BEIJING (AFX-ASIA) – Foreign investment in China’s energy sector will play a greater role in the future, said William Ramsay, deputy executive director of the International Energy Agency (IEA).
However, the government needs to do more to facilitate the inflow of foreign investment into the country’s fast-growing energy industry, he said during a China Energy Investment Outlook briefing in Beijing.
China’s energy demand is projected to more than double between now and 2030, and the country will account for 20% of the increase in world primary energy supply and demand during the period, he said.
This translates into a US$2.253 trillion investment requirement in China’s energy sectors for the three decades to 2030, or nearly 15% of global energy investment needs, including US$1.913 trillion in the electricity sector, US$123 billion in coal, US$119 billion in oil and US$98 billion in gas, he said.
According to the outlook, China will need to add about 800 GigaWatts of new installed electricity capacity over the next 30 years, up from 322 GW in 2000.
Of the US$1.913 trillion to be invested in the electricity sector, US$345 billion will be used to extend the country’s power transmission network, with investment in distribution to double.
Investment requirements for new power plants will amount to US$795 billion during the period and refurbishment of existing power plants will add another US$50 billion.
Coal, critical to the Chinese energy sector, supplied 69% of primary energy demand and 87% of all fuel consumed in the power sector in 2000, it said.
The US$123 billion investment need in China’s coal sector is equivalent to 34% of the world total. Investment in coal mining is estimated at US$120.6 billion with US$2.1 billion going to ports, as coal trade is largely sea-borne.
Coal production in China is expected to increase to 2.304 billion tons in 2030, up from 1.231 billion in 2000, while primary energy demand for coal is projected to grow by around 2.2% per year to 2.22 billion tons, from 1.208 billion.
Coal exports are expected to total 123 million tons by 2030, up from 70 million in 2000, with imports at 40 million, up from 8 million.
Driven largely by transport demand, the outlook said that China’s oil consumption is projected to surge to 12 million barrels per day by 2030, up from 5.2 million in 2002, with additional oil demand relying completely on imports.
Net oil imports are set to jump to almost 10 million barrels per day in 2030, against 1.8 million in 2002, with imports expected to constitute 82% of oil demand, against 35% last year.
The Middle East will meet most of China’s growing import needs, but imports from Russia could play an increasingly important role.
Even though input into the upstream sector will account for 60% of the total US$119 billion investment needed in the oil industry over the next 30 years, capital flows into that sector are expected to decline over the longer term on diminishing commercial investment opportunities.
Investment in the downstream refineries, however, will be on the rise. In the last decades of the projection period until 2030, capital flows to the refining industry are expected to reach US$1.8 billion per year.
Finally, the outlook predicted that China’s natural gas industry, still at an early stage of development, is poised for rapid expansion.
The Chinese government is committed to raise the share of natural gas in the country’s energy mix, driven by concerns about the environmental impact of heavy dependence on coal and the energy-security implications of rapidly rising oil imports, it said.
The 98 billion yuan estimated investment needs in the gas sector are underpinned by a projected surge in gas demand to 61 billion cubic meters in 2010 and 162 billion in 2030, up from a modest 32 billion in 2000. (US$1=8.27 yuan).
Most of the increase in gas demand will be met by domestic production, but imports in the form of LNG (from Australia) and by pipeline from Russia and possibly Central Asia will make a growing contribution over the next three decades, it said.
While projecting huge capital demand in China’s energy sector over the next 30 years, Mr Ramsay also pointed out possible barriers to investment in the country, including the fledgling local financial markets, lack of adequate laws and regulations as well as low return on investment relative to risk.
“The government needs to play an important role to set up the right enabling conditions to attract capital,” he added.