China's Coal Dependency

According to government authorities, Beijing will close its four remaining coal-fired power plants before the start of 2015, replacing them with four new natural gas-fired power plants at a total investment cost of $7.8 billion. When completed, these four power plants using natural gas from Shaanxi province will have a total generating capacity of 2.7 gigawatts. In the near term, efforts to reduce coal usage will probably be limited to Beijing and a few other top-tier cities, such as Shanghai, Tianjin and Guangzhou, where the Party is most keen to quell social discontent by improving the quality of life, in part by decreasing pollution.

The rest of China's economy will almost certainly continue to rely on coal for two-thirds or more of its energy and electricity needs throughout the next decade; national coal consumption is set to rise from 3.66 billion metric tons in 2012 to well over 4 billion metric tons in the next few years, despite the government's intent to cap consumption under 4 billion metric tons.

Nonetheless, given the scale of China's energy demands, even a relatively minor shift in its energy consumption patterns will have major implications for global markets -- not only for coal but also for the natural gas that will partly replace it. This will have important implications for national economies that depend on coal, natural gas and other fossil fuels exports, particularly since the changes occurring in China will take place mostly in the coastal provinces, which are China's largest consumers of energy from overseas.

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