Entire world has vital stake in China’s energy challenge

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A major new report just released by the International Energy Agency (IEA) sheds stark light on one of the reasons why global oil prices are approaching an unprecedented $100 a barrel. The report provides truly stunning new details of the looming global impact of China and India on future energy markets and the prospects for climate change. It also brings a sobering clarity to the enormity of the energy challenge these two countries face and the huge stake the world has in their future energy choices.
The IEA’s most striking conclusions concern China and the sheer scale of its unprecedented energy demand. For example, from 2001 to 2006 China added to global energy demand the equivalent of the entire 2006 energy consumption of Japan, the world’s third-largest energy consumer. Looked at another way, China added the equivalent demand of five countries the size of Spain or Mexico. In the IEA’s benchmark “Reference Scenario,” which assumes a modest 6 percent long-term economic growth rate, China accounts for one-third of global energy demand growth, for one-third of world oil demand growth, nearly two-thirds of world coal demand growth, 40 percent of world nuclear energy development, and one-third of world hydroelectric power development.

Some of the most striking impacts will be in oil markets. China’s oil demand is likely to rise by 10 million barrels per day (MMBD) between 2005 and 2030, equal to Saudi Arabia’s total oil production capacity today. China’s

vehicle market will surpass the United States by 2015 and transportation oil demand will quadruple. If both China and India grow at 7.5 percent rather than 6 percent, world oil prices would be 21 percent higher over the next two decades, and together they would be importing more oil than the United States and Japan today. Dependence on imported oil would skyrocket from 45 percent in 2006 to 80 percent of its consumption by 2025.

These trends have significant global implications. Tighter oil markets and higher prices would sharpen tensions among the oil-consuming countries over access to oil supplies and control of key energy transit sea lanes. Disagreements between the United States and China over approaches to oil security, already a source of tension in bilateral relations, would intensify. OPEC and producing countries like Iran, Venezuela and Russia will be further empowered, oil-importing countries would be economically weakened, and oil markets would be prone to even greater volatility.

Even more worrisome, China’s impact on oil markets is likely to pale in comparison to those arising from its coal use and production of greenhouse gases.

San Jose Mercury News