The Experts is an exclusive group of industry and thought leaders brought together by the Wall Street Journal to comment on issues raised in Journal Reports. In September 2013, BCG’s Iván Martén weighed in on four questions prompted by the latest Energy report.
How will China change the global energy equation in the next five years?
After more than 30 years of economic development, China has risen to be not only the world’s second-largest economy but also the number-one energy consumer.
Relying on imports for 57 percent of the oil and 29 percent of the gas it consumes, China has a strong influence on global energy demand, prices, and asset acquisition. This is unlikely to change soon. China’s GDP is widely expected to keep growing at its current fast pace, driven by further urbanization and improvements in the quality of life.
China’s energy consumption, therefore, will also continue to grow. Take oil, of which Chinese consumption rose by nearly two-thirds between 2005 and 2012. By 2020, China’s dependence on imported oil will reach 63 percent. China will also rely much more on imports for its natural gas.
The chief driver of oil demand growth is China’s expanding vehicle fleet. In 2010, China had 67 vehicles per 1,000 people. That compares with 600 in Europe and 800 in the U.S. We estimate that China’s vehicle stock will more than triple to 280 million by 2020.
Several trends emerging in China over the next five years will have a positive impact on global energy.
First, on the demand side, China is trying to control its growing appetite. The government has realized that it’s time to ease its economic reliance on infrastructure investment and support for export manufacturing and instead put more emphasis on service industries, technological innovation, and private consumption. Such an economic restructuring would eventually decrease total energy consumption. China has vowed to cut its energy intensity by 16 percent by 2015 from its 2010 level and to cut carbon intensity by 40 to 45 percent by 2020 from its 2005 level. At same time, the Chinese government has announced it plans to cap coal consumption at 3.9 billion tons by 2015, slightly above the 2011 level. We believe China can achieve this goal if it follows through on all its clean-energy endeavors. China is also further deregulating domestic oil and gas prices. A more market-oriented price system will facilitate improved energy efficiency.
Second, on the supply side, the government is encouraging the development of unconventional resources, including shale gas and coal-bed methane, to both enhance energy security and promote cleaner alternatives to coal. A lack of technology and pipeline infrastructure, as well as complex geological challenges, may make it difficult for China to develop shale gas as quickly as planned. But the government can pave the way for a boom in the future with strong investments over the next five years. China also boasts the world’s largest wind-power capacity, with 61 gigawatts. And the domestic photovoltaic solar market is taking off as central and provincial authorities step up incentives.
Finally, China can also be expected to influence international energy markets as more than a buyer. No longer satisfied only with importing oil and gas, China’s national oil companies have set their strategic sights on exploration and development and are looking to absorb technologies through mergers and acquisitions. Since 2002, Chinese oil companies have invested almost $130 billion overseas.
This blog was originally published by the Wall Street Journal.