1. QUESTION
Evaluate renewable energy and alternative technologies; the threats and opportunities for the oil and gas industry.

Procedure

If you wish to successfully realise the aim and objectives of your energy report you must provide a series of forward-looking statements, particularly those regarding national economic growth, energy consumption [importation/exportation], energy policies and revenues. It is important that your report focuses on the future of oil/gas and energy between 2015 and 2025.

These forward-looking statements should highlight the risks and uncertainties involved with projections that relate to events, and depend on circumstances, that will or may occur in the future.

The actual results of your National Energy Outlook Report may differ depending on a variety of factors, consequently your energy report must include an â€˜in-depthâ€™ analysis section [of 750 words] that focuses on one or two of the following themes in much more detail: product supply, demand and pricing; political stability; legal and regulatory developments; new technologies; climate change, natural disasters and adverse weather conditions, or wars and acts of terrorism/ sabotage.

The report must begin with an â€œExecutive Summaryâ€ [250 words], which highlights the key findings of your work. It is essential that all projections are fully evidenced and justified, and consequently, numeric, statistics and graphics are used throughout. A 10% deduction will be applied if you exceed the word count.

Subject	Report Writing	Pages	13	Style	APA

Answer

Executive Summary

The China National Energy Outlook Report postulates the long-term projections of energy supply and demand focusing on petroleum and gas sector through to 2025 (Arizpe, Costanza, Lutz, 2014). The findings depict that China’s economy is greatly supported by energy from oil and gas products, and the energy security of the country is anchored on projections of its future energy demand and supply. China’s energy consumption is projected to rise significantly over the next decade (Yu, Wei, Wang, 2012). The rapid economic growth is projected to pose the country as the largest economy in the world by 2025 and, subsequently, will induce increased demand for energy resources, especially in oil and gas. However, there is limited prospects for increased domestic production in future.

The China’s Gross Domestic Product (GDP) is anticipated to increase by an average of 6.6% per year across to 2025 (Armaroli, Balzani, 2011). The projected increase per capita income in China will translate to increased demand for oil and gas products yet, the domestic supply will remain static or get diminished due to depletion of the crude oil resource. The energy consumption of China is expected to triple by 2025 by an average of 3.8 percent per year as the economy continues to grow (Jia, Guan, Wang, Liu, Lei, Wen, 2014). Domestically, the China’s high population growth rate will induce internal urbanization thus increase the demand for energy. Consequently, the increased lacuna between energy demand and supply posits that China will heavily rely on oil and gas imports to sustain its energy demand.

Introduction

Critical look on global energy projections depicts increasing global energy demand with global consumption expected to increase by 40 percent by 2025 (Bray, Jemal, Grey, Ferlay, Forman, 2012). The increasing demand is fueled by the significant surge in global population size that is expected to hit 25 percent increment in the next decade (Yu, Wei, Wang, 2012). China is predicted to register the highest population growth rate over the period. The increase in population size and standards of living stemming from an anticipated increase in economic growth rate will impose more pressure on energy supplies. For instance, China is expected to register 75 percent increase in energy demand by 2025.

Population growth and per capita income increment are fundamental factors underscoring the high global energy demand (Chan, Li, Tham, Liao, Wong, Aung, Cheng, 2015). With the world population projected to hit 7 billion by 2025, China is expected to contribute 22 percent of the total projected world population. Besides, there is expected increase in GDP by 75 percent globally over the same period. China’s economy is expected to grow by 5.5 percent and become the world’s largest economy (Yu, Wei, Wang, 2012). China is a non-member of the Organization for Economic Co-operation and Development (OECD) and is expected to have an increase in its primary energy consumption to 37% with average annual growth of 2.2 per annum by 2025.

The China’s energy demand is expected to increase proportionately with the increase in economic growth rate (Chan, Adamo, Coxson, Goldman, Gu, Zhao, Moran, 2012). China’s Gross Domestic Product (GDP) is expected to average to 6.6 percent yearly by 2020 and even higher by 2025 (Yu, Wei, Wang, 2012). The energy consumption of China has been in the rise over the years and is projected to strike 98.3 quadrillions Btu by 2025.

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Figure 1—China’s Total Primary Energy Consumption, 1970–2025

Source: International Energy Outlook 1999.

The steady increase in consumption witnessed from 1970-2015 is attributed to the high rate of China’s economic growth and is projected to increase across to 2025.

It is projected that the share of oil in primary energy consumption of China will be around 20 percent over the same period of time due to the focus by the Chinese government to expand natural gas production and consumption (Fan, Xia, 2012). Consequently, the demand for natural gas is expected to grow at an annual average of 11.7 percent from 0.7 to 9.5 trillion cubic feet (tcf) (Yu, Eom, Zhou, Evans, Clarke, 2014). Comparatively, the demand for natural gas in China is growing faster than other sources of energy. The increase in consumption of gas has significantly contributed to the projected decline in consumption of coal from 72 percent to 65 percent of consumption.

Gas Other Gas

6% 11%

1996 2025

Figure 2—Primary Energy Consumption in China, 1996 and 2020

Source: United States Energy Information Administration

The demand for coal is also projected to grow by merely 3.6 percent annually. Renewable sources of energy and nuclear energy are also expected to increase marginally due to technological, financial and ecological constraints (Finucane, Stevens, Cowan, Danaei, Lin, Paciorek, 2011). Since 1949, China’s petroleum industry has been adversely affected by the country’s high population growth rate and lack of domestic oil reserves. The projected high population growth rate and continued economic growth in China are projected to be the major drivers behind the surge in high future demand for energy in the country (Yu, Zhu, Zhang, 2012). With the steady increase in population, China will have a bigger gap between domestic energy production and consumption.

Conceivably, the consumption of natural gas and oil in China has been on the rise over the years and is projected to continue due to projected increase in income per capita in the country (Gerland, Raftery, Ševčíková, Li, Gu, Spoorenberg, Wilmoth, 2014). The assumption for the China’s future energy industry is that demand for energy will continue to rise gradually with steady increase in population and economic growth.

Analysis

China’s energy demand and supply situation are set to long seriously in nationwide short supply due to projected gradual increase in buyer’s market (Haub, Gribble, Jacobsen, 2011). China’s GDP is expected to grow by 9.9 percent by 2025 with energy consumption at an average of 9.1 percent. The country’s oil reserve of 24 billion barrels constitutes only 2.3 percent of the total in the world market yet the country has a population of 22 percent of the world population (Fan, Xia, 2012). The big energy production and population gap is projected to widen and consequently induce serious energy situation in China. The projection indicates that by 2025, China’s industrial sector will demand over 70 billion barrels for potential and total proven reserves.

China’s domestic resources will be insufficient to meet the country’s growing demand for energy in general and oil and gas particularly (Jarvis, Hewitt, 2014). On an absolute basis, China has rich energy resources but poorly endowed on the basis of per capita. Coal reserve is projected to continue providing China with of its energy across the same period (Fan, Xia, 2012). The nation’s oil and gas supply is projected to be unable to meet the looming overwhelming demand for energy.

Shares of primary global energies

2013-35 increments by fuel

The figure above represents global long-term projected energy shares through to 2035. It is evident that both oil and coal energies have had decreasing shares since 1965 (Jiang, Lin, 2013). However, gas fuel has gone through significant increment since 1965 and still expected to increase through to 2035 (Jarvis, Hewitt, 2014). Notably, other sources of energies such as hydro, nuclear and renewables have experienced very insignificant changes in their shares in the global market.

The world OECD Non-OECD

Gas has a steady gain of shares while oil and coal have falling shares. By 2025, all the fossil fuels will aggregate to around 26-28% with no dominant fuel (Lin, Ouyang, 2014). However, fossil fuels will remain the leading form of energy in 2025 with an aggregate loss of share from 86 percent in 2013 to 81 percent in 2025 (Jarvis, Hewitt, 2014). A third of energy demand increment is met by gas, the other third by oil and coal combined and the rest by fossil fuels (Lin, Ouyang, 2014). These global projections of a future increase in global demand for energy are bad news to China whose only choice in the future is to tap energy from the global market through heavy imports.

Table 1- Primary Energy Production and Consumption Trends

			1985	1986	1987	1988	1989	1990	1991	1992
Production	Coal	MTCE	623	638	663	700	753	771	777	797
	Share	%	72.8	72.4	72.6	73.1	74.1	74.2	74.1	74.3
	Oil	MTCE	179	187	192	195	196	197	201	203
	Share	%	20.9	21.2	21.0	20.4	19.3	19.0	19.2	18.9
	Natural gas	MTCE	17	185	18	19	20	21	21	21
	Share	%	2.0	2.1	2.0	2.0	2.0	2.0	2.0	2.0
	Hydro	MTCE	37	379	40	43	47	50	49	51
	Share	%	4.3	4.3	4.4	4.5	4.6	4.8	4.7	4.8
	Total	MTCE	855	881	913	958	1016	1039	1048	1073
	Growth	%	6.06	930.14	▲ 89.64	4.97	6.09	2.25	0.89	2.30
Domestic consumption	Coal	MTCE	581	613	660	709	737	752	790	826
	Share	%	75.8	75.8	76.2	76.2	76.0	76.2	76.1	75.7
	Oil	MTCE	131	139	147	158	166	164	177	191
	Share	%	17.1	17.2	17.0	17.0	17.1	16.6	17.1	17.5
	Natural gas	MTCE	17	19	18	20	19	21	21	21
	Share	%	2.2	2.3	2.1	2.1	2.0	2.1	2.0	1.9
	Hydro	MTCE	38	38	41	44	47	50	50	53
	Share	%	4.9	4.7	4.7	4.7	4.9	5.1	4.8	4.9
	Total	MTCE	767	809	866	930	969	987	1038	1092
	Growth	%	4.93	5.44	7.15	7.35	4.23	1.82	5.15	5.19
			1993	1994	1995	1996	1997	1998	95/85	98/95
Production	Coal	MTCE	822	886	972	997	981	893	4.55	▲ 2.78
	Share	%	74.0	74.6	75.3	75.2	74.1	72.0
	Oil	MTCE	208	209	214	225	229	229	1.82	2.31
	Share	%	18.7	17.6	16.6	17.0	17.3	18.5
	Natural gas	MTCE	22	23	25	27	28	30	3.66	6.67
	Share	%	2.0	1.9	1.9	2.0	2.1	2.4
	Hydro	MTCE	59	70	80	77	86	88	8.08	3.24
	Share	%	5.3	5.9	6.2	5.8	6.5	7.1
	Total	MTCE	1111	1187	1290	1326	1324	1240	4.20	▲ 1.32
	Growth	%	3.55	6.91	8.68	2.78	▲ 0.16	▲ 6.35
Domestic consumption	Coal	MTCE	866	921	979	1038	988	974	5.35	▲ 0.16
	Share	%	74.7	75.0	74.6	74.7	71.5	71.6
	Oil	MTCE	211	214	230	250	282	269	5.76	5.46
	Share	%	18.2	17.4	17.5	18.0	20.4	19.8
	Natural gas	MTCE	22	23	24	25	23	29	3.42	6.55
	Share	%	1.9	1.9	1.8	1.8	1.7	2.1
	Hydro	MTCE	60	70	80	76	86	88	7.85	3.38
	Share	%	5.2	5.7	6.1	5.5	6.2	6.5
	Total	MTCE	1160	1227	1312	1389	1382	1360	5.52	1.21
	Growth	%	6.25	5.81	6.88	5.92	▲ 0.56	▲ 1.57

(Source) Prepared by IEEJ from ÅgChina Statistical Yearbooks,Åh each year edition.

From the above data, China’s GDP grew by 9.9% from 1985 to 1995 while the growth of energy consumption averaged 9.3% per year (Liu, Johnson, Cousens, Perin, Scott, Lawn, Andersen, Bull, Guthold, Haskell, Ekelund, 2012). From Table 1 above, it is notable that china’s oil consumption between 1990 and 1996 grew by an average of 9.92 million tonnes per year representing 7.2% average growth per year (Lin, Ouyang, 2014). The elasticity of oil consumption was above the primary oil consumption by 0.11.

However, oil production merely grew by an average of 2.2% representing only 3.7 tonnes of oil in absolute terms (Lutz, 2013). Conceivably, the average annual oil consumption stays higher than that of production. China’s energy production and consumption had oil shares standing at 18.5% and 19.8% respectively as of 1998 (Peng, 2011). Compared with the mix standings of 1985, (20.9%, 17.1%), oil share in energy production reduced by 2.1% while that of the production mix increased 2.7%. This trend is projected to continue across to 2025 and China has no option but to trim oil export as it increases oil imports to satisfy the country’s oil demand in future.

Fig. 3- China’s Oil Export and Import Balances (Unit: 10,000 tons) (Unit: 10,000 tons)

(Source) Prepared by IEEJ from ÅgChina Statistical Yearbooks,Åh each year edition.

In 1993, with imports outdoing exports China dropped from an oil exporter to an importer importing 15.64 million tones. By 1997, the import had increased to 18.2 million tonnes.

Figure 4: Projected Growth of Oil Demand, 2014 Base Case

(Source: OPEC 2014).

There is increasing demand for oil in the Asia and particularly China whose coal energy has been in the decline from 72% in 1998 and is projected to decrease further to 62% by 2025 (Peng, 2011). From figure 2 above, oil consumption in China is expected to grow from 3.5 barrel a day to 8.8 barrels a day by 2025. This represents a projection of an increase in demand at an average rate of 3.8 percent per year (Prince, Bryce, Albanese, Wimo, Ribeiro, Ferri, 2013). The projected increase in urbanization in China will further put more stress on energy supply by increasing the demand for energy in the country. Looking into the year 2025, there will be increased global urbanization that would translate into increased global demand for energy as various world economies expand (Peng, 2011). Consequently, there is an anticipated surge in oil prices in future that would mean China will have to spend more on imported petroleum products.

Figure 8: The Projected Urban/Rural Population Growth, 2013-2040

(Source: OPEC WOO 2014)

In 2011, China’s total oil import amounted to 254 million tonnes of crude oil thereby hitting 56.5 percent dependence on imported oil (Shan, Xu, Zhu, Zhang, 2012). The country imports nearly 5.3 million barrels of oil per day much of which come from the same place i.e. from the Gulf (Suganthi, Samuel, 2012). Consequently, China risks oil starvation in the event of constrained diplomatic ties with the countries in the Gulf.

Besides China lacks the adequate foreign policy to accommodate the inevitable economic realities arising from geopolitical factors by the U.S interference in the Gulf region (Valentine, Jablonski, 2015). The U.S is seeking energy self-sufficiency to reduce or stop oil importation from the middle-east (Wolfram, Shelef, Gertler, 2012). This is a threat to China in its quest to meet its future energy demands as the U.S would withdraw from the middle-east and freely interfere in the geopolitical framework of the region after gaining energy sufficiency (Peng, 2011). Future predictions posit a possibility of North and South America becoming energy self-sufficient hence, my withdraw from the middle-east (Wood, Coccia, Pan, Sheffield, (2014). The U.S withdrawal from the region will pose a big risk to China’s future energy supply through imports from the Gulf region due to the likelihood of the region falling into disorder.

Conclusion

China will expect a remarkable increase in demand for energy in the next decade due to its steady increase in population and economic growth. This long-term projection has been founded upon facts of figures observed from the trend displayed in the recent past years regarding the energy industry of the country and the global energy trends.

It was found that the global demand will equally exceed the global supply due to the projected increase in world’s population by 2025 and per capita income. Thus, the likelihood of an increase in crude oil prices in future. The increase in oil prices will impact negatively on the economy of China that is predicted to be dependent on imported oil from the Gulf region by 2025.

Another risk facing China is the likelihood of the U.S withdrawal from the Middle-East having attained energy self-sufficiency. The withdrawal will leave China’s economy exposed to geopolitical factors such as conflicts in the region that would disrupt oil supply from the region to China.

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