OGPSS - Considerations of Chinese demand growth

Three years ago I took my third trip to China, flying this time to Qinghai Province and then taking the train back down from Xining City through Xian to Shanghai. One of the more striking parts of the trip was the first day of the train travel, where the tracks cut down from the Tibetan Plateau to the plains of the East. The valleys are narrow, so that it is often difficult for the train tracks and road to find an easy route, and this led to many tunnels, and, in places, one or the other running on piers up the valley.

Figure 1. Railway causeway set across a valley carrying a second line (photo taken from the first, about to go into a tunnel) the river crosses under the line and runs along the left hillside.

The countryside was redolent with new construction of highways, and the necessary tunnels to bring additional communications into a hinterland that had, in the past, few good roads or methods of reaching into the more remote communities.


Figure 2. Further down the valley it is much narrower and the road and rails run in tunnels (on each side of the river). The current narrow road is being widened but whenever there was a hold-up, the line of trucks waiting grew by miles. (Very few cars).

A historian once commented on the major impact to the American economy and social infrastructure created with the development of the road network and the addition of the Interstate system. When I first went to China in 1987 poverty was rampant, the main method of transportation was by bicycle though I travelled by train and minibus. By the time of the second visit in 2002 the economy was undergoing rapid changes. Their interstate network was being developed, although I remember noting that the train passed many miles of freeway with very little traffic. They are now seeing this gain, but it is a work still in progress, and it, in turn is driving the growth in their oil demand.

Figure 3. Changes in Chinese oil consumption and imports over the past decades (Energy Export Databrowser )

It is important to recognize that there are many parts of the country where these interconnections and improvements to the infrastructure are still going on, and as those changes occur so the increasing use of power-driven vehicles continues to rise, and with it the need for increased supply. The risk of exacerbating popular unrest if that change were to stop is just one reason why it is bound to continue, and with it China’s continued need for additional supplies of all forms of fossil fuels, as well as the rest of those supplies that we all need that come from the earth. And that includes water, a vital resource, but one whose limit restricts some of the options that the Chinese government can adopt.

In the July Monthly Oil Market Report, OPEC note that automobile sales in China were up for May by 22% y-o-y , though this is not expected to change the rate of growth in overall oil demand for the country. In total they expect, as they noted in August, China’s economic growth forecast remains at 8.1%, with an 8% projection for 2013.

Figure 4. Changes in apparent oil demand for China (OPEC August MOMR)

Within that overall demand the relative proportions of the mix change, over time., though it must be remembered, in this regard that China is still building a Strategic Petroleum Reserve of its own, and up to 1 mbd can be fed into this when judged appropriate.

Figure 5. Change in apparent oil consumption in China (OPEC August MOMR)

The problems of traffic congestion, exemplified by the 11-day Beijing traffic blockage in 2010 is leading to some restrictions within the cities. Four cities (Beijing, Shanghai, Guiyang and Guangzhou are now said to restrict car sales (OPEC August MOMR) and electrical vehicles and taxis are being introduced, with a target of half-a-million vehicles by 2015. This is now seen as an area of growth, especially in battery development, and a target of 5 million cars has been set for 2020. And while this might seem to be a market opportunity for the Volt, domestic tax protection has made it a difficult sale to the present.

And a recent report by the Economist indicates that sales of these vehicles have not taken off as hoped, with only 8,000 being sold, largely to government agencies. As in the United States there is an element of “chicken and egg” to the story, in that without a network of charging stations there is a certain amount of caution in committing a higher than normal investment without the assurance of benefit in the very near future. The suggestion is that China may backtrack to a greater emphasis on hybrids before returning to push for the purely electrical car.

This is not to say that there is not a recognition of the need for alternate sources of energy. But in China the general populace has a much better understanding of the limited nature of energy supplies, a lesson that the rest of us will likely have to learn another way. Thus one finds a much wider use of solar power, including for the more mundane use in making tea. It was instructive to see, as we drove down a street in one of the tourist resort towns near a lake, that each house along the street had a large kettle sitting outside, on a solar collecting dish.

Figure 5. Solar heating of a kettle (30 min to boiling)

Many had solar water heaters on the roof also, and while somewhat more unsightly than many systems (mine for example is black plastic solar pipes that blend into the roof) they take up less space and serve their purpose.

Figure 6. Solar water heater (cost around $1,000 installed)

I came away convinced that China is nowhere near the point where it can meet the growing demands that a developing society will have for energy, and that their government will be driven to find creative ways of meeting that increasing demand.

Thoughts on the trip to China

The trip to China is now over, and I am left looking back to see what impressions remain the most profound. I will forgo the cultural and geological and rather focus just on the items that relate to energy. But before going into that in more detail I would also like to thank my son, the Engineer. When I arrived at Shanghai Airport I was curious to see which sites I could access, given the controversy over censoring Climate Audit in Canada. So I started to check to see which sites I could access. Both Climate Audit and Real Climate were available. Anthony Watts site (Watts Up with That), Robert Rapier's and mine were not available. (TOD was). And since I had hoped to do what I did, I had to find a way around the problem. Enter the Engineer, who, for the past week has been posting my posts, after I sent them to him. Thanks again, good sir.

To return to Chinese use of energy, there are two levels to the Chinese activity that are both worth noting, and also are likely to have future impact.

The most common thing that I saw was probably a pile of bricks. Historically many of the houses in Qinghai province were made of mud brick, with mud walls being used in construction of the many greenhouses. But it seemed wherever we went, whether down a back street in Beijing, a Muslim or Salar village in Qinghai, or a Tibetan temple there were piles of fired brick, and construction of new buildings (following the shape of the old) but with the stronger brick, was going on almost everywhere. Yes, the big cranes dominating the blocks of apartments and hotels that are being constructed didn’t seem to be moving a lot, and that construction is slowed, but for individual houses it seemed to still be continuing at a steady pace.

The bricks come from largely coal-fired plants (at least in the cases I saw) with many relatively small brickyards working to provide for the demand. The houses may end up being plastered and painted, in Beijing back to basic grey, but are built along ancestral lines, with in Qinghai, the flat roofs that collect the most sun in winter to help keep the buildings warm. Solar water heaters (as opposed to solar oven types of water boiler for meals) were more common in the big cities and down at lower heights on the tops of apartment buildings with not that many on individual dwellings. The change is going to have an impact on rural life, particularly where they can get the nomadic herders and shepherds to adopt to a fixed domicile rather than wandering with the herds.

But it is the other change and construction that I found more spectacular, and will likely have at least as great an impact on the society. We left the Tibetan Plateau and Xining City on the train, and started the descent to the coast by travelling down the valley carrying the Yellow River. After a way, however, we turned into another river valley as we headed to Xi'an and ultimately Shanghai. The rail line had a companion line, and there was a road to bring access to the small villages that were found in the corners of the valleys as we moved down. Before the roads these villages would have been almost isolated, with connections achieved by whoever (and I suspect it would be mainly monks) wandered over the passes. Small isolated rural communities that live on a subsistence level are only romantic and idealistic in novels. Thus a major effort of the Central Government is to provide access to and for these folk. But it is not easy, in that railway lines and highways can’t easily make the bends along the valley that the rivers have cut. So the carriageways have to go through tunnels, or carried on pillars down the heart of the valley, in order to maintain grade.
Railway causeway set across a valley and carrying the second line (photo taken from the first) the river crosses under the line and runs along the left hillside. The train I am on goes into a tunnel as the line curves to that hillside.

The basic requirement for passage seemed to be 2 rail lines and a road, with tunnels being required in many cases to ensure that the curves were sufficiently gradual. While the above show the scale of some of the construction where the valley was wider, it did not get any easier as the valley narrowed (as it did in the top of the first picture).
Further down hill, the valley is much narrower and where all the trucks are both rail lines are in tunnels (one on each side of the river). The narrow roadway initially driven meant that whenever there was a hold-up, before long the line of trucks waiting was over a mile or two. (Very few cars).

To help solve the problem, further down stream the road is being converted to a dual carriageway. This is also a great endeavor, and will require additional tunnels as it moves up the valley, but will make it a lot easier to travel up and down the road.
Construction of a dual carriageway further down the valley, a typical village lies behind the construction. As we went downstream the houses changed from mud brick, to fired brick, to tile faced.

At the moment Qinghai is very popular in the summer, since temperatures at altitude rarely get above 70 with a good many sunny days. (As in many parts of the world they are also seeing record harvests). We were told that all hotels fill with domestic tourists in that time, and even last week we were thought very lucky to have been able to acquire train tickets.

The installation of the dual carriageway suggests that the Chinese Government anticipates that individual vehicles will become much more popular, and so roads must be provided to take the public, by car, where they want to go. In those circumstances, where the specific areas get quite remote quite quickly, it is easier to provide a road, than a rail line.

Providing fuel for those vehicles is going to require a significant volume of imports. Sales of cars in China have surged this year

auto sales have surged after the government offered subsidies to drivers in rural areas and cut retail taxes as part of a wider 4 trillion yuan ($585 billion) economic stimulus plan. The demand jump has caused GM to double its 2009 industrywide growth forecast. Combined with a 37 percent slump in U.S. auto sales because of the recession, the surge has made China the world’s largest auto market so far this year.

“Customers have to book in advance because there’s not enough stock of the bestselling cars,” said Guo Yong, information manager at Beijing Asia Games Village Automobile Exchange, which houses dealerships accounting for about 10 percent of Chinese car sales. “Fourth-quarter sales weren’t that good last year and most carmakers curbed production as they were pessimistic about sales this year.”

The Chinese Government would not be making these investments if they did not see the roads being used, and that is going to require a lot of fuel, which will be their next problem. (And this is not considering the arrival of foreign tourists, for which the country is already well prepared, even though, at present, numbers are down.)