatly, while there was heavy smog weather in Beijing,
Tianjin and Hebei and its surrounding areas, which indicates that the emission of air
pollutants in China is still significantly higher than the environmental capacity. The
environmental pollution caused by coal burning cannot be solved only by ultra-low
emission measures, and it is necessary to increase the intensity of coal restriction.
In addition, gas power generation is also the thermal power source with the lowest
carbon emission level, and developing gas power generation will help China achieve
its goal of carbon peaking and carbon neutrality. In 2019, the China’s power industry
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Table 2 Comparison of actual emission of pollutants between gas-fired power plant and ultra-low
emission coal-fired power plant (Jingxin et al. 2020; Zhitan and Wenfei 2018)
Type of power plant
Number of units (unit)
Ultra-low emission
coal-fired power plant
99
Gas-fired
power plant
Class E
Class F
17
Concentration
range (mg/m3 )
Mean
value
(mg/m3 )
Jiangsu (43)
Smoke
Guangdong
SO2
(27)
Shandong (29) NOx
1–5
2
8–24
16
22–44
33
8
Smoke
0.11–1.87
0.85
SO2
1.0–3.1
2.2
NOx
23–40
30
Smoke
0.46–1.97
1.11
SO2
0.48–1.84
0.84
NOx
40.0–43.3
42
Smoke
<3
SO2
<5
NOx
<15
9
Beijing
(Equipped
with
denitration
device)
Conventional
pollutant index
Yangtze River Smoke
Delta and Pearl SO
2
River Delta
NO
x
(Without
denitration
device)
<3
Shenzhen
(Equipped
with
denitration
device)
<15
NOx
<5
<50
consumed about 2.29 billion tons of coal, accounting for about 58% of the total
coal consumption, and its carbon emissions accounted for about 40% of China’s
total carbon emissions (Zhixuan et al. 2018). Typical coal-fired power plants and
gas-fired power plants have per kilowatt-hour CO2 emissions of 798 and 411 g/kWh,
respectively, and the gas-fired power plants reduce emissions by about 50% compared
with coal-fired power plants (Hui et al. 2020). Therefore, increasing the proportion
of gas power generation in China’s thermal power can effectively reduce the total
carbon emissions of thermal power and help China achieve its goal of carbon peaking
and carbon neutrality.
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Table 3 Comparison of pollution equivalent of gas-fired power plant and ultra-low emission coalfired power plant in actual operation
Type of power
plant
Standard
Emission of
emission of conventional
dry flue gas pollutants (mg/m3 )
(m3 /kWh)
Emission of
unconventional
pollutants (mg/m3 )
Smoke SO2
NOx
Hg
SO3
Unit power
generation (1
kWh) pollutant
emission
equivalent/m3
Ultra-low
emission
coal-fired power
plant
2.97
2
16
33
0.0015
5.44
0.227
Gas-fired Class
plant
E
5.2
0.85
2.2
15
0
0
0.096
Class
F
5.2
1.11
0.84
15
0
0
0.089
2.3 As a Major Consumer of Natural Gas, We Should
Promote the Development of China’s Natural Gas
Industry and Optimize the Energy Structure
In 2020, natural gas accounted for about 8.9% of China’s primary energy consumption structure, far lower than the global average level in 2019 (24%) (BP 2019).
According to the development law of natural gas industry in developed countries,
with the end of urbanization and the maturity of natural gas market, natural gas
utilization is mainly driven by power generation. At present, the gas consumption
of power generation in the US, the UK and Japan accounted for 36, 31 and 69% of
their natural gas consumption structure respectively, and the global average is about
39% (BP 2019). The gas consumption of power generation in China was about 18%
in 2020. In the medium and long term, the large-scale development of gas power
generation is very important for achieving the goal that natural gas accounts for 15%
of primary energy consumption by 2030, which is put forward in “the Strategy of
Energy Production and Consumption Revolutionary (2016–2030)”.
At the same time, natural gas, as an interruptible consumer and a non-resident
consumer, can also reduce the pressure of natural gas supply.
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3 Acceleration of the Favorable Conditions
for the Development of China’s Gas Power Generation
3.1 Adequate Global Resources and Flexible Trade Methods
The proved reserves of natural gas in the world are 197 trillion cubic meters, which
can be exploited for more than 50 years according to the current output, and the
proved reserves of countries along the “the Belt and Road” account for 76% of the
proved reserves of natural gas in the world. The world’s recoverable natural gas
resources amount to 3,800 trillion cubic meters, which can be used for hundreds of
years according to the current consumption. Natural gas consumption in developed
countries has entered a plateau or started to decline, and the growth of natural gas
consumption mainly comes from developing countries such as China and India. Since
India has low natural gas consumption and price bearing capacity, China has great
advantages in the competition of imported natural gas.
With the development of liquefaction, storage and transportation technologies
of natural gas, the global LNG trade volume has increased rapidly in recent years,
and natural gas has increasingly become a global trade commodity. At the same
time, the flexibility of LNG trade is increasing, and there are more and more sources
of natural gas imports, which greatly reduce the risk of importing natural gas. After
more than ten years’ verification, exporters have recognized the reputation of Chinese
customers and have a strong willingness to sign LNG trade agreements with Chinese
enterprises. In addition, China is a big country with natural gas demand and the
most important country with increasing natural gas demand, so many projects are
planned to be put into Chinese market. China has great advantages in making use of
international resources.
3.2 The Procurement Cost of Newly Imported Natural Gas Is
Relatively Low
With the high oil prices during the 12th Five-Year Plan period, relevant enterprises
signed a number of high-priced long-term trade agreements linked to oil prices, which
became a pain point in the development of China’s natural gas industry. During the
13th Five-Year Plan period, the supply and demand in the global LNG market were
easing, and the slope of LNG long-term contracts linked to oil price has been reduced
from 14–15 to 10–11%. During the 14th Five-Year Plan period, it is expected that
the oil price will vary within the range of $60–70/bbl, which may fall further in a
medium or long term. Besides, the CIF value of new LNG long-term trade linked to
oil price is expected to remain below $7/million British thermal unit.
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3.3 The Basic Support Capacity of the Natural Gas
Production, Supply, Storage and Sales System Has Been
Enhanced
In recent years, China has accelerated the reform of oil and gas marketization, and
established the China Oil & Gas Piping Network Corporation. At the same time, the
intensity of oil and gas exploration and development and the construction of natural
gas production, supply, storage and marketing system have been increased. Major oil
and gas production enterprises formulated a seven-year action plan for oil and gas
exploration and development, and planned to produce 220 billion cubic meters of
natural gas in 2025. According to “the Opinions on Accelerating the Construction of
Gas Storage Facilities and Improving the Market Mechanism of Auxiliary Service for
Gas Storage and Peak Regulation”, the assessment indicators of gas storage capacity
are set for gas supply enterprises, local governments and gas enterprises according to
the total peak shaving capacity reaching 15% of consumption, and the construction
of interconnection and intercommunication is strengthened.
The guarantee capacity of natural gas production, supply, storage and marketing
system is enhanced as follows:
First, the natural gas exploration has achieved remarkable results, and the output
has increased rapidly. By the end of May 2020, eight hundred billion cubic meters
of gas fields (areas) had been proved in the 13th Five-Year Plan period, and 37 new
discoveries have been made. Second, the capacity of gas storage and peak shaving has
been continuously improved. By the end of 2020, 27 underground gas storages had
been built in China, with peak shaving capacity of 14.7 billion cubic meters and LNG
handling capacity of 87 million tons per year. In addition, there are a large number of
LNG receiving stations under construction and planned to be built. Third, the degree
of infrastructure interconnection has been significantly enhanced. A comprehensive
network has been initially formed, and the project of “diverting gas from the south
to the north and gas from the sea to the west” has been realized. In the future,
the bottleneck of inter-regional pipeline transportation will be completely broken
through, and the ability to complement each other will be significantly improved.
Fourth, the “X + 1 + X” market-oriented model is about to take shape, that is,
the main body of gas supply is diversified, the sales market is fully competitive,
and the storage and transportation facilities are fairly admitted, forming a pattern
of “enhancing the marketization of power generation, electricity sale and electricity
consumption to achieve more full competition and strengthening the government
management in power grids, power transmission and distribution”. Fifth, the degree
of import diversification has increased significantly. At the end of 2019, the ChinaRussia east-route natural gas pipeline was officially put into operation, marking the
completion of four oil and gas strategic passages in northwest, southwest, northeast
and offshore in China. There are still many imported natural gas pipelines under
planning and demonstration, which will help to reduce supply risks.
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3.4 The Localization of Gas Turbines Is Beginning to Dawn
After more than ten years’ efforts, the localization of gas generator set has made
remarkable progress. During the 13th Five-Year Plan period, China has launched
and implemented major projects of aircraft engine and gas turbine (referred to as
“two engines”), in which the goal of gas turbine engineering is to break through the
development of heavy-duty gas turbine, and initially establish the basic research,
technology and product development and industrial system of independent innovation of gas turbine, and independently develop F-class 300 MW gas turbine in 2020
and H-class 400 MW gas turbine in 2030. To this end, China United Gas Turbine
Technology Co., Ltd. (hereinafter referred to as “CUGT”), which is controlled by
State Power Investment Corporation and participated by Harbin Electric Company
Limited, Dongfang Electric Corporation (Dongfang Electric) and Shanghai Electric Group Company Limited (Shanghai Electric), was established in Shanghai on
September 28, 2014. China Gas Turbine Industry Innovation Alliance, with CUGT
as the chairman unit, was formally established on June 30, 2020, including a total of
66 gas turbine industries, which is a national and open non-profit consortium voluntarily formed by 66 enterprises, colleges and universities and social organizations
related to the gas turbine industry. Although the progress lags behind at present,
remarkable progress has been made. In 2019, the development of the first stage rotor
blade, stationary blade and combustion chamber of F-class 300 MW gas turbine was
completed, and the first engineering prototype of control and protection system was
also designed, manufactured and integrated. In September 2019, the National Energy
Administration issued “the Reply on the Inclusion of 24 Projects Including Huaneng
Nantong Power Plant Gas Turbine Power Generation Project” in the First Batch
of Gas Turbine Innovation and Development Demonstration Projects, and carried
out demonstrations on 22 gas turbine models and two operation and maintenance
service projects, covering the heavy gas turbine series and small and medium-size
gas turbines of major domestic gas turbine research units such as Harbin Electric
Company Limited, Dongfang Electric, Shanghai Electric, Aero Engine Corporation of China (AECC) and China State Shipbuilding Corporation Limited (CSSC),
and striving to complete technical equipment research and project construction by
2022. Relying on this batch of demonstration projects, the key core technologies that
China’s gas turbine industry has long relied on imports will be gradually localized.
At the same time, breakthroughs will be made in the manufacturing technology of
high-temperature components such as heavy gas turbines and combustion chambers.
The localization rate of F-class gas turbines is expected to reach 90%, and the localization rate of H-class gas turbines introduced for the first time is expected to reach
50%. The independent manufacturing of small and medium-sized gas turbines will
be basically realized (Fei 2020). In November 2020, the full-load test of the first
domestic F-class 50 MW heavy gas turbine independently developed by Dongfang
Electric was a complete success, which indicated that Dongfang Electric had fully
mastered the whole process capability of independent design, manufacture and test
of gas turbines, and promoted the leap-forward development of China’s independent
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gas turbine industry. In December 2020, the final assembly and production of AGT110 heavy gas turbine of AECC Gas Turbine Co., Ltd. was finished, which marked
another solid step in independent innovation of gas turbine in China.
4 Prospect for Medium and Long-Term Natural Gas Power
Generation in China
Considering the multi-dimensional comprehensive advantages of gas power generation, such as cleanliness, low carbon and flexibility, gas power generation will be
mainly applied to the following application scenarios in the future. First, gas power
generation is adopted to meet the increasing power and heat demand in areas where
coal is strictly limited and controlled. Second, it is used as a peaking power supply
in the eastern region where there is no regulated power supply. Third, as a flexible power supply, it supports the construction and delivery of large-scale renewable
energy bases. Fourth, it participates in the construction of multi-energy complementary distributed energy on the energy side. Areas with developed economy, strict
environmental protection requirements, large demand for peak shaving and relatively
low gas source cost are the main areas for gas power generation development. China’s
southwest and northwest regions are relatively rich in domestic gas resources with
relatively low price. Northeast China, as the entry area of China-Russia east-route
natural gas pipeline, has more advantages in price than other provinces. There is
a gap between power supply and demand in Sichuan-Chongqing region for a long
time. There are a lot of renewable energy resources to be exported in northwest
and northeast China. These areas have both demand and cost advantages, and have
great potential for gas power generation development. In addition, with developed
economy and high environmental protection requirements, the Yangtze River Delta,
Pearl River Delta and Hainan also have great potential (See Table 4).
It is estimated that by 2025, the installed capacity of gas power can reach 150
million kW, accounting for about 6% of the national installed capacity; by 2030,
the installed capacity of gas power can reach about 250 million, accounting for
about 8%; by 2035, the installed capacity of natural gas power generation will be
expanded to 300 million kW, accounting for about 8% of the power supply structure.
Natural gas power generation will become the industry with the largest increase in
natural gas demand in the medium and long term. To realize above expectations,
government needs to further accelerate the development of clean and flexible power
supply, strictly control the newly added coal power, and encourage the construction
of flexible power supply through reasonable market mechanism design. To achieve
the goal that the proportion of natural gas in China’s primary energy consumption
structure will increase to about 15% in 2030, we need more active policies and
support from CCS/CCUS technology.
Positioning and Prospect of Natural Gas Power …
207
Table 4 Areas with favorable gas power generation development conditions in China
Area
Development opportunity
Yangtze River Delta
1. The gap between power supply and demand is large during the
14th Five-Year Plan period
2. Environmental protection is strong, and coal consumption is
tightly constrained
3. People’s Government of Zhejiang Province has carried out the
separation reform of transportation and sales of provincial
pipeline network, and gas power generation have become direct
supply users and the cost of gas consumption has been reduced
4. External power accounts for a relatively high proportion, with
a large fluctuation, which requires the cooperation of local gas
turbines for peak shaving
5. There are four large-scale gas turbines and five distributed
projects in the national “Demonstration Projects for the
Innovation and Development of the First Batch of Gas Turbine”
settled in Jiangsu
6. A number of LNG receiving stations are planned, and the gas
source is guaranteed and the cost of gas source is lower
Pearl River Delta and Hainan 1. The construction of Guangdong-Hong Kong-Macao Greater
Bay Area promotes the transformation of regional energy to
clean energy
2. In the Energy Development during the 13th Five-Year Plan
period of Guangdong Province, 40 natural gas power generation
projects were added in May 2019
3. People’s Government of Guangdong Province has carried out
the separation reform of transportation and sales of provincial
pipeline network, and gas power generation have become direct
supply users and the cost of gas consumption has been reduced
4. According to the construction requirement of Hainan Free
Trade Port, the new energy supply must be clean energy
5. A number of LNG receiving stations are planned, and the gas
source is guaranteed and the cost of gas source is lower
Sichuan and Chongqing
1. During the 14th five-year plan period, there is a significant gap
between power supply and demand, and hydropower
development needs matching peak-shaving power source. The
demand for gas turbine construction for power grid has been put
forward, and power generation enterprises are also motivated
2. The cost of gas source is relatively low
Bohai Rim region
1. During the 14th Five-Year Plan period, the gap between power
supply and demand is large
2. The pressure of environmental protection is great, and the coal
consumption base in Shandong and Hebei is large
3. The construction of LNG receiving stations and the
China-Russia east-route natural gas pipeline have improved the
capacity of natural gas supply
Northeast
1. During the 14th Five-Year Plan period, there is a gap between
power supply and demand, and especially, the demand for peak
shaving with renewable energy is high
2. The coat of entry gas source of China-Russia east-route
natural gas pipeline is relatively low
(continued)
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Table 4 (continued)
Area
Development opportunity
Northwest
1. The cost of gas source is relatively low
2. In the renewable energy enriched areas, a certain scale
peak-shaving power supply should be configured to form a stable
export power supply
5 Suggestions on Promoting the Development of China’s
Gas Power Generation Industry
Restricted by the relatively high cost, imperfect investment return mechanism of flexible power supply, and concerns of power generation enterprises about the stability
of gas supply, there are still uncertainties in the development of gas power generation in China. To promote the healthy development of the industry, the following
suggestions are put forward.
5.1 Unifying the Understanding: Defining the Position
of Actively Developing Gas Power Generation in Medium
and Long-Term Energy and Power Planning
First of all, the energy and power development plan during the 14th Five-Year Plan
should clearly define the general tone of “actively developing” gas power generation, and we should clearly define the positioning of actively developing gas power
generation, increasing the proportion of natural gas power generation in the power
supply structure, and emphasizing the priority of gas power generation as peakshaving power supply from the aspects of continuous improvement of air quality,
improvement of power system regulation capacity, promotion of renewable energy
consumption, promotion of clean fuel substitution, and control of carbon emissions.
We should increase the intensity of reducing coal and increasing gas, and set the
control target of the total installed capacity of coal-fired power. In the 14th Five-Year
Plan, no new coal generator set will be added, and the flexible transformation of
coal generator set should be carried out cautiously. Secondly, the supply of domestic
natural gas industry is loose, and it is suggested that all restrictions on the development of gas power generation should be lifted as soon as possible to give investors
a positive signal.
Positioning and Prospect of Natural Gas Power …
209
5.2 Establishing a Market Mechanism with Flexible
Respond, and Clean and Low-Carbon Power Value
Firstly, combined with China’s power system reform, we should form a market
system that can reflect the differences in value and peak shaving performance of
various peak-shaving power sources and accelerate the investment and construction
of flexible adjustment power sources through capacity market construction, optimization of auxiliary service market design, and improvement of power spot trading
mechanism. Secondly, gas power generation should be included in the central government’s special fund subsidies for environmental protection, with policy support at
the national level. Thirdly, a unified (no distinction between fuel types) and stricter
national emission standards for thermal power pollutants should be formulated, and
SO3 , heavy metals, arsenic, radioactive pollution, solid waste and sewage should
be included into the scope of emission control. The standards for sewage charges
should be raised, and the total amount control of pollutants should be strictly implemented. Finally, we should control the total amount of carbon emissions, speed up
the construction and improvement of the national carbon market, and set the “floor
price”.
5.3 Establishing Industrial Upstream and Downstream
Cooperation Mechanism to Promote the Industry
Development
The gas power generation industry involves a wide range of fields, and enterprises
related to the industrial chain should uphold the common goal of jointly developing
the gas power generation market to establish a long-term cooperation mechanism,
enhance mutual trust and jointly promote the sustainable development of the industry.
Gas suppliers and power generation enterprises should explore and establish a stable
supply, reasonable price (including preferential gas price for peak shaving of natural
gas) and long-term reliable gas supply mechanism to ensure the gas demand of
power plants and the basic interests of upstream and downstream enterprises. With
the enhancement of the role of gas power generation in power shaving of grid in
the future, the requirements for stability and timeliness of gas supply will be higher,
and gas suppliers, pipeline transmission enterprises and power generation enterprises
should establish a more stable and flexible gas supply mode and business mode, and
give full play to the peak shaving advantages of gas power generation. In addition,
equipment suppliers should also make appropriate profits, reduce the price of gas
generator set and accessories, explore the optimal generator set operation scheme,
jointly improve the economic benefits of gas-fired power plants, and promote the
sustainable and healthy development of the industry.
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X. Zhu et al.
5.4 Promoting the Direct Supply of Natural Gas of Large
Gas-Fired Power Plants
In order to avoid the price increase in intermediate links such as provincial power
grid and municipal power grid and reduce the price of gas for power generation, it is
suggested that the legitimacy and inalienable of direct supply of upstream gas supply
enterprises to gas-fired power plants and distributed energy should be clarified at the
national level, and local governments should also issue corresponding documents
for support and protection. Gas-fired power plants are responsible for peak shaving
power supply and heating in winter, which requires high stability of gas consumption.
The implementation of direct supply is also beneficial for upstream enterprises to
grasp the gas demand of downstream power plant users in time and ensure stable
power and heat supply.
5.5 Intensifying Scientific and Technological Innovation
and Improve the Localization Level of Gas Turbines
We should take gas turbines as major equipment, and take heavy gas turbine manufacturing as an important carrier to upgrade the equipment manufacturing level in China,
and formulate medium- and long-term development plans and speed up their implementation. We should take measures to promote the implementation of demonstration
projects by strengthening technical guidance and support, strengthening organizational cohesion and striving for relevant support policies. Relying on the energy
projects such as peak-shaving power generation and gas cogeneration in the 14th
Five-Year Plan, we should thoroughly break through key technologies of heavy gas
turbines for power generation on the basis of existing domestic industries, and form
a complete industrial system of heavy gas turbines, so as to effectively support the
construction needs of China’s energy and shipping fields.
5.6 Reducing the Price of Gas in Many Ways
First, we should solve the historical high-priced long-term trade contracts through
policy and price reconsideration and assess the output flexibly, so that upstream enterprises have room to operate imported low-priced resources. Second, we should speed
up the construction of LNG receiving stations and encourage the surplus capacity
of LNG receiving stations to be fair and open to third parties. Third, we should
straighten out the price relationship of each link in the industrial chain, and appropriately reduce the transmission price of the transmission and distribution network
with reference to the permitted rate of return of the power grid. Fourth, we should
seize the opportunity to lock in a batch of low-cost and long-term trade resources
Positioning and Prospect of Natural Gas Power …
211
as soon as possible. It is suggested that the CIF value should be controlled below
$7/MMBtu, or linked to the domestic coal price or electricity price.
5.7 Improving Peak Shaving and Emergency Response
Capabilities of Natural Gas
We should actively implement the relevant measures that have been introduced to
encourage the construction of gas storage facilities, solve the commercial problems
of gas storage facilities as soon as possible (ultimately solved by liberalizing price
control), and mobilize the enthusiasm of many parties to participate in the construction of gas storage facilities. Oil and gas enterprises should take gas storage resources
as precious scarce resources, conduct comprehensive exploration and construction,
and allow paid transfer. We should continue the natural gas commercial reserve
policy and issue policies to support enterprises to directly convert gas fields into
gas storage and eliminate them in the production capacity assessment. At the same
time, all their expenses should be included in deduction or given other financial
and tax support. We should establish a national natural gas strategic (emergency)
reserve system focusing on resources and capacity reserves. The Ministry of Natural
Resources shall be responsible for the investigation and exploration of gas storage
resources outside oil and gas fields (such as aquifers and salt mines), and provide
special channels for consulting the exploration results. Comprehensive development
of salt mining, brine utilization, gas storage and energy storage can be considered to
solve the problems of brine utilization difficulty and gas storage economy.
We should strengthen the construction of emergency laws and regulations system,
speed up the formulation and promulgation of laws and regulations such as “Laws of
Oil and Gas Reserve” and “Regulations on Natural Gas Dispatching”, and stipulate
the responsibilities and obligations of natural gas reserves and the order of supply
interruption in emergency situations. We should encourage oil and gas enterprises
to reserve surplus capacity in gas fields and import channels for emergency use, and
give financial support.
References
Yuan J et al (2020) Research on multi-promotion path of power system flexibility in China.
Greenpeace
Rui C, Boqi Z, Tianyu D (2020) Role of natural gas power generation in China’s energy
transformation and suggestions on its development. Nat Gas Ind 7:121–125
Thierry L et al (2017) Best available techniques (BAT) reference document for large combustion
plants: Industrial emissions directive 2010/75/EU (Integrated pollution prevention and control).
Publications Office of the European Union, Luxembourg
Yuan Z (2014) Reduction in contribution to smog control caused by ignoring SO3 emission reduction
and desulfurization. Energy Conserv Environ Prot 3:68–69
212
X. Zhu et al.
Hui F, Tianyu D, Boqi Z, Shuangying C (2020) Comparison of environmental and ecological
effects between gas-fired and ultra-low emission coal-fired power generation plants. Nat Gas Ind
7:147–150
Jingxin X, Fahua Z, Sheng W (2020) Comprehensive comparison of ultra-low emission coal-fired
power plants and gas-fired power plants. China Electr Power 53(2):164–172
Zhitan L, Wenfei W (2018) Current status and development trend of gas power generation in China.
Int Pet Econ 26(12):43–50
Zhixuan W, Li P, Zhiqiang L et al (2018) Review of present situation and prospect for clean
development of coal-fired power in China. Electr Power Environ Prot 34(1):1–8
BP (2019) BP Statistical review of world energy 2019. BP, London
Fei M (2020) China’s gas turbine core technology is gradually localized. China Electric Power
News
Part IV
New Energy
Promotion of China’s Low-Carbon
Transformation with Carbon Price
Mechanism
Xinghong Liu and Zixing Wang
In 2020, the COVID-19 prompted human beings to think more deeply about the
balance between man and ecology, and also accelerated the transformation of the
global energy industry. China has put forward the goal of carbon peak in 2030 and
carbon neutrality in 2060, and carbon emission reduction and carbon trading are
scheduled. In 2013, China launched eight pilot projects in carbon trading areas as
effective market-oriented tools to achieve carbon emission reduction. At the beginning of 2021, the Ministry of Ecology and Environment of the People’s Republic
of China issued “the Interim Rules for Carbon Emissions Trading Management”
and the national carbon market officially launched online trading on July16th, which
marked that China’s carbon trading market had entered a new stage from pilot market
to the establishment of a unified national market. In this context, China International United Petroleum & Chemicals Co., Ltd. (UNIPEC) has carefully studied the
global carbon trading market, analyzed and combed the relevant practices of global
energy enterprises in carbon reduction transformation, and put forward relevant work
suggestions in combination with industry characteristics, China’s carbon reduction
related policies and Sinopec Group’s specific reality.
X. Liu (B) · Z. Wang
Unipec, Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_12
215
216
X. Liu and Z. Wang
1 Global Carbon Trading Market and Main Trading
Mechanism
1.1 Overall Situation of Global Carbon Market
Carbon trading is the general name of greenhouse gas emission trading and related
financial trading activities, and it is an important means to deal with climate change.
The concept of carbon trading was first put forward in the Kyoto Protocol signed in
Tokyo, Japan in December 1997.
In 2005, the EU launched the Emissions Trading System (EU-ETS), which
includes 31 sovereign countries, marking the beginning of a rapid development stage
of carbon trading. Subsequently, New Zealand, the US, Japan, Kazakhstan and South
Korea started the carbon trading market. By the end of 2020, there were already 21
carbon markets in operation in the world. The total carbon trading volume exceeded
10 billion tons, which was four times of that at the initial stage in 2005. The trading
volume reached 229 billion Euros, covering about one-eighth of the global population and accounting for 37% of the global GDP (See Fig. 1). Among them, the EU
carbon market accounted for 74% of the total global trading volume, which is the
most important and active carbon market (Refinitive Carbon trading report).
Fig. 1 Transaction volume and volume of global carbon market from 2012 to 2019. Data source
Reuters
Promotion of China’s Low-Carbon Transformation with Carbon …
217
1.2 Major Global Carbon Markets
At present, the most important carbon markets in the world include the EU, New
Zealand, California and South Korea (See Table 1), which account for more than
90% of the total global trading volume.
Established in 2005, EU carbon market is the earliest and largest carbon trading
market in the world, covering 31 countries including 28 EU member countries,
Norway, Liechtenstein and Iceland, and 12,000 emission entities. In 2020, the EU’s
carbon trading volume reached 8.10 billion tons, and the transaction volume reached
201.4 billion Euros.
Established in 2008, New Zealand’s carbon market is the second national carbon
market after the EU carbon market, which covers 51% of New Zealand’s greenhouse
gas emissions, including six kinds of greenhouse gases from 220 compulsory compliance units in industries of fossil fuels, industry and waste. In 2020, the trading volume
of New Zealand’s carbon market reached 30 million tons, and the trading volume
reached 516 million Euros.
Established in 2013, Northern America’s carbon market was connected with
the carbon markets of Quebec and Ontario in Canada in 2014 and 2018, respectively,
which has become a carbon market with wide coverage and great influence in North
America. California’s carbon market covers about 80% of greenhouse gas emissions
and 500 factory facilities in the state, and adopts a combination of free carbon quota
and auction. In 2020, the trading volume of North American carbon market reached
2.010 billion tons, and the trading volume reached 26.028 billion Euros.
Established in 2015, South Korea’s carbon market contains six kinds of greenhouse gases from 610 enterprises in 64 sub-sectors of six major industries, such as
power and heat, industry, transportation and construction. The quota gradually transits from free distribution to the combination of free distribution and paid auction,
and the proportion of quota auction is 3% of the total. In 2020, the trading volume of
Korean carbon market was 44 million tons, and the trading volume was 870 million
Euros (ICAP (International Carbon Action Partnership). Annual report on progress
in the global carbon market).
Table 1 Major global carbon markets in 2020
Carbon market
Carbon trading volume (100 million
tons)
Carbon transaction volume (100
million Euros)
The EU
81
2014
New Zealand
0.3
5.16
North America
20.1
260
South Korea
0.17
8.7
China’s local pilot
1.3
2.6
Source Reuters, Unipec Research & Strategy (URS)
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X. Liu and Z. Wang
1.3 China’s Carbon Market
1.3.1
Development Stage of China’s Carbon Market
As early as 2005, China has participated in the European carbon market by developing
the United Nations Clean Development Mechanism (CDM) project. In 2011, China
launched a local carbon trading market, and successively approved eight provinces
and cities to carry out carbon trading pilot, including Beijing, Shanghai, Tianjin,
Chongqing, Hubei, Guangdong, Shenzhen and Fujian. By the end of 2020, the cumulative trading volume of spot quotas in the eight pilot carbon markets was 445 million
tons, with a cumulative transaction volume of 10.4 billion yuan, covering more than
more than 3,000 enterprises from 20 industries, such as steel, electricity and cement.
However, due to the inability of carbon quotas to circulate among different regions
and pilot projects, there is a big difference in regional prices. In 2020, the average
transaction price in Beijing is the highest in the pilot area of carbon market, with the
carbon price of about 51 yuan/ton, while the carbon price in Chongqing is only 14
yuan/ton (See Table 2).
At the beginning of 2021, the Ministry of Ecology and Environment of the People’s
Republic of China issued “the Interim Rules for Carbon Emissions Trading Management (Trail)”, which signaled that China had entered a new stage of establishing
a unified national market. The Rules clarify the definitions of the national carbon
market, and comprehensively stipulates the inclusion standards of key emission units,
the setting and distribution of total quotas, trading subjects, verification methods,
reports and information disclosure, supervision and penalties for breach of contract.
In addition to the power generation industry, industries of steel, cement, chemical
industry, electrolytic aluminum and paper are also expected to be included in the
Table 2 China’s pilot carbon market in 2020
Carbon market
Carbon trading volume
(10,000 tons)
Carbon transaction
volume (ten thousand
yuan)
Average transaction price
Guangzhou
3194
83,548
26
Hubei
1767
48,082
27
Tianjin
753
19,130
18
Beijing
532
27,026
51
Shanghai
391
14,783
38
Chongqing
192
2624
14
Shenzhen
135
2624
19
Fujian
99
1693
17
In total
7063
199,519
28
Data source Reuters, Unipec Research & Strategy (URS)
Promotion of China’s Low-Carbon Transformation with Carbon …
219
carbon quota trading quickly. On July 16th, 2021, the national carbon market officially launched online trading, which caused the highly concerns from all walks of
life. The opening price on the first day was at 48 yuan/ton, closing price at 51.23
yuan/ton, which exceeds the average closing price of 37 yuan/ton for the eight pilots,
but significantly lower than the European carbon quota futures price of 52.89 eur/ton.
Industry insiders predict that the trading volume of China’s carbon market may reach
250 million tons in 2021, which is about three times of that in 2020, and the transaction
volume may reach 6 billion yuan.
1.3.2
CCER Trading
China’s local carbon market trading varieties are mainly based on quota trading,
supplemented by China Certified Emission Reduction (CCER) and some other innovative trading varieties launched in the pilot market. CCER mainly originates from
the Clean Development Mechanism (CDM), a market-oriented means of emission
reduction proposed in the Kyoto Protocol, that is, developed countries carry out clean
projects in developing countries with their own superior technologies or funds, such
as building energy conservation, forest carbon sinks, wind power and hydropower
projects. CER can be obtained after the emission reduction achieved by the project
is approved by the World CDM Council, which is called CCER in China. CCER can
be listed in the market as a carbon trading target, and can also offset the carbon emissions of enterprises according to the carbon offset mechanism of each province. By
the end of 2020, there was a total transaction emission reduction of 61.7 million tons
of CCERs, up 43% year-on-year, and the cumulative transaction emission reductions
reached 268 million tons.
1.3.3
Prospect on China’s Carbon Market
By the end of 2020, China’s carbon intensity had decreased by about 50% compared
with that in 2005. Non-fossil energy accounted for 15.8% of primary energy
consumption, and the goal of controlling greenhouse gas emissions ahead of
schedule, which laid a foundation for achieving the goal of carbon peak by 2030 and
carbon neutrality by 2060. According to China’s commitment to reach the carbon
peak, the proportion of non-fossil energy in primary energy consumption will reach
about 25% by 2030, which means that more than 70% of the energy increment in
the later period is non-fossil energy. Industries such as electricity, steel, cement and
energy are facing great transformation pressure.
In addition, the total carbon emissions in China in the next few years have not
yet been determined for the time being. The determination and calculation of the
total amount of these quotas determine the scarcity of quotas and will directly affect
the quota price in the carbon market. The 2020 China Carbon Price Survey Report
220
X. Liu and Z. Wang
compiled by institutions such as China Carbon Forum predicts that the carbon emission price is expected to reach 93 yuan/ton by 2030, and exceed 167 yuan/ton by the
middle of the twenty-first century.
On the whole, China’s carbon market is still in the initial development stage, and
there are some problems, such as low trading activity, imperfect policy system and
loose quota. Considering huge carbon emissions in China, China’s carbon market
still has great development potential. During the 14th Five-Year Plan period, the
transaction volume of carbon emissions is expected to increase 3–4 times compared
with that during the 13th Five-Year Plan. According to the International Energy
Agency (IEA), China is expected to become the largest carbon market in the world
in the future.
1.4 Carbon Trading Mechanism
In view of the fact that the ETS is the global carbon market with the most perfect
carbon trading mechanism, the most complete variety and the largest scale, relevant
carbon trading mechanism will be introduced with the ETS as the representative. EU
carbon trading mainly relies on eight carbon trading centers, including ICE, ECX,
EEX and Bluenext carbon trading market in Paris, among which ICE is dominant.
1.4.1
Main Trading Varieties
The object of EU carbon trading mainly includes European Union Allowance (EUA)
and CCER. Carbon quotas are issued through free payment or paid auction. CCER can
be divided into two categories: one is obtained through the emission reduction project
carried out by developed countries in developing countries (CER) and Emission
Reduction Units (ERUs) between developed countries.
The EU aviation industry has been included in the carbon trading system in 2012,
and its emission reduction targets and quota allocation/auction ratio were set separately. The emission targets are slightly loose, called EUAA (European Union Aviation Allowance), and the price is slightly lower than EUA. The aviation industry can
fulfill its contract by buying EUA, but not vice versa.
1.4.2
Trading Mechanism
Similar to other futures products, EU carbon trading is divided into trading on the
floor and over-the-counter (OTC). Trading on the floor is mainly carbon quota trading,
including futures and options. OTC mainly includes quota auction, quota OTC and
CER/ERUs. Trading on the floor can be completed on the ICE and EEX. OTC
are often quoted by Platts and London Energy Brokers Association (LEBA) and
completed and traded by brokers. At present, EU carbon futures trading accounts for
Promotion of China’s Low-Carbon Transformation with Carbon …
221
about 86% of the total trading volume. From the perspective of major contracts, the
carbon futures contract in December is the most active and holds the largest amount
of open interest (Table 3).
The listing price of EU carbon futures in 2006 was relatively high. But after
that, the influx of CER increased the supply of carbon quota, which resulted in that
the price gradually decreases and showeds a steady trend. Since 2017, with the EU
regulating the CER market and gradually tightening the amount of carbon quotas, the
price of carbon futures has shown a rapid upward trend. The price has climbed from
the previous low of about 3 Euros/ton to a historical high of around 40 Euros/ton. The
average daily transaction volume once exceeded 50,000 VOL in November 2020, and
recently it is around 35,000 VOL (See Fig. 2). There are two reasons for the recent
rapid rise in carbon prices. On the one hand, the EU raised its emission reduction
target in 2030 to 55% last year, and on the other hand, the fund is another important
force to boost carbon prices. Since November 2020, the long position of the fund in
the EUA futures market has almost doubled, and the net long position has increased
by 41% in the first week of February, boosting the rise of carbon price.
Table 3 Open interest of EU
carbon futures contracts in
different months
Contract date
Open interest (VOL)
March
132,036
April
2088
June
6980
December
437,583
Data source Reuters, Unipec Research & Strategy (URS) Closing
date March 12, 2021
Fig. 2 Contract price and volume of EU carbon quota futures in December. Data source Reuters,
Unipec Research & Strategy (URS)
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1.4.3
X. Liu and Z. Wang
Market Characteristics
Generally, the EU carbon trading market has the following characteristics. First,
its market mechanism and supporting laws and regulations system are relatively
perfect. Second, it has a wide industry coverage and accurate quota allocation, specific
to emission facilities. Third, a strict emission data management system has been
established, which makes the carbon trading target transparent and scientific, and
lays a solid foundation for carbon trading. Fourth, the emission standards are strict.
The total quota is decreasing year by year, and the proportion of quota auction is
constantly increasing. The value of carbon resources is on the rise.
With above characteristics, the EU carbon market promotes the continuous development of EU carbon trading market and makes it become the most active carbon
trading market in the global mechanism, which provides a key market means for the
realization of the EU’s strategic goal of carbon emission reduction, and also plays a
positive role in demonstrating the development of the global carbon trading market.
2 Participation of Major Oil Companies in Carbon Trading
In 2020, the COVID-19 triggered a profound reflection on the relationship between
man and nature, and countries accelerated the pace of coping with climate change.
Major oil companies are facing increasing transformation pressure, and gradually
focus on “decarbonization” and accelerate the energy transformation.
2.1 Carbon Emission Reduction Targets of International Oil
Companies
In 2001, the World Resources Institute and the World Business Council for Sustainable Development put forward three “SCOPE” of enterprises’ responsibility for emission reduction as corporate accounting and reporting standards. The goal of determining the scope of emission reduction is to create a general method for enterprises
to measure and report greenhouse gas emissions related to their business. The emissions covered by category 1 are the most direct, mainly emissions from enterprise
production; Category 2 refers to the carbon emissions related to purchased products;
Category 3 refers to all emissions related to the production and operation activities
of enterprises, including business travel, etc. At present, most enterprises promise to
reduce emissions in categories 1 and 2, and limit carbon emissions from production,
sales and trade.
European oil companies have made rapid progress in carbon emission reduction
and energy transformation. BP, Shell and Total have announced that before 2050
they will achieve the goal of carbon neutrality in global business by stages, and other
Promotion of China’s Low-Carbon Transformation with Carbon …
223
energy companies have also put forward their own carbon emission reduction goals
accordingly (See Table 4). Italy ENI proposed to achieve zero carbon emissions in
the upstream sector by 2030 and zero net emissions in 2040. Statoil also proposed
to reduce emissions by more than 70% by 2040 and achieve zero carbon emission
by 2050 (Yang 2018).
Table 4 Emission reduction targets of oil companies
Oil company
Emission reduction target
BP
By 2023, a methane detection system will be installed, the methane escape
concentration will be reduced by 50%, and the proportion of investment in
non-oil and gas projects will be increased
By 2050, zero net emission will be achieved and the carbon intensity of all
products sold will be reduced by 50%
Shell
Compared with 2016, carbon emissions will be reduced by 3% in 2021 and 30%
in 2035. Zero carbon emission will be realized in 2050
Total
By 2050, zero carbon emissions will be achieved, carbon intensity will be
reduced by at least 60%, and European products will be decarbonized
Repsol
At the benchmark level in 2016, carbon emissions will be reduced by 10% by
2025, 20% by 2030 and 40% by 2040. Carbon neutrality will be achieved by
2050
ENI
Zero carbon emission will be achieved in the upstream plate by 2030, and zero
net emission will be achieved by 2040
Equinor
By 2030, the oil and gas exploration and production in upstream sectors will
reduce carbon dioxide by about 40%, and the total emission reduction will
account for about 10% of the current national carbon emissions in Norway. By
2040, the emission reduction target will be over 70%, and zero carbon emission
will be achieved by 2050
Exxon Mobil
By 2025, the upstream emission intensity will be decreased by 15–20%, the
methane emission intensity will be decreased by 40–50%, and the burning
intensity will be decreased by 35–45%. By 2030, conventional burning will be
eliminated
Chevron
Total average carbon intensity will be reduced to 20 kg CO2 equivalent per
barrel of oil equivalent
CNOOC
By 2025, the proportion of clean and low-carbon energy will be promoted to
more than 60%, mainly including domestic natural gas, imported LNG and
supporting new energy
By 2035, the natural gas production will be increased to 50% of the total output
Data source According to the existing data and materials
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X. Liu and Z. Wang
2.2 Energy Transformation Strategies of International Oil
Companies
Large international oil companies adopt different ways to achieve carbon emission
reduction targets, in which most European oil companies mainly adopt energy transformation to achieve carbon emission reduction strategies. Shell and BP aim to
fundamentally change the nature of business, and develop into new energy companies
through transformation and upgrading, transiting from “oil gaint” to “energy gaint”.
Chevron, Exxon Mobil and Occidental Petroleum Corporation insist on focusing on
upstream exploration and development business and mainly set methane emission
targets.
On the whole, according to the existing business model and technical level, the cost
of carbon dioxide emission reduction of different enterprises and different technical
routes are quite different, about half of which are less than $100/ton, and nearly 25%
are as high as $1,000/ton (See Fig. 3). In short, we still face huge technical problems
and high capital investment in realizing net zero carbon emissions in the short term.
Under this pressure, major oil companies have adopted various combination schemes
to achieve the goal of carbon neutrality (See Table 5).
First, major oil companies lay out new energy fields for a long term and optimize industrial structure. For a clear business direction, most oil companies choose
direct investment or mergers and acquisitions to accelerate low-carbon transformation. Total has invested $6.5 billion in the vertical field of solar energy business in the
past five years. CNOOC also laid out solar cell production and photovoltaic power
plants as early as 2012. For the business direction with uncertain prospects, venture
capital funds are dominant, equity investment is implemented in the capital market
and projects with strong development potential are participated in. As early as 1998,
Shell established a venture capital fund for renewable energy. In 2019, it increased
its capital by $5 billion to the renewable energy project supported by the funds. The
investment direction includes wind power generation and hydrogen production. For
cutting-edge technologies, almost all oil companies are strengthening research and
Fig. 3 Cost structure of carbon emission reduction using existing technology. Data source Official
website of Goldman Sachs
✓
✓
✓
✓
✓
✓
✓
Exxon Mobil
Chevron
Occidental
Petroleum
ConocoPhillips ✓
✓
✓
✓
✓
✓
▯
▯
▯
▯
▯
✓
▯
▯
✓
✓
▯
▯
▯
✓
Data source According to the existing data. ✓ indicates the fields of invested capital and ▯ indicates the fields involved in the plan
✓
✓
✓
✓
✓
▯
▯
✓
✓
✓
✓
▯
✓
✓
▯
✓
▯
▯
▯
▯
✓
✓
✓
✓
✓
✓
▯
▯
✓
▯
✓
ENI
✓
✓
▯
✓
✓
✓
✓
✓
✓
✓
▯
✓
Equinor
✓
✓
✓
✓
✓
▯
✓
✓
✓
BP
✓
✓
✓
✓
Total
✓
✓
✓
✓
Shell
✓
Carbon Carbon Forest
capture trading carbon
sink
Improve Control
Increase
Withdrawal Solar Wind Biofuels Hydrogen Geothermal Hydroelectric Electric and
energy
methane the
capital
energy power
power
power storage
efficiency emissions proportion from heavy
of natural carbon
gas
assets
✓
Optimization of industrial structure
Reduction of direct
carbon emissions
Company
Table 5 Measures of oil companies to cope with climate change
Promotion of China’s Low-Carbon Transformation with Carbon …
225
226
X. Liu and Z. Wang
development reserves. Some oil companies have cooperated with leading international energy R&D institutions to tackle low-carbon energy technologies. ENI has
successively cooperated with research institutions such as the Solar Frontier Center
of Massachusetts Institute of Technology in technology research and development.
Second, they promote the transformation of natural gas business. In the next 10–
20 years, natural gas will be the main resource to replace coal for power generation,
and become the strategic focus of oil and gas companies to cope with climate change
and realize energy transformation. In 2019, BP put forward that natural gas is the
first focus of business transformation and development. From 2017 to 2021, more
than 70% of BP’s investment projects are natural gas projects, and natural gas will
account for more than 60% of its total oil and gas business by 2025. In 2015, Shell
spent 47 billion pounds to acquire British Gas Group (BG), becoming the world’s
largest LNG supplier. It is estimated that natural gas will account for 75% of its total
oil and gas production in 2035.
Third, they participate in the carbon trading market and adopt a variety of carbon
reduction combined schemes. The petroleum and petrochemical industry is capitalintensive, and the cost of technology upgrade in the project is high, which often
greatly increases the management and operation costs. At present, most companies
take the form of participating in carbon trading or purchasing carbon compensation
credits to reduce emission reduction costs. See below for details (Li et al. 2019).
2.3 Practice of International Oil Companies Participating
in Carbon Trading
First, international oil companies directly carry out futures and spot goods trading of
carbon emission quotas. Companies such as BP, Shell and ExxonMobil have assets
within the scope of EU-ETS control in Europe and America, such as refineries or
power plants, and directly participate in the futures and spot markets of EUA through
brokers such as exchanges or banks.
Second, they purchase carbon compensation quota. According to the Tokyo
Protocol, CDM projects carried out by developed countries in developing countries such as China and India are recognized as CER by international institutions,
which can offset the actual emission quotas of enterprises (See Fig. 4). Mercuria, a
trading company, has purchased certified CER from China since 2012 and sold them
to European emission control enterprises at a premium of over 50–70%. However,
under the control of government policies, the issuance of CDM has slowed down,
and the size of carbon compensation market is still small. In 2019, the market size
was about 200 million tons of CO2 equivalent, which is less than one tenth of the
carbon emission market. In 2019, BP purchased 1.17 million tons of CO2 equivalent,
an increase of 37% compared with 2018.
Third, they trade low-carbon and carbon–neutral goods. In recent years, BP and
Shell have gradually led the petrochemical industry to trade low-carbon products,
Promotion of China’s Low-Carbon Transformation with Carbon …
227
Fig. 4 Schematic diagram of enterprise carbon quota trading
and biofuels, carbon–neutral LNG have become highly concerned products. Biofuels
can be used as a carbon neutral project to replace conventional products such as jet
fuel, thus reducing carbon emissions. However, its scale and quantity are small at
present, and the economy of emission reduction needs to be improved. Carbon neutral
LNG is an innovative attempt to bring the concepts of “carbon neutral” and “net zero
emission” into the natural gas industry. In April, 2019, Shell launched a carbon sink
plan costing $300 million to achieve the goal of reducing the “net carbon footprint”
by 2–3% within three years. At present, it has completed four batches of carbon–
neutral LNG shipment transactions worldwide. In 2020, CNOOC purchased five
ships of carbon–neutral LNG from BP and Shell, and auctioned one batch through
Shanghai Petroleum and Natural Gas Exchange (SHPGX).
The development of carbon–neutral LNG is complicated, and the carbon compensation costs of different projects vary greatly (Fig. 5). Generally speaking, one ton
of LNG will produce 3.42 tons of carbon emissions, but there is great uncertainty in
the value, which will change greatly with the selection of technology and equipment
in the whole process of LNG industry chain. According to the total carbon emission
of one ship of LNG of 250,000 tons, the offset cost of investment in forestry projects
is about $10/ton of CO2 equivalent, and the carbon–neutral premium of one ship
of LNG will reach $0.6/million British thermal unit, indicating the import cost has
increased.
Fourth, they carry out carbon asset financing business. Carbon assets naturally
have the function of pledge financing, and this kind of business of European banks
has matured. Some domestic financial institutions have also tried to carry out this
kind of pledge business. The exchanges and participants in Shenzhen and Beijing
have also put forward higher mortgage discount rates, which not only increases new
financing channels, but also can operate this kind of assets to form a new profit model.
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X. Liu and Z. Wang
Fig. 5 Carbon compensation cost of different projects. Data source Official website of Goldman
Sachs
Fifth, they participate in the infrastructure construction of carbon market. Carbon
trading platform is an important part of carbon market structure, and the investment
in equity of platform institutions is also an important measure for enterprises in the
industry to make strategic layout. ICE acquired Chicago Climate Exchange (CCE)
and Thomson Reuters and acquired Point Carbon with $1 billion, and State Grid also
invested in Shanghai Environment and Energy Exchange.
3 Thoughts and Suggestions
First, the integration of China’s carbon market and the international carbon trading
market should be promoted.
On the basis of Paris Agreement, China should take the opportunity of the “Belt
and Road Initiative” to strengthen the in-depth exchanges and cooperation between
China’s carbon trading market and the international carbon trading market in terms of
policy formulation, establishment of guarantee mechanism, establishment of incentive mechanism and market operation mechanism, learn the advanced theories of
developed countries such as the European Union and the US, and put forward a
practical “China Plan” to cope with global climate change.
Second, China’s energy enterprises should coordinate carbon asset management.
According to the experience of international energy companies in dealing with
carbon emissions and managing carbon assets, the centralized and unified management model is more conducive to the realization of carbon emission reduction
targets. It is suggested that China’s energy companies should define the mediumand long-term reduction targets for greenhouse gas emission, internally define the
total amount and source of carbon dioxide emissions, and ways, paths and cost
schemes to achieve emission reduction targets, etc., and explore the synergy benefits
of enterprises in carbon asset management, energy-saving and emission-reduction
projects, and capital and technology in various sectors, and establish an internal
Promotion of China’s Low-Carbon Transformation with Carbon …
229
centralized management mode for carbon emission reduction, so as to give full play
to the advantages of integration and build low-carbon competitiveness.
Third, global carbon–neutral oil and gas trading should be expanded.
With more and more energy companies participating in and increasing global
carbon emission reduction efforts, the traditional oil and gas trade has been given
new connotations and has become an important carrier linking the realization of
global carbon emission reduction targets. In recent one or two years, the trade of
carbon–neutral LNG and oil (the carbon emissions from mining, production to transportation have been offset) committed to net zero emissions has gradually attracted
the attention of the industry, especially the trade of carbon–neutral LNG is becoming
increasingly active and the pricing mechanism is relatively transparent. On January
29th, Occidental Petroleum Corporation announced that it had delivered the first
batch of carbon–neutral oil in the world, which opened a new mode of oil trade.
It is suggested that China’s energy enterprises should actively participate in global
carbon–neutral oil and gas trade to provide more channels for low-carbon sustainable
development.
References
ICAP (International Carbon Action Partnership). Annual report on progress in the global carbon
market
Li L, Zhang B, Li W (2019) Construction elements and prospects of China’s carbon emission trading
market. World Environ (1):23–25
Refinitive Carbon trading report.
Yang J (2018) Current situation, problems and countermeasures of carbon trading market in China.
37(10):29–34
Offshore Wind Power: An Important
Opportunity for Traditional Oil and Gas
Industry to Realize Low-Carbon
Transformation
Qia Wang
1 Traditional Oil and Gas Enterprises Accelerate
the Layout of New Energy Industries and Help Achieve
the Goal of “Carbon Neutrality”
In the past year, low oil prices and COVID-19 has brought unprecedented impacts
and challenges to the production and operation of traditional oil and gas companies.
In this global context, the global energy industry is undergoing profound changes.
➀ More and more countries have joined the action of realizing carbon neutrality (or
net zero emission). China, as the world’s largest carbon emitter, announced the goal
of “carbon peak and carbon neutrality” in September 2020, which will drive more
countries to take more effective measures to join this carbon reduction action, and
accelerate the pace of global energy transformation. ➁ According to the research
of Carbon Tracker Initiative, International Energy Agency (IEA) and McKinsey &
Company, the global oil demand may peak in 2020–2030, and the natural gas demand
may peak in 2030–2040. After the peak of fossil fuels, the oil and gas industry may
face a structural recession. ➂ The new energy industry is booming all over the world,
and the marginal cost of wind power and photovoltaic has been able to compete with
fossil energy. More than half of the electricity supply has come from renewable
energy in some countries and regions.
Under the above background, the global energy giants in 2020, including five oil
companies, four power companies, two wind power companies, one coal company,
one telecommunications company and one iron ore company, all poured into the new
energy field and invested trillions of funds (see Table 1).
After the goal of “carbon peak and carbon neutrality” is put forward in China, large
oil central enterprises, such as CNPC, Sinopec and CNOOC, have started carbon
Q. Wang (B)
Institute of Quantitative & Technological Economics, Chinese Academy of Social Sciences,
Beijing, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_13
231
232
Q. Wang
Table 1 Energy giants overweight new energy business in 2020
Industry
Enterprise
name
Planned goal
New layout
direction
Planned
completion
time
Intended
investment
Oil and gas
Repsol
15 GW
Wind power
and solar
energy
2050
$5.7 billion
Total
35 GW
Wind power
and solar
energy
2025
$3
billion/year
BP
50 GW
Wind power,
solar energy
and hydrogen
energy
Before the
end of 2030
$5 billion
PKN Orlen
2.5 GW
Wind power,
solar energy,
bio-fuel and
hydrogen fuel
2030
$37.4 billion
Galp Energia
10 GW
Duke Energy
40 GW
40 GW
Wind power,
solar energy
and biomass
2050年
2050
Enel
2.4 GW
Solar energy
and wind
power
2025
Scottish Power 120 GW
120 GW
Solar energy
and wind
power
2021–2030
Electric power
2030
$56 billion
Endesa
11.5 GW
11.5 GW
Coal
CIL
Develop four
solar energy
projects
Photovoltaic
Before
$763 million
March 2024
Wind power
Iberdrola
60 GW
Solar energy,
onshore wind
power
2025
75 billion
Euros
2030
$928 million
Ørsted
Telecom
NTT
2021–2023
Photovoltaic
and hydrogen
energy
7.5 GW
Solar energy
and offshore
wind power
(continued)
Offshore Wind Power: An Important Opportunity for Traditional …
233
Table 1 (continued)
Industry
Enterprise
name
Planned goal
New layout
direction
Planned
completion
time
Intended
investment
Metal
Fortescue
Metals Group
236 GW
Wind power,
solar energy,
hydrogen and
ammonia
water
2023
$733 million
Note 1 GW = 1000 MW = 1 million kW
Data source http://guangfu.bjx.com.cn/news/20201221/1123745.shtml
neutrality planning and accelerated the layout of new energy fields. On January
15, 2021, the 17 petroleum and chemical enterprises, chemical parks and China
Petroleum and Chemical Industry Federation jointly signed and issued “the Declaration on Carbon Peak and Carbon Neutrality in China’s Petroleum and Chemical
Industry”, which is a new starting point for China’s petroleum and chemical industry
to practice the concept of green development and build an ecological civilization and
a beautiful earth in the new era.
The transformation direction of oil in China mainly includes fields such as photovoltaic, offshore wind power, and geothermal. According to incomplete statistics,
the 15 MW distributed photovoltaic power station in Jilin oilfield was successfully
connected to the grid in 2018, which is the first large-scale distributed photovoltaic
power station of CNPC. Under the background of global energy transformation,
SEPCO Electric Power Construction Corporation (Sichuan) won the bid for the installation of electrical equipment in Section A and Section B of offshore wind power
project of CNPC Offshore Engineering Co., Ltd. (Qingdao) in April, 2019, which
marked that CNPC officially entered the field of offshore wind power. In November
of the same year, Shiyou Xincheng (Phase I), Renqiu City, Hebei Province officially
implemented geothermal heating, with involving more than 4,000 households and
shops in a heating area of 630,000 m2 . This is the first large-scale geothermal heating
project of PetroChina Huabei Oilfield Company.
Sinopec takes hydrogen energy as its key direction to realize low-carbon transformation, and it also involves photovoltaic and wind power fields. In 2017, 20 MW
photovoltaic power generation project of agricultural light complementation of
Sinopec Star Co., Ltd. in Baishui, Weinan, Shaanxi Province was officially connected
to the grid, which is the first centralized photovoltaic project of Sinopec. In July,
2019, Sinopec built the first oil-hydrogen joint construction station integrating oil,
hydrogen and electricity energy supply and chain convenience services in China.
In March 2020, Sinopec proposed to build an industrial pattern of one base, two
wings and three new ones (with important growth pole)”, and planned to become
the largest hydrogen energy company in China in three to five years. In August of
the same year, Sinopec Capital Co., Ltd. invested in Fengyang Silicon Valley Intelligence, a wholly-owned subsidiary of Changzhou Almaden Co., Ltd., and laid out
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Q. Wang
the ultra-thin photovoltaic glass industry chain. In October, Sinopec Star Co., Ltd.
announced that it will participate in the development of Shaanxi Dali distributed wind
power project with a total installed capacity of 20 MW, which will become Sinopec
first wind power project. In November, all field data collection of the offshore wind
power survey project of Power China (Yantai) Mouping New Energy Power undertaken by Sinopec Shanghai Geophysical Prospecting Company has been successfully
completed. In December, Sinopec Capital Co., Ltd. invested in Changzhou Better
Thin Film Technology Co., Ltd. to lay out photovoltaic film industry. In January
2021, Sinopec invited four new energy enterprises including GCL Group, Trina
Solar, Lonji Group and Zhonghuan Electronics, to hold a video dialogue meeting on
the development of new energy industry, and to conduct in-depth discussions on the
development status and future trends of new energy industry.
CNOOC regards offshore wind power as the key direction of the company’s layout
in the field of new energy, and also involves fields including distributed energy,
geothermal energy and hydrogen energy. Since 2004, CNOOC has been involved in
the new energy industry. It set up a new energy office in June 2006, and established
a new energy investment limited liability company in 2007. In November 2007,
CNOOC installed a Goldwind’s 1.5 MW wind turbine on its drilling platform in
Bohai Bayto provide electricity for oilfield facilities. The successful grid-connected
operation of this test unit marks the official start of offshore wind power development
in China. From 2009 to 2012, CNOOC New Energy Co., Ltd. started construction of
new energy projects at the same time, including 49.5 MW wind farm project in Huade,
Inner Mongolia, 60,000 tons/year biodiesel demonstration project in Hainan, 48 MW
wind farm project in Dongfang, Hainan, 270,000 tons/year biomass energy project
in Nantong, and 201 MW wind farm project in Changma, Yumen, Gansu. CNOOC
Rongfeng Energy Co., Ltd. (“Rongfeng”) was established in July 2019, marking
CNOOC’s return to the new energy market. In August, 2020, CNOOC issued a
tender announcement for offshore hydrogen production technology research, aiming
at researching, designing and optimizing the technological process of offshore wind
power hydrogen production, and proposing the boundary conditions of technical and
economic feasibility. On September 15, 2020, (H2#)300 MW offshore wind power
project in Zhugensha, Jiangsu realized grid-connected power generation, which is
the first offshore wind power project of CNOOC since 2014. CNOOC Energy Technology & Services Limited was established in January 2021, and it will devote itself
to cultivating new energy industry with offshore wind power as its core, and implement the goal of “carbon peak and carbon neutrality”. In February of the same year,
CNOOC started the preparation of 1 GW offshore wind power project in Shantou,
Guangdong.
Offshore Wind Power: An Important Opportunity for Traditional …
235
2 Due to the High Degree of Business Fit, Offshore Wind
Power Has Become an Important Field for Oil and Gas
Companies to Explore New Energy Business
2.1 Overview of the Development of Offshore Wind Power
Industry
Offshore wind power is a form of energy utilization that converts offshore wind
energy resources into electric energy. Offshore wind power is clean and low-carbon,
and has many advantages such as high available hours, no occupation of land
resources, and proximity to coastal power load centers. In 1991, Denmark Dong
Energy Co., Ltd. (now Ørsted Group) built the world’s first truly offshore wind
farm—Vineby offshore wind farm in Denmark. In the following 30 years, offshore
wind power technology has been maturing, with declining cost. More and more
countries regard offshore wind power as a new choice for power supply, and replace
traditional coal-fired and gas-fired power generation with it. According to the statistics of the Global Wind Energy Council (GWEC), the cumulative installed capacity
of offshore wind power in the world reached 35.2 GW in 2020, and the top five
countries in the world are: the UK (29.00%), China (28.12%), Germany (21.96%),
the Netherlands (7.42%) and Belgium (6.42%).
Although China’s offshore wind power started late, its development momentum
is very strong in recent five years. In June 2010, China’s first offshore wind farm,
the Phase I (100 MW) of Shanghai East Bridge offshore wind power demonstration
project, realized grid-connected power generation. During the 12th Five-Year Plan
period, the development of offshore wind power was slow due to immature technology, high investment cost and lack of professional development and maintenance
team. Since the 13th Five-Year Plan, offshore wind power projects have been accelerated, and the development of offshore wind power has also changed from intertidal
development to offshore development. By the end of 2020, the cumulative installed
capacity of offshore wind power in China was about 9 GW, mainly concentrated in
Jiangsu, Shanghai and Fujian. Looking forward to the 14th Five-Year Plan, China is
expected to become the country with the largest installed capacity of offshore wind
power in the world. The goal of Guangdong Province is that the installed capacity of
offshore wind power will reach 15 GW in 2025 (about 1.1 GW at the end of 2020),
that of Jiangsu Province is that the scale of offshore wind power will reach 14 GW
in 2025 (about 5.7 GW at the end of 2020) and strive to break through 15 GW, and
that of Zhejiang Province is to strive for 5 GW of offshore wind power in 2025.
In recent years, innovative development of offshore wind power has been made
in unit design, installation and equipment manufacturing, and the power generation
cost of offshore wind power has been greatly reduced. At present, the average unit
capacity of offshore wind turbines in the world is 5.5 MW, and the average wind wheel
diameter is 148 m. By 2050, the average unit capacity of offshore wind turbines is
expected to exceed 20 MW, and the average diameter of wind turbines will reach
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Q. Wang
250 m. At present, the average cost per kilowatt hour of the electricity generated by
offshore wind power in the world is 7.8 cents/kWh, and some offshore wind power
projects in Europe have taken the lead in achieving “zero subsidy” grid parity. It is
estimated that by 2050, the average cost per kilowatt hour of the electricity generated
by offshore wind power in the world is expected to drop to about 5 cents/kWh, and
even as low as 4 cents/kWh in the North Sea of Europe. At present, the cost per
kilowatt hour of the electricity of offshore wind power projects in China is 0.8–0.85
yuan/kWh. The offshore wind power will have the conditions of large-scale grid
parity around 2025, and the average cost per kilowatt hour of the electricity will
probably drop to about 0.4 yuan/kWh in 2030.
Offshore wind power has great untapped potential and bright future. According
to “the 2020 Global Offshore Wind Power Report of the Global Wind Energy
Council (GWEC)”, the global offshore wind power scale will reach 234 GW by
2030. According to the prediction of the Ocean Renewable Energy Action Coalition
(OREAC), the global offshore wind power scale may reach 1,400 GW by 2050, and
will meet one tenth of the global power demand, which can save more than 3 billion
tons of carbon dioxide every year, and create employment opportunities for about 24
million years.
2.2 Concrete Practice of Oil and Gas Enterprises Entering
Offshore Wind Power Industry
The COVID-19 in 2020 has had a serious impact on the oil and gas industry, but the
offshore wind power industry has been affected to a limited extent and has maintained
strong growth. According to the research report of Clarksons Research, in 2020, the
global capital expenditure of offshore wind power was $51 billion, while the offshore
oil and gas expenditure was only $41 billion. It shows that capital is constantly
shifting from offshore oil and gas to offshore wind power, including the construction
of offshore wind power related industrial chains such as vessels.
Offshore oil and gas industry and offshore wind power industry have very high
business fit, as well as similar supply chain and technical requirements. According
to IEA, about 40% of offshore wind power projects coincide with offshore oil and
gas projects, including wind turbine foundation construction, and equipment maintenance and supervision. More and more oil and gas enterprises are pouring into
offshore wind power industry, which is not a passive transformation of traditional
industries, but actively seeking new profit growth points combined with professional
experience in their fields. This will form a win–win situation of cooperation for both
parties. On the one hand, offshore oil and gas development enterprises can expand
new business fields and find new business opportunities, thus dispersing the investment risks of single oil and gas business. On the other hand, offshore wind power
development enterprises can gain a lot of experience in design, construction and
operation and maintenance.
Offshore Wind Power: An Important Opportunity for Traditional …
237
At present, more and more international oil and gas enterprises and oil service
enterprises are participating in the specific business fields of offshore wind power,
mainly involving the transportation and installation of offshore wind turbines, the
construction of offshore wind turbine foundation and converter station, and the development of offshore wind power (see Table 2). In the long run, it is possible for the
above two industries to carry out deeper cooperation in hydrogen production from
offshore wind power and energy island construction with the development of offshore
wind power going far into the sea.
1. Development and operation of installation vessel
Offshore wind power installation vessel refers to the offshore wind power construction platform used for offshore wind turbine, foundation transportation and installation construction. Equipment such as cable laying vessel, underwater operation ship
and semi-submersible transport ship can be used for offshore oil and gas development and offshore wind power development at the same time. At present, most of
the existing offshore wind power construction vessels in the world come from the oil
and gas industry, and have been used for the installation and disassembly of offshore
oil and gas platforms before. However, these vessels are advantageous for offshore
hoisting of heavy equipment, but lack of flexibility, which makes it difficult to meet
the demand of continuous and rapid movement of offshore installed fans.
In recent years, semi-submersible transportation companies such as OHT,
Boskalis, DEME and JDN have begun to seek more opportunities from the wind
power market, and orders of wind power installation vessels have increased significantly. According to GWEC, there are 137 wind power installation vessels put into
use worldwide, including 82 self-jacking vessels and 55 heavy crane vessels. Of
these vessels, 61% are in Europe and the remaining 39% are in China. In addition,
16 customized self-jacking vessels and 5 customized offshore wind power crane
vessels are under construction.
Globally, the construction vessels in the market are often in short supply, and it is
often necessary to book them several months in advance. Considering that the size
of offshore wind turbines will continue to increase (including the weight of engine
room, tower and foundation, and the height of hub), the industry has an urgent demand
for construction vessels suitable for the installation of large wind turbines.
In July 2018, OHT signed a contract with China Merchants Heavy Industry
(CMHI) to build a 48,000-ton semi-submersible foundation installation vessel,
named “Alfa Lift”, which will become the largest foundation installation vessel in
the world. Alfa Lift is designed by Ulstein shipyard, with a design length of 216 m.
It is equipped with a 3,000-ton lifting crane and an intelligent deck working system,
which can transport ten 2,000-ton single pile foundations and supporting transition
sections. Alfa Lift will serve the phase I of Dogger Bank wind farm in North Sea.
In August 2020, OHT signed a 2 + 2 wind turbine installation vessel construction
agreement with CMHI again, and entrusted CMHI to build two battery hybrid wind
turbine installation vessels and two hydrogen-powered fuel cell installation vessels.
GustoMSC self-jacking wind power platform design will be adopted for these installation vessels. The telescopic crane has a maximum lifting capacity of 2,500 tons and
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Q. Wang
Table 2 Offshore wind power engineering fields of transformation of oil and gas companies
Company
Original industry
Transformation field
JDN
Port dredging
Offshore wind turbine
installation
DEME
Port dredging, underwater
facilities
Offshore wind turbine
installation
Boskalise
Semi-submersible
transportation and
dredging
Transportation and installation of
offshore wind turbines
OHT
Semi-submersible
transportation
Transportation and installation of
offshore wind turbines
MH Wirth
Drilling equipment
Offshore wind power
engineering design
Lamprell
Construction of offshore
engineering equipment
Construction of offshore wind
power structure
Shanghai Zhenhua Port
Machinery Company Limited
(ZPMC)
Construction of offshore
engineering equipment
Construction of offshore wind
power structure
Keppel Offshore & Marine
Construction of offshore
engineering equipment
Converter station
Sembcorp Marine
Construction of offshore
engineering equipment
Converter station
Daewoo Shipbuilding & Marine Construction of offshore
Engineering (DSME)
engineering equipment
Wind power installation platform
Ulstein
Vessel design
Design of wind turbine vessel
Vard
Vessel design
Design of wind turbine vessel
Honghua Offshore Oil & Gas
Equipment (Jiangsu) Co. Ltd.
Construction of offshore
engineering vessel
Construction of offshore wind
power structure
Scorpio Bulkers
Dry bulk cargo
transportation
Wind power installation platform
Aker Solutions
Development and design
of oilfield
Design of floating wind turbine
Aibel
EPC of oil and gas project
EPCEPC of wind power offshore
project
SBM Offshore
FPSO, EPC and operation
Design of floating wind turbine
Total
Oil and gas development
Wind power development
Shell
Oil and gas development
Wind power development
BP
Oil and gas development
Wind power development
Data source SinorigOffshore, http://news.bjx.com.cn/html/20200825/1099456.shtml
Offshore Wind Power: An Important Opportunity for Traditional …
239
a maximum lifting height of 165 m. According to the design, the installation vessel
can work in the sea area with the deepest water depth of 65 m. The first installation
vessel is scheduled to be delivered in early 2023, and the delivery time of the second
vessel is to be determined.
In August 2020, Scorpio Bulkers, a bulk carrier’s owner in Moroco, announced
that he planned to withdraw from the dry bulk shipping business and began to sell its
bulk carriers. At the same time, Scorpio Bulkers signed an agreement with DSME
to build 1 + 3 wind turbine installation vessels, and the delivery time of the first
vessel is scheduled for the third quarter of 2023. In January 2021, Scorpio Bulkers
officially changed its name to Eneti Inc., indicating that it will focus on the offshore
wind power market in the future.
2. Design and construction of offshore wind power project
At present, more and more oil and gas businesses in the global offshore engineering
market are turning to offshore wind power business. Traditional offshore oil and gas
development enterprises have accumulated a lot of experience in offshore exploration, offshore construction and offshore platform operation by virtue of their experience in offshore oil development, and they have inherent advantages in developing
offshore wind power. Most of their experience and equipment can directly guide and
apply to offshore wind power. For example, offshore oil platform design can provide
reference for offshore wind turbine foundation design, and companies providing
services for offshore oil and gas exploitation can easily turn to fields such as wind
turbine foundation/wind power installation platform construction, offshore converter
station/offshore booster station construction, submarine cable laying, EPC of wind
power offshore engineering project, and so on.
With the development of offshore wind power to the deep sea, floating foundation may become a technology that can “rewrite rules”, and even the mainstream
technology in the future. Offshore oil and gas exploitation may be carried out in sea
areas with a water depth of several hundred or even thousands of meters. However,
for offshore wind power, it is considered as deep water if the water depth exceeds
30 m. Compared with the traditional fixed structure with single pile foundation,
the floating structure is more economical in those deep-sea areas far from the coast.
Some oil and gas enterprises with rich offshore experience, such as Shell and Equinor,
have aimed at this opportunity to take floating basic technology as the main direction of company transformation. At present, there are three basic forms of floating
foundation structure: monopile type, semi-submersible type and tension-leg type.
In April, 2018, Jiangsu Longyuan Zhenhua Engineering Company Co., Ltd., a
subsidiary of ZPMC, won the bid for Zhanjiang Wailuo Offshore Wind Power Project
of Guangdong Yudean Group Co., Ltd., and contracted the wind turbine foundation
and offshore booster station foundation engineering in the whole process of design,
procurement and construction (EPC). This is the first offshore wind power project
built by EPC in China. In 2020, Jiangsu Longyuan Zhenhua Engineering Company
Co., Ltd. won the bid for the PC bid project of Zhanjiang Wailuo Offshore Wind
Power Project Phase II of Guangdong Yudean Group Co., Ltd. (RMB 1.27 billion),
PC bid section project of Zhanjiang Xinliao Offshore Wind Power Project Phase II of
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Q. Wang
Guangdong Yudean Group Co., Ltd. (RMB 1.23 billion), I bid project of Zhanjiang
Xuwen Offshore Wind Power Project Phase II of State Power Investment Corporation
(SPIC), and the foundation construction, construction and wind turbine installation
of Rudong H2# offshore wind farm wind turbine (RMB 777.92 million).
In 2017, the Norwagian Statoil built the world’s first fully operational floating
offshore wind farm, Hywind Scotland. Five 6 MW units with a total installed capacity
of 30 MW are adopted in the project, which can supply power to 36,000 households.
In May 2018, Statoil officially changed its name to Equinor, transforming to the field
of offshore wind power development.
3. Offshore wind power development and asset operation
Although offshore wind power projects require large investment, they usually have
long-term and stable benefits, which have become the preferred transformation areas
for oil and gas giants such as Shell, Total, BP, Repsol and Equinor (formerly known
as Statoil) to achieve their zero-carbon targets. Offshore wind power can not only
enrich the asset allocation of oil and gas enterprises, reduce investment risks, but also
provide electricity for oil and gas platforms. In addition, when oil and gas enterprises
operate offshore oil and gas projects and offshore wind power projects at the same
time, offshore operation and maintenance personnel and related equipment can be
shared among the projects, thus saving operation and maintenance costs.
In October 2020, Equinor officially started to build Hywind Tampen floating
wind power project, which will become the first wind farm to directly supply power
to offshore gas platforms in the world. The project has a total installed capacity
of 88 MW, 140 km offshore and a water depth of 260–300 m. The project has a
total investment of nearly $500 million and is expected to be put into production
in the third quarter of 2022. Eleven 8 MW Siemens Gamesa wind turbines (rotor
diameter:167 m; blade length: 81.5 m) are adopted in the project, and the generated
power can meet the annual power demand of about 35% of the five oil platforms,
located in the North Sea, namely Snorre A and B and Gullfaks A, B and C.
In January, 2019, Shell signed a joint development agreement with Coens Hexicon
Company, which plans to jointly develop, build and operate a floating offshore wind
farm in the sea area 40 km away from Ulsan, South Korea. In February, Shell, together
with Innogy and Stiesdal, invested 18 million Euros to establish a floating offshore
demonstration project in Norway. In the same year, Shell also wholly acquired
Eolfi, a French wind power enterprise which is mainly engaged in offshore floating
wind power business. In August 2020, Shell and Cross Wind (a joint venture of
Dutch power company Eneco) won the bid for Hollandse Kust North, a 759 MW
offshore wind power project in the Netherlands. This project is called “super hybrid”
because it plans to combine many low-carbon emerging technologies such as floating
photovoltaic, and hydrogen production from wind power and other.
In March 2020, Total signed an agreement with British Simply Blue Energy to
jointly develop a 96 MW floating offshore wind power project in Wales. In September,
Total and Macquarie announced that they would jointly develop 2 GW of floating
wind power in Korea, which is the largest floating offshore wind power project
planned in the world.
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4. Hydrogen production from offshore wind power
Hydrogen production from wind power is one of the effective ways to reduce the
transportation cost of offshore wind power in the open sea and make full use of “wind
curtailment in power grid”. Oil and gas companies have accumulated rich technologies of hydrogen preparation, storage and transportation in the field of refining and
chemical industry for many years, which have also been widely applied to hydrogen
production from wind power in recent years.
In November 2019, Shell and hydrogen infrastructure developers Everfuel
Denmark A/S and A/S Dansk Shell reached a cooperation agreement on hydrogen
production from wind power, and planned to install a Power-to-X (P2X) plant with
electrolytic capacity up to 1 GW in Fredericia, with an initial capacity of 20 MW.
After the full expansion, the capacity of the hydrogen production plant will not only
be self-sufficient, but also supply hydrogen to over 4,000 fuel cell buses and trucks
every day. In February 2020, Shell and Gasunie announced a plan to build the largest
green hydrogen project in Europe, and planned to install a large hydrogen electrolyzer
in Eemshaven port, the Netherlands. It is estimated that by 2040, it can undertake
10 GW offshore wind power generation, with an annual green hydrogen output of
800,000 tons.
In May 2020, BP and its solar energy joint venture Lightsource BP planned to
build a green hydrogen production plant driven by wind and solar energy of 1.5
GW in Australia. In November of the same year, BP said it was cooperating with
Ørsted Group, a Danish offshore wind power developer, and planned to develop
zero-carbon hydrogen at BP’s Lingen refinery in northwestern Germany. The initial
goal is to build a 50 MW electrolyzer to produce green hydrogen by electrolysis of
water by utilizing offshore wind power in the North Sea, replacing 20% of the natural
gas hydrogen production capacity of the plant. In the later period, the electrolytic
cell capacity may be expanded to 500 MW, replacing all the fossil fuel hydrogen
production capacity of the refinery.
5. Energy island construction
The construction of an “energy island” is a medium-and long-term offshore energy
development idea. It no longer plans a single offshore wind farm as in the past,
but connects these wind farms by expanding the scale of offshore wind power and
building an “energy island”. Energy island serves as the public hub of cables and platforms used in AC/DC converters, AC transformers and operation and maintenance
facilities. Excess green electricity generated by the energy island can be converted
into green hydrogen, which can be processed into fuel for transportation vehicles
such as aviation, trucks and ships on the island. Europe has begun to build energy
islands.
(1) VindØ energy island in North Sea. VindØ Island (Wind Island) is built in the
North Sea, 100 km away from the Danish mainland. It is planned to connect
offshore wind power of 3 GW of in Denmark at first, and connect to 10 GW in
the future, and even consider connecting to Dutch power grid. There will be a
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variety of “power to x” facilities (including energy storage devices, hydrogen
production devices from wind power, electrolysis systems, etc.), accommodation apartments, operation and maintenance factories, high-voltage converter
equipment for power transmission and interconnection, helipad, data center,
operation port, leisure area, etc. VindØ Island is planned to be completed by
2030 at the latest.
(2) Bornholm Island in the Baltic Sea. This project is proposed by Ørsted of
Denmark, which aims to connect offshore wind power of 5 GW in Baltic Sea.
It is planned to build an offshore wind farm with the installed capacity of 1 GW
in RønneBanke sea area southwest of Bornholm Island by bidding, and connect
it to Denmark and Poland by submarine cable, and consider connecting it to
Germany in the future.
(3) TenneT Energy Island in North Sea. In June 2016, TenneT TSO B.V, the Dutch
grid operator, proposed the North Sea Wind Power Hub (NSWPH), and planned
to build an artificial island in Dogger Bank in the middle of the North Sea. It
will be used as a power hub to convert AC power generated by nearby wind
farms into DC power, which will be transmitted to countries such as the UK, the
Netherlands and Denmark through high-voltage DC cables. After the plan was
put forward, it was supported by TenneT TSO GmbH, Energinet.dk, Gasunie and
Rotterdam Port. In 2019, NSWPH further improved the design of wind power
hub in the North Sea. The concept of “hub-and-spoke” was adopted and it was
planned to connect 180 GW offshore wind power by building several hub islands
(the number of which has not yet been announced), which will be completed
in 2030–2050. These hub islands will be designed in three different ways. ➀
The first is “all-power island”, which converts AC power generated by nearby
offshore wind farms into DC power, and then transmits it to onshore power grid
through high-voltage DC cable. ➁ The second is “full hydrogen island”. All the
electricity generated by offshore wind power is used to produce hydrogen in the
hub island, and then transported to the land in the form of hydrogen or liquid
hydrogen. ➂ The third is “electricity-hydrogen mixed island”, in which part of
electricity is directly transmitted and part of electricity is used for hydrogen
production and then transmitted.
With the acceleration of global energy transformation, oil and gas enterprises are generally aware of the necessity to improve their investment portfolio, so they continue
to increase the proportion of investment in clean energy and low-carbon technologies. Due to high business fit and stable and predictable investment income, offshore
wind power has become an important field for these oil and gas enterprises to explore
new energy business. After floating wind power is commercialized on a large scale,
offshore wind power can be operated together with offshore oil and gas production,
and hydrogen production from offshore wind power can also be considered to help
enterprises realize low-carbon transformation through decarbonized power generation
and low-carbon fuel production. For China, the eastern coastal areas are densely populated, with limited land resources, and the demand for electricity is very large. The
development of offshore wind power is an importantly strategic measures for these
areas to achieve “carbon peak and carbon neutrality”.
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However, there are both opportunity and risk. First, the comprehensive development of marine resources lacks top-level design, and the supporting policies need
to be further improved. The construction of offshore wind power bases in China
is mostly led by local governments or single enterprises, which lacks coordination
with other industries and departments, and lacks differences in planning between
provinces. The phenomenon of “go all out and go fast” in the local area not only
causes tight supply of the whole industrial chain, but also may lay hidden dangers
of equipment quality and construction quality. When planning offshore wind power,
the government must consider the continuous growth of offshore wind power supply
chain, establish power grid connection and do a good job in marine space planning.
Second, the cost of offshore wind power in China is still high at present, and the
potential risks such as grid connection and operation safety can not be ignored. In
terms of resource conditions, China’s offshore wind resources and seabed geological
conditions are not as good as those in Europe. In addition, the detection and evaluation in offshore wind energy resources is rather weak in China, which may bring great
deviation to the expected benefits of the project. In terms of equipment and materials,
some key components of offshore wind turbines in China (such as main bearings,
hydraulic pitch system, etc.) still need to be imported, and the localization rate is
low, which increases the difficulty of cost reduction. In terms of development mode,
the current offshore wind power in the same region is developed and constructed by
different developers, which is not conducive to the formation of economies of scale.
In the aspect of grid connection, at present, offshore wind power development is
completed by power generation enterprises themselves, and power grid companies
have not intervened. There is a lack of unified planning for the selection of location,
capacity and performance of offshore wind power access to large power grids. With
the increase of scale and the development to the open sea, the problems of offshore
networking and transportation will be involved in the future. Third, offshore wind
power is still a new technology-intensive production. At present, China’s equipment
R&D capability and engineering and technical strength are insufficient, and the standard system still needs to be continuously improved. There is still a technical gap
of 3–5 years between China and European countries in research and development of
large wind turbines, manufacturing of key components, offshore construction, DC
transmission and offshore construction equipment. There are still technical blockades
in varying degrees on some new designs and technologies emerged in the European
offshore wind power industry, including the design of wind turbine blades, design
and construction of wind turbine foundations, etc. Globally, a set of independent
design methods and standards for offshore wind turbines has not yet been formed,
and offshore wind power development is still in the stage of technical exploration.
Therefore, oil and gas enterprises should carefully choose according to their own situation and avoid blindly following the trend if they plan to get involved in offshore
wind power and related industries.
For oil and gas enterprises, offshore wind power may only be an alternative new
energy technology, but low-carbon transformation has become a “required question” for these enterprises. Achieving carbon neutrality means that we should greatly
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reduce carbon dioxide emissions to ensure that the level of carbon emissions is basically equal to the carbon sink capacity, which will bring about a series of deeper
changes in economic structure, industrial structure and energy structure. For example,
terminal departments such as industry, transportation and construction will realize
high electrification, and fields that are difficult to electrify, such as heavy trucks,
large vessels and large aircraft, may need to use hydrogen fuel or alcohol ether
fuel as the driving force. Therefore, oil and gas enterprises need to see this situation clearly, plan for the situation, respond to the situation and take advantage of
the situation. Combined with the development trend of technology at home and
abroad and the characteristics of oil and gas industry, the following three technologies and fields worthy of attention by oil and gas enterprises were put forward. ➀
Carbon capture, utilization and storage (CCUS) technology, including carbon dioxide
capture, oil displacement and storage projects, and production project of chemical
products with carbon dioxide as raw material. ➁ Green hydrogen technology. Petrochemical enterprises have the natural advantages of pipeline hydrogen transmission
and construction of fueling/hydrogen fueling stations, and it is suggested to arrange
around green hydrogen chemical industry, hydrogen storage and transportation, and
hydrogen fuel cells. ➂ Methanol production from green hydrogen (also called “liquid
sunshine”) technology. It can not only solve the problems of large-scale storage and
long-distance transportation of green hydrogen, but also become an important path
to net zero emission. Among the above technologies, the latter two technologies are
highly compatible with offshore wind power development. At present, wind power
development enterprises generally do not have the ability to put into production on
a large scale, and it is suggested that the oil and gas industry should pay attention to
these technologies.
References
Global Wind Energy Council (GWEC). OREAC: 1,400 GW of offshore wind is possible by 2050,
and will be key for green recovery! [N/OL]. https://gwec.net/oreac-1400-gw-of-offshore-windis-possible-by-2050-and-will-be-key-for-green-recovery/. Accessed 08 July 2020
Hang Y, Qiang L, Guang XY (2020) Analysis on the strategic goal of net zero carbon emission of
European oil and gas companies in 2050. Int Pet Econ 28(10):39–44
Ke JJ (2020) Under the target of 2060 carbon neutrality, enterprises need to actively transform to
avoid elimination. Econ Guide Sustain Dev 20(11):14–16
Li ML (2021) Short supply of construction ships restricts the decline of industry costs—global
offshore wind power encounters a new "bottleneck". China Energy News 2021-01-04(7)
Liang GL (2020) Promoting the transition of hydrogen production from “grey hydrogen” to “blue
hydrogen” and “green hydrogen”. China Energy News 2020-05-25(12)
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Ling L (2021) The “three barrels of oil” and other large oil central enterprises have recently launched
carbon neutral planning to transform to the field of new energy—how many are the oil enterprises’
chances of winning by laying out new energy. China Energy News 2021-01-25(2)
Nan S (2021) The layout of offshore wind power bases calls for top-level design—it is suggested
to strengthen the national overall planning in terms of resources, planning and policies to form
an orderly development pattern. China Energy News 2021-01-18(10)
Yang MH (2020) “Liquid sunlight” makes “carbon neutralization” a step closer. China Science
Daily 2020-11-11(3)
Development Trend and Prospect
of Hydrogen Energy Industry in China
Jishi Zhao, Zier Jin, Juan Gong, Xianzhi Dai, Ziyuan Wang,
Zhongjun Zhang, and Wenfeng Chen
1 Development Status of Hydrogen Energy Industry
in China
1.1 Green Energy Development Is Promoted Globally,
and the Hydrogen Energy Market Has Broad Prospects
To ensure energy security and cope with climate and environmental changes, the
trend of clean fossil energy, large-scale clean energy, multi-energy integration and
re-electrification of terminal energy is accelerating, and the transition of energy
structure to green and low-carbon has become the mainstream consensus. Hydrogen
energy is characterized by low carbon, cleanness and flexibility, which is considered
as the important way to realize the strategy of carbon neutrality in the future, and
is favored by major countries and regions around the world. According to incomplete statistics, more than a dozen countries and regions in G20 have developed
the layout of hydrogen energy industry by the end of 2020, among which nine
countries and regions have issued the development strategy of hydrogen energy
industry, and seven countries and regions have carried out the pilot demonstration of
hydrogen energy application. Taking Germany as an example, it is pointed out in the
National Hydrogen Energy Strategy that hydrogen energy plays an irreplaceable role
in achieving the goal of carbon neutrality in Germany. It is necessary to vigorously
develop hydrogen production from renewable energy and electrolysis of water, and
use green hydrogen in fields where it is difficult to reduce emissions, such as industries and transportation. Therefore, Germany will invest at least 9 billion Euros in the
J. Zhao (B) · Z. Jin · J. Gong · X. Dai · Z. Wang · Z. Zhang
Foshan Institute of Environment and Energy Technology, Foshan, China
J. Zhao · Z. Wang · W. Chen
R&D Center of Hydrogen Energy Standardization, Yunfu, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_14
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near future to build hydrogen energy supply chain and application demonstration,
and strive to become a global leader in green hydrogen technology.
China’s deep implementation of energy revolution and vigorous development of
renewable energy will push the development of hydrogen energy industry into a new
stage. China has made a solemn commitment to “strive for the peak of carbon dioxide
emissions before 2030 and strive to achieve carbon neutrality before 2060”. It also
proposed that by 2030, China will lower its carbon dioxide emissions per unit of GDP
by over 65% from the 2005 level, increase the share of non-fossil fuels in primary
energy consumption to around 25%, and bring its total installed capacity of wind
and solar power to over 1,200 GW, which will help China achieve carbon peak as
soon as possible. It can be seen that with the continuous acceleration of the green and
low-carbon development at the national level, the development of China’s renewable
energy will usher in a great leap. The large-scale grid connection of renewable energy
and electricity will bring important development opportunities for the whole green
hydrogen industry chain. The coupling development of hydrogen energy and electricity will be an important guarantee for the large-scale application and consumption
of renewable energy in the future. In addition, the hydrogen energy industry will
also become an important way to realize industrial transformation and upgrading
and high-quality economic development in areas rich in renewable resources. In a
word, hydrogen energy will play an important role in China’s green and low-carbon
development, and has broad development prospects.
1.2 The Improvement of the Policy and Standard System
Drives the Rapid Development of the Industry
Since the 13th Five-Year Plan, the National Innovation Driven Development Strategy
Program, National Science and Technology Innovation Plan during the 13th FiveYear Plan, A Guideline on Emerging Sectors of Strategic Importance During the 13th
Five-Year Plan Period, and the Action Plan for Innovation in Energy Technology
Revolution (2016–2030) have been issued at the national level, which support the
healthy and sustainable hydrogen energy industry, accelerate the independent technological innovation, make the orientation of industrialization clear, and promote
the rapid development of the hydrogen energy industry. In 2020, Energy Law of
the People’s Republic of China (exposure draft), Notice on Developing Demonstration Application of Fuel Cell Vehicles, New Energy Vehicle Industry Development
Plan (2021–2035) and China’s Energy Development in the New Era were successively released, which further clarified the state’s support for the development of
hydrogen energy industry. In 2021, hydrogen energy, as a strategic emerging industry,
officially included in the Section II “Forward-looking Planning for Future Industries” of Chapter IX “Developing and Expanding Strategic Emerging Industries”
of the Outline of the 14th Five-Year Plan (2021–2025) for National Economic and
Social Development and the Long-Range Objectives Through the Year 2035 of the
Development Trend and Prospect of Hydrogen Energy …
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PRC (Draft), which shows that China attaches importance to new industries such
as hydrogen energy, and hydrogen energy is bound to usher in a period of rapid
development of strategic opportunities.
With the rapid development of China’s hydrogen energy industry, since
2017, a complete industrial chain of “production-storage-transportation-refuelingapplication” of hydrogen energy has been formed, with the initial foundation for
large-scale development. Local governments have high enthusiasm to promote the
development of hydrogen energy industry, and favorable industrial policies are
frequent. By the end of 2020, dozens of local governments in China have issued
plans/implementation plans/action plans related to hydrogen energy development,
and planned to build over 1,000 hydrogen refueling stations, hundreds of thousands
of fuel cell vehicles (FCVs), with trillions of output value (Fu et al. 2020). The policy
of FCVs model city clusters in 2020 shows the enthusiasm of governments in China
for developing hydrogen energy industry. It is reported that 19 city clusters submitted
application materials on time, basically covering other inland provinces, cities and
autonomous regions except Xinjiang, Tibet, Heilongjiang, Yunnan, Guangxi, Gansu
and Hainan. From the perspective of regional distribution, Beijing-Tianjin-Hebei,
Yangtze River Delta, Pearl River Delta, Chengdu-Chongqing, Shandong and Wuhan
have obvious first-mover advantages. The radiation driving effect and attraction to
advantageous enterprises have gradually become prominent, and the agglomeration
effect has initially appeared.
We have actively promoted the standardization of hydrogen energy technology and
strengthened the leading role of standards in technological innovation and industrial
development. In April 2020, the Key Points of Standardization of New Energy Vehicles in 2020 issued by the Ministry of Industry and Information Technology clearly
proposed to promote the development of key standards for fuel cells and give play to
the leading role of standards in technological innovation and industrial upgrading.
In China, there are 12 current national standards and 2 industry standards in the field
of hydrogen energy safety, 4 current national standards, 3 industry standards and 1
land standard in the field of gas quality testing, 2 current national standards and 3
industry standards in the field of gas purification, 33 current national standards in
the field of hydrogen storage vessels, 19 current national standards in the transportation field, 8 current national standards in the field of hydrogen refueling stations, 8
current national standards in the field of fuel cell systems. China is speeding up the
revision of standards in the field of hydrogen energy and fuel cells, and perfecting the
standards and regulations system of hydrogen energy utilization. On June 2, 2020,
the State Administration of Market Supervision officially issued GB/T 38914-2020
Evaluation Method for Lifetime of Proton Exchange Membrane Fuel Cell Stack in
Vehicle Application, GB/T 28816-2020 Fuel Cell Terminology and GB/T 38954-2020
Hydrogen Fuel Cell Power System for Unmanned Aerial Vehicles. On June 12, 2020,
the Ministry of Housing and Urban–Rural Development issued a public consultation on the National Standards Technical Code for Hydrogen Refueling Station
(draft for partial revision) and Code for Design and Construction of Filling Station
(exposure draft), and completed the approval and review work at the end of the
year. In September, 2020, Guangdong Province released the roadmap of the first
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national hydrogen energy industry standard system planning. In December 2020, the
national technical standard innovation base (hydrogen energy) successfully passed
the acceptance review of the State Market Supervision Administration, which is of
great significance to the construction of China’s hydrogen energy technical standard
system. China Hydrogen Energy Alliance released the world’s first “green hydrogen” group standard, and established quantitative standards and evaluation systems
for low-carbon hydrogen, clean hydrogen and renewable hydrogen.
1.3 Breakthroughs Have Been Made in Technological
Independent Innovation, and the Localization Is
Accelerating
Independent control of key core technologies is an important guarantee for the
sustainable and high-quality development of China’s hydrogen energy industry. In
recent years, China has attached great importance to the independent innovation and
industrialization of hydrogen energy technology, and great breakthroughs have been
made in key technologies, with remarkable achievements in the transformation of
technological achievements.
Significant technological progress has been made in systems, storage and transportation. In terms of hydrogen production, China’s large-scale coal hydrogen
production and natural gas hydrogen production technology and equipment are
leading the world. Alkaline electrolyzer technology has reached the international
advanced level, and the cost of electrolyzer is much lower than that of developed
countries. The technology of proton exchange membrane electrolyzer has made
remarkable progress, but it still keeps up with the international advanced level, and
the technology still needs to be broken through and the cost needs to be reduced.
Solid oxide electrolytic cell technology is in the stage of experimental verification.
In terms of vehicle-mounted hydrogen storage containers, China’s three-type bottle
technology is mature and has achieved full localization, and the four-type bottle has
reached the level of mass production. However, because most of the key materials
such as carbon fiber are imported, the cost of hydrogen storage bottles is higher than
that of similar products abroad. In terms of storage and transportation, China still
focuses on the transportation of 20 MPa compressed hydrogen, and the transportation technology and equipment of liquid hydrogen, solid-state hydrogen storage and
50 MPa compressed gas have made remarkable progress, but the gap with the international first-class level is obvious. The performance indexes of 98 MPa domestic fixed
hydrogen storage vessels and 45 MPa (above) fixed hydrogen storage bottles have
basically reached the international advanced level. In terms of hydrogen refueling
station technology and equipment, 45 MPa diaphragm and liquid-driven hydrogen
compressors have the industrialization ability. Breakthrough has been made in the
core technology of 90 MPa hydrogen compressor. The whole hydrogenation machine
Development Trend and Prospect of Hydrogen Energy …
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has been developed domestically, but the key components such as valves and flow
meters still depend on imports.
The localization of fuel cell stacks and systems has been accelerated, and the cost
has dropped rapidly. The integration level of fuel cell stack and system in China has
been greatly improved, and it is developing towards high power, high integration
and low cost. Many fuel cell manufacturers have introduced stacks and systems
of 100 kW and above, and the cost of stacks has dropped rapidly. Fuel cell stack
enterprises such as Guangdong Nation-Synergy Hydrogen Power Technology Co.,
Ltd. have released new products successively, and the stack price has dropped to
1–2 RMB/W. According to statistics, the performance of fuel cell stacks in 2020
has been greatly improved compared with 2015. The stack power was increased by
37%, the power density of graphite plate and metal plate stacks was increased by
47 and 50%, the lifetime of graphite plate and metal plate stacks was increased by
300 and 67%, and the system integration capability was greatly enhanced. In terms
of key materials, breakthrough in technology has been made in recent years, but
there is still a big gap between the overall level and the advanced level in the world,
and the products are highly dependent on the foreign technology. The technical
level of proton exchange membrane and gas diffusion layer (carbon paper) has been
significantly improved, but the industrialization still needs to be broken through. The
catalyst has been mass-produced, but it still leave behind the international advanced
level. In terms of core components, rapid progress on the localization of membrane
electrodes, air compressors and bipolar plates has been made, and the gap with the
international advanced level is quickly narrowing. In 2020, the cost dropped by more
than 30% year on year. The technology of hydrogen circulation pump is following,
but domestic enterprises actively promote technical research and have made some
progress.
The development capability in terminal application field is improving and product
performance is improved continuously. Urban buses and logistics vehicles are still the
most important fuel cell terminal products at present, and the performance of vehicles
such as cold start and battery life continues to improve. Terminal applications have
developed rapidly, and some enterprises have successively launched FCVs, trucks
and emergency power supply vehicles. As for fuel cell vessels, China has launched
marine fuel cell systems with independent intellectual property rights. Solid oxide
fuel cell (SOFC) has attracted much attention, and its technology needs to be broken
through. In 2021, the National Key Research and Development Plan started the key
project of “hydrogen energy technology”, and the key technologies of tubular solid
oxide fuel cell power generation unit and stack were included in the common key
technology category, which is one of the 19 guiding tasks. At present, China has the
largest supplier of ceramic electrolyte membrane in the world, and 5 kW SOFC stack
and system have been successfully developed.
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1.4 Infrastructure Construction Is Accelerated
and the Diversified Application of Terminals Is Promoted
With the sustained and rapid development of hydrogen energy industry, the hydrogenation infrastructure construction has obviously accelerated in China. By the end
of 2020, more than 110 hydrogen refueling stations had been built in China, and
another 100 hydrogen refueling stations are under construction or in the stage of
filing and planning. Among them, 16 were built and 12 were put into operation in
Foshan; 9 were built and 6 were put into operation in Shanghai; 4 were built in
Beijing; 3 were built in Guangzhou, Chengdu and Wuhan, respectively. According
to the hydrogen energy development plans issued in various places, the construction
of hydrogen refueling station in China will maintain a high-speed growth trend in the
future. The mode of building stations is diversified, and Tongji-Xinyuan Hydrogen
Refueling Station built in Dalian is the first 70 MPa hydrogen refueling station for
hydrogen production by wind-solar hybrid power generation in China. Shanghai
Yilan Hydrogenation and Charging Station is the first hydrogen refueling station
in China to supply hydrogen through pipelines. Foshan Zhangkeng Oil-Hydrogen
Station is the first comprehensive energy supply station for oil, hydrogen and electricity in China. With the improvement of localization rate of key equipment such as
hydrogen storage container, compressor, hydrogen dispenser and safety system, the
construction cost of hydrogenation station is decreasing year by year.
FCVs are the key areas of demonstration and promotion of hydrogen energy in
China, and priority development fields. At present, the promotion results are remarkable, and they are widely concerned by countries all over the world. Relying on
major international events such as Beijing Olympic Games and Shanghai World
Expo, China has accumulated rich experience in FCVs demonstration, and gradually
explored a promotion path of FCVs with Chinese characteristics, which is mainly
based on commercial vehicles. From 2016 to 2019, the production and sales of FCVs
in China increased steadily. In 2019, production and sales reached 2,831 and 2,737
respectively. In 2020, affected by the COVID-19, the production and sales decreased
significantly year on year, with the production and sales reaching 1,199 and 1,177
respectively (see Fig. 1). By the end of 2020, the number of FCVs in China was close
to7,400, mainly medium-sized trucks and large-sized buses, with a cumulative operating mileage of nearly 100 million kilometers. More than 1,000 FCVs have been
run in Shanghai, Shenzhen and Foshan. However, there is still a big gap between
China’s forward development capability of FCVs and that of developed countries,
which needs to be further improved.
With the continuous expansion of FCVs demonstration and application scale, the
technology maturity and reliability have been gradually verified, and the popularization and application have begun to expand to other transportation fields such as trucks,
special vehicles, forklifts, vessels, unmanned aerial vehicles (UAVs), and fields such
as standby power supply, emergency power supply, energy storage, chemical industry
and metallurgy. Since the second half of 2020, the development of hydrogen energy
trucks in China has attracted much attention. Vehicle manufacturers, fuel cell system
Development Trend and Prospect of Hydrogen Energy …
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Fig. 1 Production and sales of hydrogen FCVs in China from 2016 to 2020
enterprises and application market players have worked together to promote the
demonstration and application of trucks. According to incomplete statistics, there
are hundreds of orders of trucks. In terms of vessels, the fuel cell yacht “Lihu”, led
by Dalian Maritime University, passed the sea trial, marking China’s key step in the
practical application of fuel cells in ship power. In the field of chemical industry, the
world’s largest demonstration project of hydrogen production, energy storage and
comprehensive application by solar and electrolysis of water is started in Ningdong
Energy Chemical Industry Base (Ningxia), which is the first project of introducing
green hydrogen into China’s coal-to-olefin industry. In metallurgy, HBIS signed a
contract with Tenova to construct a green hydrogen direct reduction iron plant. In
the past two years, the diversified application of hydrogen energy in China has made
positive progress, the technical conditions for industrialization have been preliminarily met, and it is urgent to promote the exploration of commercialization path. At
present, exploring the market-oriented mechanism of popularization and application
has become an important task, secondly only to technological innovation.
1.5 Energy Giants Continue to Promote the Layout
and Strengthen the Industrial Competitive Advantage
With China’s goal of achieving carbon peak by 2030 and carbon neutrality by 2060,
large central enterprises, especially energy enterprises, are facing the urgent need of
low-carbon transformation, and hydrogen energy is one of the important directions
of its transformation. In recent years, central enterprises have quickly entered the
hydrogen energy industry and continued to exert their strength, gradually becoming
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an important force to promote industrial development. At present, the central enterprises involved in hydrogen energy industry in China mainly include energy enterprises, energy equipment manufacturing enterprises, iron and steel enterprises, automotive enterprises and so on. It can be known that central enterprises accelerate their
hydrogen energy business layout mainly from the following aspects by sorting out
relevant information.
Central enterprises increase strategic cooperation with industrial developed areas
in hydrogen energy. With the frequent support policies of national and local governments for hydrogen-related industries, China’s hydrogen energy industry has entered
the eve of large-scale development. Central enterprises have accelerated the business
layout of hydrogen energy industry chain, and actively striven for strategic cooperation with industrial developed areas such as the Pearl River Delta, Yangtze River
Delta and Beijing-Tianjin-Hebei to seize the highland of industrial development.
Among them, SPIC signed an agreement with the people’s Government of Beijing
City to carry out strategic cooperation around hydrogen energy application, green
electricity entering Beijing and energy innovation. Sinopec (Guangdong) signed a
strategic cooperation agreement with Guangzhou Huangpu District People’s Government and Development District People’s Government, and planned to build more than
20 “five-in-one” integrated energy supply stations for hydrogen refueling, oil refueling, charging, non-oil and photovoltaic power generation. Faw Jiefang Automotive
Company cooperated with the People’s Government of Foshan to build Faw Jiefang
Southern New Energy Base in Gaoming District, Foshan, focusing on R&D and
production of FCVs.
Central enterprises strengthen strategic cooperation with leading enterprises of
hydrogen energy industry chain. In recent years, relying on their own advantages
in technology and resources, central enterprises have actively laid out the hydrogen
energy industry, and have formed a certain technological accumulation and industrial scale. From the perspective of the development of hydrogen energy industry,
enterprises seek cooperation with the leading enterprises in hydrogen energy industry
chain at home and abroad, enhance R&D and innovation capabilities, broaden business scope, make effort to create industrial ecology, and make transition to industrial
formation and market development. For example, China Baowu Steel Group actively
promoted the development of hydrogen energy industry, carried out strategic cooperation on hydrogen energy with REFIRE, SAIC Motor Corporation Limited (SAIC
Motor) and New Energy Technology Development Co., Ltd., and successfully operated ten hydrogen fuel cell semi-trailer tractors. In 2020, China’s vehicle and system
enterprises cooperated with foreign vehicle companies such as Toyota and Hyundai
to jointly carry out research and development of fuel cell systems and build an
ecosystem of hydrogen energy industry.
Central enterprises promote the construction of hydrogen energy infrastructure
and broaden the application fields of hydrogen energy terminals. In terms of hydrogen
energy infrastructure construction, with abundant by-product hydrogen resources
and complete terminal energy supply network, Sinopec has obvious advantages in
infrastructure construction fields such as hydrogen refueling stations. In the past
two years, Sinopec has increased its hydrogen supply capacity and accelerated the
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construction of hydrogen refueling stations. According to reports, by the end of 2020,
Sinopec has built a high-purity hydrogen supply capacity of about 3,000 tons per
year in Beijing, Guangdong and Shanghai, and it is laying out a renewable energy
hydrogen production project. Ten oil-hydrogen hybrid hydrogen refueling stations
have been built. In 2020, central enterprises actively expanded the application field of
hydrogen energy. Among them, the first set of 20 kW SOFC power generation system
independently developed by China Energy Investment was successfully tested. China
Baowu Steel Group explored the development of hydrogen metallurgy technology
while building hydrogen energy supply chain.
2 Main Problems and Related Suggestions on Developing
Hydrogen Energy in China
2.1 The Problem of Industrial Homogenization Is More
Prominent, and It Is Necessary to Keep Cold Thinking
in the Booming of Hydrogen Energy
China attaches great importance to the development of hydrogen energy industry,
with frequent favorable policies, intensive introduction of local plans and ready
enterprise layout. Various hydrogen energy projects, “hydrogen energy industrial
parks” and “hydrogen energy towns” have mushroomed into the industrial market
and become the “hot spot” of competing development everywhere. The absence of
the top-level design of the national hydrogen energy industry, the local government
pay too much attention to the development of the whole industrial chain, mainly
focusing on the research and development of fuel cells and the layout of FCVs cause
the serious industrial cluster and the gradual emergence of industrial homogenization.
In addition, there is a tendency of “going its own way with low-level redundant
development”, and the industrial ecology is “relatively closed”. However, China’s
hydrogen energy industrialization is still in its initial stage, and there are bottlenecks
in core key technologies and hydrogen consumption economy. It is difficult to fully
release the market application demand in a short time. Therefore, once the local
planning is implemented, it is likely to face the risk of overcapacity, which is not
conducive to the healthy and sustainable development of the industry.
Therefore, it is urgent for us to systematically and scientifically make plans for
China’s hydrogen energy industry, develop its layout according to local conditions,
and keep cold thinking in the booming of hydrogen energy. At the national level,
firstly, relevant departments should guide the differentiated layout of local industrial planning through top-level planning and policy standards as soon as possible.
Secondly, they should strengthen industrial monitoring and early warning, reasonably guide industrial market expectations, and avoid redundant construction. At the
local level, on the one hand, governments should target and focus on the layout
of advantageous industries based on their own resource, and should not “give up
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small industries for overall lay out”; on the other hand, local governments should
practice the concept of synergy for the development of hydrogen energy, promote
the construction of an industrial ecosystem with regional synergy, upstream and
downstream linkage and industrial openness and integration, and strive for “working
together for the regional development”.
2.2 The Core Technology Level Still Needs to Be Improved,
and It Is Urgent to Speed up the Cost Reduction
of the Industrial Chain
Hydrogen energy and fuel cell are cutting-edge technology industries which integrate
cutting-edge materials, advanced technology and precision manufacturing, and have
both high added value and high threshold. In recent years, major breakthroughs have
been made in technological independent innovation. But we must clearly see that
some core key technologies, key materials and equipment manufacturing in China
have not been independently controllable, and leave behind the world advanced
level (Wang et al. 2020). For example, the large-scale production of catalyst and
proton exchange membrane has not yet achieved, and the core technical indicators
are relatively backward. The gas diffusion layer (carbon paper) basically depends
on imports. Core components such as air compressor, hydrogen circulation pump
and metal bipolar plate are following others, as well as high-efficiency and lowcost storage and transportation technologies such as liquid hydrogen and pipelines,
hydraulic and ionic hydrogen compressors, hydrogen refueling nozzle. The forward
development level of FCVs lags behind international first-class enterprises such as
Toyota and Hyundai. In addition, foreign enterprises that have mastered core technologies and patents have not obtained considerable economic returns after investing
in research and development for many years, which are facing the dilemma that the
cost of industrial chain needs to be diluted urgently. At present, the development
focus of hydrogen energy industry in all parts of China tends to expand the market
of FCVs, and it is easy to fall into the embarrassing situation of “making wedding
dress for others”.
Therefore, in the implementation period of the policy of “replacing subsidies
with rewards”, China should speed up the key technology research of the whole
industrial chain, improve the technical level and autonomy of hydrogen energy field,
and promote cost reduction. In terms of hydrogen preparation, we should carry out
the research on clean, efficient, low-cost and diversified hydrogen production technology in a manner appropriate to local conditions, focusing on breaking through the
hydrogen production technology of large-scale renewable energy and electrolysis of
water. In terms of hydrogen storage and transportation, we should focus on developing high-pressure gaseous storage and transportation technology of 30 MPa and
above, and increase technical research on cryogenic low-temperature liquid hydrogen
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technology and storage and transportation equipment, large-capacity pipeline transportation, hydrogen doping in natural gas pipelines, and new solid metal storage and
transportation. In terms of hydrogen refueling, we should focus on promoting the
autonomy of hydrogen refueling machines and 90 MPa hydrogen compressors. In
terms of fuel cells, we should focus on basic materials such as carbon fibers and
adhesives, core technologies of key components such as humidifiers, gas diffusion
layers and hydrogen circulation pumps, and their batch manufacturing technologies,
as well as integration technologies of long-life, high-performance and low-cost fuel
cell system. In terms of hydrogen energy application, we should focus on breaking
through the transportation field, especially the popularization and application technology of the commercialization of FCVs, strengthen the development of hydrogen
energy application technology in the non-road transportation field, and study peak
shaving and frequency modulation energy storage technology of hydrogen energy
and renewable energy, domestic commercial high-temperature SOFC technology,
and coal metallurgy technology with hydrogen replacing coal.
2.3 The Demonstration Application Scenario Still Needs
to Be Expanded, and It Is Urgent to Explore Diversified
Business Models
As a whole, the hydrogen energy industry is in the period of development and cultivation. Due to the small scale of the industry, immature technology, dependence
on imports of core equipment, and insufficient demand in the application market,
the costs of hydrogen supply, storage and transportation, operation and maintenance
of hydrogen refueling stations, and purchase of fuel cell terminal products are all
high. In addition, there is still a lack of scalable and sustainable synergistic business
models, which leads to weak economy of the industrial chain and lack of market
competitiveness. At present, the demonstration application of hydrogen energy in
China is mainly concentrated in the public transportation field, which is dominated
by the government and has lower profit demands. As a result, it is relatively slow
to explore the market application and business models of FCVs. The demonstration
operation of trucks with advantages in fuel cell technology route still needs to be
expanded. At the same time, application fields such as fuel cell rail transit, aerospace,
distributed power generation, and cogeneration have preliminary industrialized technical conditions, so it is urgent to open up demonstration application scenarios and
promote the exploration of commercialization paths.
Therefore, it is suggested that under the background of “achieving carbon peak
by 2030 and carbon neutrality by 2060”, China should focus on constructing “large
hydrogen energy” application scenarios in areas that are difficult to reduce carbon
emissions, fully tap the market application potential of hydrogen energy in energy
storage, chemical industry, construction, vessels, and rail transit, and scientifically
according to the principles of economy, applicability, safety and efficiency, so as
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to seek a sustainable development path. For example, in areas with advantages of
renewable energy, we should carry out scene technology demonstrations such as
large-scale hydrogen production from renewable energy, hydrogen doping in natural
gas pipelines, and peak shaving of power grids, and explore a new model of integrated application of wind and solar power generation plus hydrogen energy storage.
We should carry out the demonstration of coupling utilization of hydrogen energymetallurgy and chemical industry, and explore the green alternative application of
low-cost and clean hydrogen source in traditional industries such as iron and steel,
refining and metallurgy. In areas with large demand for hydrogen energy terminals, we should support and encourage the construction of hydrogen energy trucks,
and oil, gas and hydrogen, and the construction and operation mode of hydrogen
production in stations and hydrogenation mother stations. In key industrial parks,
ports and tourist attractions, we should carry out demonstration applications of fuel
cell distributed power supply and fixed power stations, and explore and promote
demonstration applications of hydrogen energy in rail transit, vessels and UAVs.
2.4 The Hydrogen Energy Supply System Still Needs to Be
Improved, and It Is Urgent to Speed up the Loosening
of Policies
Hydrogen energy supply includes hydrogen production, storage, transportation and
filling. Hydrogen has been included in the management category of hazardous chemicals because of its flammable and explosive physical and chemical characteristics.
The standard and legal system is not perfect, and there are institutional obstacles in
the establishment, examination, implementation and operation of related projects. In
particular, the construction of large-scale centralized hydrogen production projects
and on-site hydrogen production refueling stations is subject to the restrictions of
landing chemical parks, and many projects are deadlocked and stagnated. Taking
Foshan as an example, the shortage of hydrogen sources has become an industry
problem. China has not been quantified a series of standards such as high-pressure
gaseous hydrogen transportation standards, liquid hydrogen transportation standards,
pipeline hydrogen transportation standards and related national safety technical specifications, and it is difficult to reduce cost due to the low efficiency of hydrogen storage
and transportation. The department in charge of hydrogen refueling station and the
application management measures are still unclear, and it is difficult to examine and
approve of constructive land management. Lack of scientific and effective top-level
design and support system, rude approach has caused that the construction speed
of hydrogen energy supply guarantee system in China lags behind the industrial
development demand seriously.
Therefore, China should adapt to the new development trend of hydrogen energy
industry, speed up the innovation of mechanism and system, and urgently break
down the restriction barriers of administrative regulations. First, it is suggested to
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formulate the management mechanism of hydrogen production park, loosen policies, and explore the construction mechanism of integrated hydrogen production
and refueling station. Second, we should loosen policies of the pressure grade limit
for 20 MPa hydrogen long-tube trailer transportation, pilot high-pressure gaseous
hydrogen transportation of 30 MPa and above, promote the development of liquid
hydrogen storage technology and the perfection of transportation standards and regulations, and take the FCVs model city clusters as an opportunity to promote the
demonstration of liquid hydrogen storage and transportation. Third, we should clarify
the competent department of hydrogen refueling station, and formulate institutional
mechanisms at the national level on the approval process and application management measures of hydrogen refueling station construction as soon as possible. It is
allowed to build hydrogen refueling stations, grant business licenses and support
foreign legal operations on non-commercial land such as industrial and public facilities land. Fourth, we should bring hydrogen into the energy management system and
speed up the formulation of hydrogen energy management measures with reference
to the natural gas management regulations.
3 Some Research and Judgment on the Development
Prospect of Hydrogen Energy Industry During the 14th
Five-Year Plan Period
3.1 Hydrogen Energy Industry Ushers in the Critical Point
of Market Development
First, we have independent and controllable core technical foundation. After years of
exploration and research, the roadmap of core key technologies of China’s hydrogen
energy industry has become clear. The national FCVs demonstration and application
project to be launched soon clearly proposes to support the independent innovation and industrialization of eight components, such as stack, membrane electrode,
bipolar plate, proton exchange membrane, catalyst, carbon paper, air compress and
hydrogen circulation system, by means of “replacing subsidies with awards”. Therefore, during the 14th Five-Year Plan period, it is expected that the core technologies
of the whole vehicle and system and the eight major component products can be
controlled independently. Among them, the performance parameters of the whole
vehicle and system, stack, membrane electrode, bipolar plate and air compressor are
expected to keep pace with the international advanced level, and products such as
proton exchange membrane, catalyst, carbon paper and hydrogen circulation system
are paralleling to the international advanced level. At the same time, the industrialization level of key equipment precision, production process flow, raw material
performance and localization rate in the field of hydrogen energy will be further
improved, basically realizing independent control.
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Second, we have the economic foundation of decreasing costs. In the past two
years, thanks to the active guidance and strong support of the national and local
governments, industry-university-research institutions in the industry have carried
out all-round cooperation, complemented each others’ advantages, and joined forces
to overcome technical difficulties and accelerate the localization process, thus greatly
reducing the cost of core products. At present, in terms of hydrogen production,
China’s alkaline electrolyzer technology leads the international advanced level, and
the cost of electrolyzer has dropped to about 7,000 RMB/kW, which is only half
or even lower than that of developed countries. As for fuel cell, the integration
level of stack and system in China was greatly improved in 2020, and it developed
towards high power, high integration and low cost. Many fuel cell manufacturers have
launched stacks and systems of 100 kW and above, which strongly responded to the
questions of “low power and limited application scenarios”. At the same time, the
cost of fuel cells is also falling rapidly. Fuel cell enterprises such as Sinosynergy have
released new products successively. The lowest price of the stack has dropped to less
than 2,000 RMB/kW. The goal of “1,000 RMB/kW” is just around the corner. In terms
of core components, the localization of membrane electrodes, air compressors and
bipolar plates has made rapid progress, and the gap with the international advanced
level is rapidly narrowing. In 2020, the cost will drop by more than 30% year on year.
During the 14th Five-Year Plan period, the hydrogen energy industry will enter a new
stage of the overall layout development of the country, the application scenarios and
scale will be continuously expanded, and the technological upgrading and iteration
will be accelerated. At the same time, the increase of production scale, technology
maturity and localization rate will accelerate the cost reduction and clear the obstacles
for the commercialization and marketization of hydrogen energy industry.
Third, we have the foundation of constantly improved policy environment. In
2020, China made a solemn commitment to “achieving carbon peak by 2030 and
carbon neutrality by 2060”, which demonstrates the role of the “global community
of shared future” as a big country. As the largest developing country and industrialized country in the world, it is more difficult for China to achieve the goal of
carbon neutrality in short time, facing many challenges. Under this background,
China is gradually introducing favorable policies and major demonstration projects
for developing hydrogen energy storage to exert the clean, low-carbon and flexible
characteristics of hydrogen energy, which is taken as a bridge and link for the transformation and integration of various energy, and has become one of the important
solutions for deep decarbonization. The 14th Five-Year Plan period is crucial for
China to achieve the goal of carbon peak and carbon neutrality. Under the pressure
of the carbon emission goal, hydrogen energy is expected to usher in a new round of
development boom and accelerate into the mature marketization development stage.
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3.2 Leading Enterprises of Hydrogen Energy Reshape
the Future Industrial Pattern
In the future, the leading enterprises with technological, capital and resource advantages will occupy a dominant position in the market, reshape the industrial structure, and change the current development trend of numerous enterprises, uneven
scale, weak competitiveness and disorderly expansion. Under the background of
China’s goal of achieving carbon peak by 2030 and carbon neutrality by 2060,
large central enterprises, especially energy enterprises, are facing the urgent need of
low-carbon transformation, and hydrogen energy is one of the important directions
of its transformation. At present, China’s central enterprises involved in hydrogen
energy mainly include energy enterprises, energy equipment manufacturing enterprises, iron and steel enterprises and automobile enterprises, which have abundant
funds and excellent R&D teams. At the same time, they have absolute advantages
in upstream hydrogen resources, midstream storage, transportation and equipment
manufacturing and downstream customers, and have planned and laid out the entire
hydrogen energy industry chain, which are the leaders of China’s hydrogen energy
industry in the future.
New energy enterprises such as photovoltaics, wind power and hydropower have
laid out hydrogen energy industry, which provides support for the accelerated development of green hydrogen. Green hydrogen is the ultimate direction of the development of hydrogen energy industry in the future, and the premise that hydrogen
can help low-carbon development. In recent years, with the expanding scale of new
energy industry, the technology has been iteratively upgraded, the power generation
efficiency of renewable energy has been continuously improved, and the cost of electricity consumption has been greatly reduced. Taking photovoltaic power generation
(large photovoltaic power station) as an example, the initial investment of photovoltaic power station in China has dropped by more than 90% since 2007. In 2020,
the national average price of on-grid electricity dropped to 0.35 RMB/kWh, and the
lowest bid price (Tibetan Autonomous Prefecture of Hainan, Qinghai Province) was
0.2427 RMB/kWh. During the 14th Five-Year Plan period, the cost of photovoltaic
power generation is expected to drop by more than one third, which provides support
for the large-scale development of hydrogen production from renewable energy in
China. New energy enterprises have been deeply involved in renewable energy power
generation industries such as photovoltaic and wind power for many years, and have
the advantages and rich experience in research, development, production and utilization of renewable energy power generation equipment, which are the key forces to
promote the coupling development of hydrogen energy and renewable energy in the
future.
The 14th Five-Year Plan period is the critical point for China’s hydrogen energy
industry to enter the marketization development, which is characterized by the optimization and adjustment of market structure and the upgrading of industrial organization form. The cooperation situation among the leading enterprises in the industry
will become more prominent. Selecting the superior and eliminating the inferior,
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and mergers and acquisitions will become the norm, and the industry chain will
be continuously optimized and shuffled. The industry will be transformed from an
industry driven by local government to a new development pattern guided by government, led by enterprises and driven by market demand, forming a new situation in
which the whole country works together, and all localities complement each others’
advantages and develop synergistically. At that time, the leading enterprises in the
hydrogen energy industry will gradually be dominant, and its layout will determine
the future hydrogen energy industry pattern in China.
3.3 The Development Scale of Hydrogen Energy Industry
Has Exceeded the Trillion Level
Under the background of global active response to climate change, the development of
hydrogen energy has become the basic consensus of the international community, and
the development of global hydrogen energy industry will usher in great opportunities.
The development of China’s hydrogen energy and fuel cell industry has entered a
fast track. At present, a complete industrial chain of fuel cells and key materials,
power systems and core components, complete vehicles and infrastructure has been
initially formed, and the cost has dropped significantly. It is estimated that the average
cost of fuel cell stacks and systems in 2021 will drop by more than 50% compared
with that in 2018. In the future, China will accelerate the development of hydrogen
energy industry chain technology and equipment such as green hydrogen production,
storage, transportation and application, and gradually improve the hydrogen energy
supply guarantee network, thus promoting the development of hydrogen energy and
fuel cell technology chain and FCVs industry chain.
In addition, hydrogen energy and electric energy can be interchanged, interconnected and intercommunicated, which can effectively couple traditional fossil energy
and renewable energy systems. Its industrial scale application can be realized in
various fields such as industry, transportation, construction and energy, which can
improve the supporting capacity of hydrogen energy industry chain, and the development level of hydrogen energy industry will reach a new level. During the 14th FiveYear Plan period, the integration and development of hydrogen energy and renewable
energy will accelerate the construction of a diversified energy supply system based on
clean energy, gradually penetrate into other industries, and give birth to new products
and new formats such as hydrogen energy communities, hydrogen power stations
and energy internet. By the end of the 14th Five-Year Plan, it is expected that the
number of FCVs in China will reach 100,000, the number of hydrogens refueling
stations will over 1,000, and the hydrogen energy industry market scale will exceed
the trillion.
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References
Fu G, Zhao J, Gong J, Xiong H (2020) Review and prospect of hydrogen energy development at
home and abroad in 2019. China Energy 42(3):30–33
Wang Z, Zhao J, Jin Z (2020) Promote the hydrogen fuel cell automobile industry to break down
as soon as possible. China Energy News, 2020-05-11(10)
Development Prospect of Sustainable
Aviation Fuel
Shutong Liu
1 Background of Aviation Emission Reduction
Aviation industry is not only the fastest growing industry in the world, but also one of
the industries with the fastest growth rate of carbon emissions. In the past 20 years,
greenhouse gas (GHG) emissions from the global aviation industry have increased
more than two-fold, the emission growth of which is the highest in the transportation
industry. Aviation industry accounts for 2% of total carbon dioxide (CO2 ) emissions
in 2019, that is, 915 million tons of CO2 have been released into the air, and about
80% of CO2 emissions come from long-haul flights. It is predicted that by 2030, the
aviation industry will increase by at least 5% every year, and the demand for aviation
fuel may increase by about 1.5–3% every year. With the realization of the Sustainable
Development Goals (SDGs) in 2030, green economy has become a global common
goal, and the demand for green aviation has attracted the attention of the government,
enterprises, industry associations and the whole society.
1.1 China’s Aviation Industry is Growing Rapidly
In recent decades, China has been leading the growth of aviation industry, even during
the COVID-19. In 2019, the domestic market grew by 7.8%, which is the fastest
growth among the global domestic markets tracked by the IATA. It is estimated that
the annual growth of the domestic market will be 5.3% from 2018 to 2038, which
is significantly higher than the world average. If it were not for the COVID-19, the
Chinese market would become the largest market in the world by 2023.
S. Liu (B)
MotionECO, Shanghai, China
© China Economic Publishing House 2022
F. Cai et al. (eds.), Annual Report on China’s Petroleum, Gas and New Energy
Industry (2021), Current Chinese Economic Report Series,
https://doi.org/10.1007/978-981-19-6076-5_15
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Fig. 1 Aviation industry emissions from countries around the world in 2018
In addition, China’s aviation emissions are huge, although the per capita emissions
are very low. ICCT estimates that the amount of CO2 emitted by Chinese flights in
2018 was 94.9 million tons, accounting for 13% of the total global aviation emissions, ranking second in the world after the US (The International Council on Clean
Transportation (ICCT)). Some researchers predict that by 2050, the CO2 emissions of
China’s civil aviation may quadruple without restrictions, with a best-case increase
of 130% from 2015 levels. Assuming that 3.15 tons of CO2 is emitted per ton of Jet
A aviation fuel, China’s commercial demand for Jet A aviation fuel would be 30.16
million tons. With the announcement of General Secretary Xi Jinping to achieve
carbon neutrality by 2060, aviation industry will undoubtedly become an important focus of policy, technological development, social adjustment and international
cooperation. The aviation department has made substantial response to the formulation of the CORSIA, and countries have intended to reduce the carbon emission
intensity of aviation (See Fig. 1).
1.2 Global Aviation Emission Reduction Commitment
The emission reduction of aviation industry is driven by several factors. First and
foremost, the aviation industry itself promises to reduce emissions. Air China is a
member of IATA. In 2009, IATA admitted that civil aviation accounted for about 2%
of global GHG emissions, and some measures needed to be taken. The organization
has set three goals (International Air Transport Association (IATA)):
● From 2009 to 2020, the fuel efficiency increased by 1.5% annually
● From 2020, CO2 emissions from the aviation industry shall be limited to achieve
carbon–neutral growth
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Fig. 2 ATAG global aviation emission reduction prediction scenario 2050 (Air Transport Action
Group (ATAG))
● By 2050, the net emission of aviation CO2 will be reduced by 50% compared
with that in 2005 (See Fig. 2).
The aviation industry has also formulated the four pillars policy, which has formed
a way of aviation decarbonization on a global scale:
●
●
●
●
●
Implement the existing technology
Improve infrastructure
Improve the operational efficiency of aircraft
Utilize and develop new technologies, including sustainable aviation fuel (SAF)
Implement a single global market-based measure (GMBM) to offset the remaining
emission gap.
In addition, the EU involves the international aviation industry into the EU Emission Trading System (EU-ETS), and the global aviation industry begins to work with
ICAO to develop the CORSIA, aiming at limiting the international aviation emissions. For international aviation emissions that exceed the baseline of 2019 by 2021,
countries that voluntarily participate in the pilot phase will need to buy offsets or
demonstrate the use of low-carbon fuels with offset equivalent according to their
respective emission responsibility ratios. From 2024 to 2026, the mechanism will
be finalized as the first stage for voluntary participation (International Civil Aviation Organization (ICAO)). By 2027, all countries except the least developed countries, small island developing countries and landlocked developing countries will be
required to participate. Up to now, China has not explicitly stated its participation
in voluntary emission reduction in COSIA mechanism. In addition, in order to cope
with the regulation of aviation emissions by ETS in Europe, the aviation industry
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is envisaged to be included in China’s National Emissions Trading Plan (ETS), and
has been included in the pilot ETS in Shanghai since 2013.
2 Sustainable Aviation Fuel (SAF)
2.1 Global Production of Renewable Fuels and SAF
Sustainable aviation fuel (SAF)—sometimes called aviation biofuel or bio-aircraft
fuel, is a low-carbon fuel alternative for aviation industry. These non-petroleumbased aviation fuels are generally produced from bio-based raw materials, including
wastes, residues and end-of-life products, or fossil wastes, such as carbon monoxide,
waste plastics and tires.
The aviation industry can reduce emissions in the first stage through technological innovation, operation and infrastructure improvement, and efficiency promotion.
SAF is the most potential technical route for reducing emissions in aviation industry
at present because it does not need to change any existing infrastructure and the
aircraft engines are easy to use. According to the forecast of international aviation
industry, the emission reduction of SAF will account for 50% of the emission reduction target of aviation industry by 2050. At present, SAF has not yet achieved mass
production in the world, with a capacity of 200,000 tons only in Europe and the US.
However, many regions in the world have started to build SAF production facilities,
and the planned production capacity will reach 3.5 million tons by 2025. China, as
one of the largest aviation markets in the world, consumes about 30 million tons of
aviation fuel every year. China’s aviation industry may need to greatly increase the
application of SAF to ensure that the global aviation industry achieves its ambitious
goals. However, SAF global output cannot even meet China’s current aviation fuel
demand of 0.6%, let alone being an important part of the world demand. In addition,
there is only one small-scale plant in China—Sinopec Zhenhai Refinery, which can
meet the requirements of SAF production.
2.2 Global Application and Consumption Trend of SAF
Although SAF is regarded by many airlines and decision makers as an important
solution to reduce aviation GHG emissions, the global output of SAF still cannot
approach the potential demand. Besides, airlines hesitate to promise to purchase fuel
through take-off agreement in the short term, because the cost of SAF is four times
higher than that of ordinary aviation fuels. SAF is in a cleft stick now. On the one hand,
potential consumers are worried about price and supply, so they can’t promise to buy.
On the other hand, suppliers are worried that airlines may not buy their fuels. Like
alternative fuels for other modes of transportation such as road transportation, strong
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government policies are needed to create a higher level of competition environment
among airlines and encourage them to purchase and consume more SAF. Therefore, in
order to make this technology expand and meet the needs of airlines, it is necessary for
the government to have a clear direction and idea, so as to develop the supply–demand
relationship of SAF in various countries and around the world.
In addition to the competition among countries and airlines for SAF, aviation
industry, land transportation industry and shipping industry also compete for sustainable or renewable fuel. Although raw materials for renewable and sustainable fuels,
especially waste raw materials, are still limited, it can be known from the media that
new factories announce the production of SAFs every week. Global fuel producers
are collecting animal fat and used cooking oil, which are the most accessible raw
materials for SAF production, and many of them have been used for production.
Governments need to formulate policies to encourage the production and sale of
SAFs.
2.3 Sustainability Standard of SAF
Traditional biofuels have been severely criticized because they are destructive to
some ecosystems, especially forest ecosystems, which are destroyed when land is
turned into farmland or cultivated for biofuel production. Sustainable development
standards have evolved into standards specifically to ensure that ecosystems are
protected when alternative fuels enter the EU and US markets. Palm-based biofuels
have attracted special attention because of the direct damage of palm plantations to
rainforest ecosystems. However, the indirect change of land use is also reflected in the
standard principles, especially the Standards of Roundtable on Sustainable Biofuels
(RSB). Any plan or policy to encourage alternative fuels must include strategies to
avoid the direct and indirect change of land use.
3 The Driving Force of Global SAF Development
Governments and industry organizations in various countries have formulated various
policies and other initiatives to provide a fair and competitive environment for the
development of SAF industry and encourage airlines to consume sustainable fuels.
Up to now, the main mechanisms are mandatory deployment instructions, production
incentives and the combination with SAF development roadmap.
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3.1 SAF Deployment Instructions
Many countries have formulated SAF deployment instructions. Norway is the first
one to do so, and its current goal is to replace 0.5% of domestic fossil aviation fuel with
SAF which is not made of palm oil by 2020, and gradually increase the ratio to 30%
by 2030. The Netherlands also recently puts forward a SAF deployment instruction
which will come into effect in 2023, which requires that SAF will replace 14% of
the country’s aviation fuels by 2030. Moreover, The Netherlands sets the target of
completely replacing fossil kerosene with SAF by 2050. With the implementation
of SAF deployment instructions, manufacturers should be more relieved, and they
should actively seek sustainable raw materials, develop new technologies and expand
production capacity. Recently, France has made an ambitious decision to add SAF
to aviation fuel supply. At first, used cooking oil and forestry waste residue are used
as raw materials, which will be used in combination at the rate of 2% in 2025, 5%
in 2030 and 50% in 2050.
The European Union (EU) Renewable Energy Directive RED-II will come into
effect after 2020, which brings aviation and navigation sectors within the scope of
the obligation of fuel suppliers to supply renewable fuels to the European market.
EU RED-II requires member countries to force fuel suppliers to provide renewable
fuels, the energy consumption of which must account for no less than 14% of the
energy consumption of roads and railways (as well as optional aviation and shipping)
by 2030. In addition to requiring all renewable fuels from sustainable sources (for
example, sustainable biofuels certified by RSB), advanced fuels (with 1.2 times of
energy integral) and renewable alternative fuels must achieve at least 70% greenhouse
gas emission reduction relative to corresponding fossil fuels by 2021. Nevertheless,
IATA said that the multiplier effect may not be enough to keep the price in line with
industry expectations, resulting in a large amount of fuel demand. Meanwhile, the
action of DG of the European Commission (EC), supported by efforts such as Clean
Sky, aims to set a European-wide target for SAF, named ReFuelEU, which will be
revised and adopted by the end of 2020. The framework is currently open to the
public for comments.
Although the consumption directive requires compliance, it will bring price pressure to airlines, which are forced to buy aviation fuel at higher prices, but the cost
has not been widely absorbed in the energy industry.
3.2 Incentive Policy for SAF Production
Another government plan to encourage SAF industry development is a voluntary
plan, such as choosing aviation fuel in California Low Carbon Fuel Standard (LCFS).
In 2018, the LCFS made modification and required to reduce the carbon intensity
of transportation fuel to 20% by 2030, but it also allowed fuel companies to selectively generate LCFS aviation fuel points, thus inspiring a new wave of innovative
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technologies and business models to show fuel suppliers with low carbon intensity
to the transportation sector. At present, the price of one LCFS point (representing
one ton of CO2 reduction) is traded in the market at the price of $160–213. This is a
great incentive for companies representing SAF production, who are encouraged to
sell their products to the California market. LCFS greatly exceeds the more common
emission trading plans all over the world. Therefore, SAF is often used in California
airports such as Los Angeles.
Britain’s obligation of renewable transportation fuel was originally to meet the
requirements of the Renewable Energy Directive, and it was the first policy in Europe
to solve the problem of GHG intensity of fuel and provide incentives for fuel suppliers
to reduce GHG intensity. By 2020, renewable aviation fuels and fuels from nonbiological sources have been included in the policy with additional incentives.
3.3 Market Mechanism of Emission Reduction
The EU passed a law to bring international aviation emissions into its emissions
trading system, which caused some controversies. In response to this controversy,
the International Civil Aviation Organization (ICAO) set out to develop a marketbased mechanism to restrict the future emission growth of the aviation industry by
forcing airlines to buy offsets. In this market-based mechanism called CORSIA,
SAF consumption is defined as a means to prove emission reduction in aviation
department, and some standards organizations are being given the power to decide
how to calculate these offsets. The RSB is one of these standards organizations. By the
end of June 22, 2020, 85 countries, accounting for 77% of the international aviation
industry, have voluntarily signed the CORSIA, which will be enforced in 2026. China
is required to implement COSIA before 2027, and China has announced that it will
not choose to join before 2027 (Roundtable on Sustainable Biofuels (RSB)).
However, China’s domestic ETS is currently trying to bring the aviation industry
into the pilot, and pilot the ETS market in Shanghai and Hubei.
3.4 Consumer Demand Roadmap
Recognizing that the production and consumption of SAF is still a challenge in
the world, countries all over the world have drawn up SAF roadmaps to establish
baseline data on SAF raw materials and technologies, technical approaches and the
benefits that countries may gain in increasing support for SAF objectives. In 2015,
IATA formulated a global roadmap, which provided a comprehensive overview of
raw materials and technologies, sustainability considerations and national policies,
as well as suggestions on global SAF consumption accounting and economic and
financial choices to promote the development of SAF industry.
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Fig. 3 UK predicted SAF production and consumption scenarios in 2050
The UK has formulated the latest national roadmap for carbon emission reduction
in aviation department, which is a partnership among aviation industry value chains,
including Airbus, UK Airways, Boeing, British Airways, Gatwick Airport, Heathrow
Airport and Rolls-Royce. With a view to sustainability, the roadmap sets a strategy for
the UK to become a leader in the development, production, application and marketing
of SAF, including a goal of reducing UK aviation emissions by 32% by 2050 (See
Fig. 3).
These roadmaps, as well as those drawn by ICAO, airlines of various countries,
SkyNRG and other companies, can be used as models and important information
sources for China to develop its own SAF production and consumption routes.
Brazil
After IATA and ICAO approved a resolution to reduce carbon emissions in aviation
industry, Brazil developed a set of methods for formulating the national aviation
biofuel planning roadmap. The roadmap includes the following topics:
● Feedstock
● Refining Technologies
● Sustainability
● Policy and Incentives
● Logistics and Support
● Research and Development, and
● Commercialization Gaps.
At the same time, industry stakeholders consulted more than 30 people including
private sector, government agencies, NGOs and academia. This study produced a
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report entitled Brazil Sustainable Aviation Biofuels Roadmap: Flight Path of Aviation
Biofuels in Brazil. This 270-page report gives a comprehensive overview of Brazil’s
opportunities in SAF development, technology and raw materials, as well as many
challenges to be overcome in developing SAF industry.
4 Present Situation of SAF Industry in China
China’s aviation industry is huge, consuming more than 30 million tons of aviation
fuel every year. However, there are not many institutions in China that pay attention
to using SAF to reduce GHG emissions. To improve the fleet efficiency is the first
thing to do at present, and then the pilot ETS of offset trading can be adopted, such
as in Shanghai carbon trading market. Although China uses corn, wheat, sorghum
and other grains to produce a large amount of first-generation fuel bioethanol, it is
still difficult to scale biodiesel and second-generation fuel, because there is a lack
of technology and comprehensive and effective policies for the state to restrict the
GHG emissions of alternative fuels while increasing production.
China is the largest supplier of used cooking oil (UCO) in the world, but China’s
biodiesel industry has not developed vigorously. There is a very successful pilot
project in Shanghai, which recycles local UCO into low-carbon biodiesel. The
national coordinated policy measures to ensure sustainable fuel production and use
will play an extremely important role in expanding this market, which will be of
vital importance. The next generation of low-carbon diesel oil, such as hydrogenated
vegetable oil (HVO), is also of interest to technical research and investors, but has not
received strong national policy support. Therefore, these higher-cost fuels compete
with cheap fossil fuels for market share. In many cases, these fuels are sold to foreign
markets, such as the EU, and California’s LCFS market.
Sinopec Zhenhai Refining & Chemical Company is currently the only factory in
China that successfully produces SAF and has undergone various SAF test flights and
commercial flights. The company announced that it will build 100,000 tons of SAF
facilities, which will be completed in the near future. In 2019, the company obtained
the license to produce bio-jet fuel and passed the No.1 standard for sustainable bio-jet
fuel in China. Although SAF is facing similar challenges in China, airlines have been
working with aircraft manufacturers like Boeing and Airbus, academic institutions
and the state-owned Sinopec Zhenhai Refinery to produce SAF from waste grease
UCO and use it.
5 Opportunities and Key Players of SAF Industry in China
Although test and demonstration flights using SAF are helpful for marketing, this
is not the main way to expand the consumption and production of these low-carbon
fuels. On the government side, policies may help the aviation industry to expand
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the use of these alternative fuels, while on the private sector and non-profit sectors,
industry coordination can play an important role.
5.1 China’s Aviation and Environmental Policy Background
Recognizing the power of the market to help the economy solve the problem of
GHG emission reduction, China established seven emission trading pilot schemes
(ETS) nationwide in 2013. Shanghai ETS is still in operation, mainly for industrial
sectors and non-industrial industries such as aviation, ports, airports, railways and
commercial buildings, with annual emissions exceeding 10,000 tons. Up to now,
Shanghai ETS is the only one with aviation business, covering six airlines including
China Eastern Airlines, Shanghai Airlines, China Cargo Airlines Ltd., Juneyao Air,
Spring Airlines and Changjiang Express. From 2009 to 2011, the aviation department
collected baseline emissions in order to allocate emissions during the emissions
trading period from 2013 to 2015. By the end of March 2020, it is reported that the
national ETS will have included the aviation industry, but up to now, it is not clear
whether the aviation department is required to report emission reduction or only
report emissions.
In principle, the use of SAF by airlines may be an excellent way to help them
comply with emission reduction targets. However, up to now, there is no calculation
method for airlines to use SAF. It seems that airlines can only choose to submit CER
certified by China to meet market requirements.
On April 12, 2019, the Second Research Institute of CAAC became the first
institution in China’s aviation industry to obtain the qualification of greenhouse gas
certification, indicating the importance of this field to the aviation industry in the next
few years, and providing confidence in the more cutting-edge emission reduction
opportunities that may come in the future (Civil Aviation Administration of China).
5.2 Participation in the Private Sector
Original equipment manufacturers—for many years, original equipment manufacturers (OEMs) have been involved in promoting and testing low-carbon technologies
and fuels in China. Airbus and Boeing both support airlines to conduct test flights
with SAF. SAF was originally manufactured by Honeywell UOP and other companies abroad, and recently used domestic fuels. As Commercial Aircraft Corporation
of China Ltd. (COMAC) tries to expand the production scale of commercial aircraft,
it may also be interested in SAF plans in China. Equipment manufacturers are key
stakeholders in ensuring that fuel standards are compatible with engine specifications and other components on aircraft. They are important participants in ASTM
fuel specification development and other standardization committees.
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Airlines—up to now, Hainan Airlines, China Southern Airlines, China Eastern
Airlines and Air China have issued announcements on the use of SAF for test flights.
Perhaps the airline that has made the greatest efforts to define the role of sustainability is Hainan Airlines, which has established the Green Aviation Initiative &
Network (GAIN)—the cooperation between Hainan Airlines, which unites technology companies and other companies and organizations to promote green aviation
in China. GAIN is an aviation industry cooperation platform with global network,
cross-border interaction, industrial synergy, collaborative innovation and building a
green industry ecosystem. However, these initiatives may be seriously affected by
the slowdown of tourism during the COVID-19, and new partnerships may need to
be established. The commitment of more airlines to use SAF in China is an important
goal.
Airports—we are not sure whether there are any airports in China that provide
SAF for flights. China Civil Airports Association may be an important stakeholder
to consider this issue in the future. Although jet fuel is not within the emission range
of airports, in many cases, airports are responsible for providing fuel to airlines,
and they may need the understanding and cooperation of airlines in purchasing and
supplying fuel in the future.
5.3 Participation of Non-profit Organizations and Social
Groups
Many environmental NGOs in the world are involved in emission reduction in aviation field. They are also working in China’s transportation field, but they are not
directly involved in China’s aviation or SAF use. The following are a few NGOs
currently engaged in this topic, and the industry may be interested to see this group
expand, so as to help diversify SAF production and reduce the risk of responding to
international NGO reactions in the future.
The World Economic Forum—Clean Sky is a plan for senior managers and public
leaders to use SAF to achieve carbon neutrality in flight. Under this plan, SAF policy
recommendations are being developed to establish a mechanism for enterprises to
purchase virtual SAF, and a financial department is launched to provide funds for
production facilities.
Environmental Defense Fund—EDF, an American-based NGO, is currently
involved in the development of China’s carbon emissions trading mechanism,
including Shanghai’s carbon emissions trading pilot program, which focuses on the
aviation industry. In addition, EDF is a strong supporter of CORSIA policy.
Innovation Center for Energy and Transportation is an NGO focusing on lowcarbon transportation in China. iCET has been implementing low-carbon and sustainable fuel policies in China since 2008, and is now starting to take electricity and
hydrogen as sustainable energy in the transportation sector.
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6 Opportunities and Challenges of SAF Industry
Development in China
Although China has become one of the world’s largest producers of bioethanol,
China’s support for alternative transportation fuels has been weak except for road
vehicles. SAF is an important opportunity to reduce GHG emissions and dependence
on imported fossil fuels in aviation department, which requires the government’s
efforts to develop it into an industry. Public and private sectors (including private
sector financing and technology development) and supportive government policies
need to make concerted efforts to establish a reasonable and powerful SAF market
in China.
In the fields of technology development, agriculture, waste disposal, circular
economy, policy development, and even financial market, countries that have formulated their own development strategies for SAF have great opportunities. In order to
help China to achieve its carbon–neutral goal in 2060, the aviation department may
need to use millions of tons of alternative fuels every year. This high-tech and green
economy industry may create hundreds or even thousands of high-quality jobs.
References
Air Transport Action Group (ATAG)
Civil Aviation Administration of China
International Air Transport Association (IATA)
International Civil Aviation Organization (ICAO)
Roundtable on Sustainable Biofuels (RSB)
The International Council on Clean Transportation (ICCT)