By Xu Bo, Zhang Yu, CNPC Economics & Technology Research Institute
Coal accounts for a large proportion of the primary energy consumption in China. Meanwhile, the country is facing the facts that it is overly dependent on foreign oil, the natural gas cannot effectively support economic development in the short term, and the development of renewable energies is slow. It is time to transform and diversify the energy supply.
Control the volume of coal consumption
The proportion of coal in primary energy consumption will gradually decline due to the growth of renewable energies and natural gas, but it will still be the major energy source for a long time to come. In 2017, the output of raw coal of above-scale enterprises reached 3.445 billion tons, up by 3.2% year-on-year.
Outstanding problems exist in the development of the coal industry. First, the structural imbalance is acute. Coal mines are not balanced in level of development. Large and modern coal mines with advanced and efficient technologies coexist with coal mines still using backward technology and equipment and suffering from poor security and management. There are still over 6 500 small coal mines whose annual output is below 300 kt. Second, the sector urgently needs to emphasize clean development. Because of coal’s extensive use, a large volume of coal is burned in a dispersed way, causing serious environmental pollution. Third, the mining capacity is excessive.
In view of the above problems, it is recommended to take the following measures: 1) Strengthen the management of commercial coal quality, promote energy-saving & emission-reduction in key coal-consuming industries, promote the demonstration of coal deep processing, and strengthen the comprehensive management of dispersed coal; 2) Promote green production, strictly control the launch of new capacity, and improve the screening mechanism for coal mines; 3) Support mergers and acquisitions of coal enterprises to accelerate industrial concentration, promote the development in a scaled and intensive manner, and continuously enhance the production and management capabilities of the coal industry; 4) Promote industry integration, and speed up the transformation of coal-based enterprises.
Adjust the pattern of oil import
China’s crude oil output has been declining recently. The output of 2017 is estimated at 192 million tons, down 3.1% YoY. At the same time, the import volume continues to increase. The net import in 2017 reached 420 million tons, an increase of 10.7% YoY, and the import dependency rose to 68.6%, 2.9 percent points higher than in 2016. China’s oil supply security faces many challenges: the Middle East is the only major import source for China, maritime transportation is too dependent on the Strait of Malacca, risks of cross-border pipeline incidents still exist, and the scale of oil reserves, the emergency response and the quality of international oil cooperation cannot be fully adapted to the fluctuations of international oil prices.
To secure China's oil supply, we must make full use of both domestic and foreign resources to enhance the sustainability of oil procurement. It is necessary to step up efforts in domestic oil exploration and exploitation, exploit domestic oil rationally and implement an economically rational and sustainable oil exploitation strategy. It is also necessary to scientifically stabilize the production of oilfields in the eastern region and promote exploration of oilfields in central and western regions. Efforts should be made to strengthen the protection of the marine territories and the exploitation of resources so as to increase the output of offshore oil. Oil exploitation should be carried out in an economic way, and the resources, especially those with high exploration cost, should be less exploited when the international oil prices are low. At the same time, the government should moderately develop coal-based oil and biomass oil and further diversify the domestic oil supply.
The oil import layout must be adjusted to disperse risk. The risk index should be taken into consideration when choosing import sources, strategic cooperation with new oil exporting countries should be emphasized, and the import risks should be avoided through market and diplomatic means. First, oil pipeline transportation from Russia and Kazakhstan should be actively explored to obtain more crude oil from the neighboring Far East and Central Asia. Second, it would be rational to reduce imports from Saudi Arabia and increase imports from UAE and Qatar. Third, it is necessary to develop potential supply partners like Canada and Mexico to reduce the import risk.
Vigorously develop domestic natural gas resources and expand import channels
China is rich in natural gas resources, and natural gas is a realistic choice to realize clean development. The government has chosen natural gas as the "main source of energy" and has promulgated various policies to support the development of natural gas.
China's natural gas consumption in 2017 is estimated at 235 billion cubic meters. Its natural gas import volume has been expanding in recent years, reaching 92 billion cubic meters in 2017, and the foreign dependence has risen to 40%. It is estimated that China's natural gas consumption will reach 330 billion cubic meters in 2020 and 550 billion cubic meters in 2030, with import dependence exceeding 50%. Therefore, China must attach importance to developing domestic resources, expanding import channels and diversifying risk.
To strengthen domestic natural gas exploration and development, the following two aspects should be followed: 1) Accelerate the production of conventional natural gas. It is necessary to focus on exploration in Sichuan, Ordos and Tarim Basin, guarantee the stable production of developed gas fields, and evaluate the proven undeveloped reserves and newly proven reserves. Deep exploration in eastern regions should be strengthened to maintain and even increase the output. The start of tight gas production in Ordos and Sichuan basins should be accelerated to form a 10 billion square meter natural gas production base; 2) The bottleneck of unconventional gas exploration must be broken through. The southern marine facies should be the focus of shale gas exploration, and technology for exploring marine shale gas facies should be developed comprehensively to achieve a substantial increase in output. Meanwhile, the shale gas in transitional facies and continental facies should also be explored to find the new core areas. For coal-bed methane (CBM), exploration in the Qinshui and Ordos basins should be the emphasis, meanwhile, the breakthroughs in the exploration of low-rank CBM in the northwestern regions like Xinjiang should be pursued, and the CBM resources in western Yunnan and western Guangxi should be explored to provide a solid resource support for large-scale CBM development nationwide.
Attention should be paid to pipeline gas to expand natural gas imports. For the Northwest Strategic Channel, the introduction of the west pipeline between China and Russia should be promoted steadily. For the Northeast Strategic Channel, the focus should be the construction of the east pipeline between China and Russia. For the Southwest Strategic Channel, the construction of a natural gas pipeline from Burma to Yunnan, Guizhou, Guangxi and Sichuan should be the focus. China now has 18 LNG import sources, but it is still necessary to attach importance to the potential of imports from the United States and East African countries.
Optimize hydroelectric power generation
Hydropower is the main force of China's renewable energy. By the end of 2016, installed capacity of conventional hydropower exceeded 300 million kilowatts and generated 1.18 trillion kilowatt-hours of electricity, or 76% of renewable energy-sourced electric power. However, China's hydropower development still faces serious problems. First, development costs are getting higher and higher, and the construction environment is more and more complicated. Second, the generating capacity of the power industry is already in surplus, and power generation companies face harsh competition and price wars. Meanwhile, China's hydropower stations are mainly located in the southwestern region, and rely mainly on transmission to the central and eastern regions for consumption. Third, hydropower is not highly recognized by the public. Although it is a traditional industry and has been developing for many years, there are still controversies, like its impact on aquatic ecology and local climates.
In view of the above issues, the government should first support the hydropower industry by bringing it into the renewable energy quota system and guaranteeing purchase of the full amount generated; second, reduce the cost; and third, implement green hydropower certification and demonstrate whether each hydropower operation and its design can guarantee maintaining the integrity of the ecosystem of affected rivers.
Comprehensively promote wind power development
With abundant wind energy resources, it is estimated that by the end of the "13th Five-Year Plan" Period (2016-2020), China’s total installed capacity of wind power will reach 300 million kilowatts.
However, the following problems still exist: the large-scale wind power plants are mainly from foreign enterprises; the grid-connected technology restrictions and low market demand have lead to oversupply; and the maintenance cost is high due to frequent malfunctions during operation.
To solve these problems, the following countermeasures should be taken: 1) improve policies to create a healthy environment for wind power; 2) strengthen the planning and management of wind power development by bringing the wind power development into the overall planning of electric power development, ensuring unified planning of the power supply and power grid, and insisting upon market demand-oriented development; 3) improve scientific research and development by focusing on wind turbine manufacture, wind forecasting and grid connection, strictly standardizing the technology testing procedures, and enhancing the independent R&D capabilities of research institutes and wind power enterprises.
Constantly promote solar power
The government has placed great hopes on the solar power. Both the 13th Five-Year Plan for Renewable Energy Development and the 13th Five-Year Plan for Power Development require active support of solar power generation and propose that the installed capacity of solar power generation should reach 5 million kilowatts by 2020, with an annual output of 20 billion kWh. At present, the biggest domestic obstacles to solar power development are high generation cost, immature optical technology and thermal storage technology, and incomplete equipment manufacturing system.
Future research should focus on low-cost, high-capacity and continuous power generation, which is the development direction of concentration photovoltaics. It is necessary to make advances in concentrating ratio, operating temperature and thermoelectric conversion efficiency; to strengthen research and development in core technologies and key equipment such as high-reflectance reflectors, high-precision tracking control systems, high heat transfer and thermoelectric conversion; to build large-scale demonstration projects to promote industrial development; to manufacture more equipment domestically and reduce power generation costs; and to intensify the research on thermal storage technology.
Speed up diversified development of biomass energy
The diversification of biomass energy products is of great significance to China's biomass energy industry. Biomass heating should be developed actively. It is necessary to transform heat supply on launched biomass power generation projects according to market demand and improve the utilization efficiency of biomass energy. Waste-incineration power generation should be promoted steadily in prefecture-level city and some countries where the resources are abundant. It is also necessary to promote development of the biological liquid fuel industry, steadily expand the production and consumption of fuel ethanol, moderately develop fuel ethanol projects such as those consuming cassava and sweet sorghum, upgrade the biodiesel projects and improve the product quality to meet the requirements for vehicle fuels, accelerate innovations in biological liquid fuel technologies, and promote the demonstrations of applications of biomass-based high-grade fuels and aviation fuels.
Constantly promote nuclear power
By the end of 2016, 21 nuclear power units (with 23.44 million kilowatts combined capacity) were under construction, and 33.64 million kilowatts of capacity was already operating in China. The "13th Five-Year Plan" proposed to have 58 million kilowatts nuclear power installed capacity and another 30 million kilowatts under construction by 2020, setting a high goal for the nuclear power industry.
China's nuclear power development still faces environmental safety risks, funding problems and an unstable long-term development plan. China is emphasizing development of low-carbon resources now, so the nuclear power is an inevitable choice for saving energy and reducing emissions. However, we must pay attention to the following three issues: 1) Perfect nuclear safety regulation. An "Atomic Energy Law" should be established to further improve China's nuclear energy safety law system; 2) Establish a diversified nuclear power investment system. It is necessary to gradually relax various restrictions on the nuclear power market and establish an investment fund for the nuclear power industry to improve its capital structure; 3) Grasp the rhythm of development. Overly rapid launch of nuclear power projects may jeopardize the long-term healthy development of the industry, and it is necessary to maintain steady and sustainable development while ensuring safety.
China's energy transformation in the "new era" needs a diversified energy supply strategy – not only diversification of products and sources, but also diverse categories of energy products and various collocations of new energy sources and traditional fossil energy products. To reduce reliance on fossil fuels, we need to speed up the development of new energy sources that are highly efficient, energy-saving, environment-friendly and low in cost.
