Page 1 of 2 New life for coal in quake's aftermath
By Jianjun Tu
Two months after the May 12, 8.0-magnitude earthquake that struck southwest
China, with its epicenter at Wenchuan county in Sichuan province, the attention
of Beijing's leaders has shifted from the direct damages caused by the disaster
to its potential corollary impacts on China's growth and to maintaining
President Hu Jintao's "scientific outlook on development" and other key
strategic issues.
While China is the world's second-largest energy producing and consuming
country, and recently overtook Japan to become the second-largest importer of
crude oil, the energy implications of the recent earthquake, including its
impacts on the global oil market, have become a topic of interest under the
international spotlight.
Due to the relatively small share that Sichuan contributes to the
Chinese economy, the overall economic impact of the earthquake at the national
level is expected to be modest at most. According to the National Bureau of
Statistics, Sichuan's gross domestic product accounted for only 4.2% of the
national total in 2007; the shares of major quake-hit regions including
Dujiangyan, Pengzhou, Deyang, Mianyang, Guanyuan and Aba Tibetan and Qiang
Autonomous Prefecture between them represented 0.7% of the country's GDP.
Industrial production of the province and major quake-hit regions was 3.8% and
0.7% of the national total. Moreover, the population and agricultural
production of the severely affected areas in a national context was 1.0% and
1.3%. In comparison, when the Kobe earthquake hit Japan in 1995, the
population, GDP, agriculture and industrial production share of severely
affected areas in a national context was much higher, reaching 4.4%, 4.1%, 2.1%
and 4.8%, respectively.
While the Kobe earthquake cost Japan US$200 billion, or 2.5% of its GDP at the
time, and is still the costliest natural disaster to befall any one country,
Japan's economic activities actually held up better than expected, and indeed
rebounded quickly. Therefore, though the damage to Sichuan's agriculture,
especially its pork production, and post-quake demand for basic materials and
energy commodities will make it difficult for Beijing to retard destabilizing
flares of high inflation, the overall economic impact of the Sichuan earthquake
can be tempered by China's decision makers. This seems especially apt given the
country's long history of dealing with severe natural disasters, such as the
1976 Tangshan earthquake, the 1998 Yangtze River floods and this year's snow
storm disaster.
Nuclear plans on
hold
The earthquake's effects on China's long-term national energy development are
expected to be much more profound. First, the Sichuan earthquake has triggered
a rethinking of the country's nuclear development ambitions.
To alleviate its daunting energy security challenge, improve the national
energy mixture and the associated issue of air quality, and to stimulate the
development of the domestic nuclear industry, China planned to rapidly increase
its nuclear power capacity from 6.95 gigawatt in 2005 to 40GW in 2020 [1].
Most Chinese provinces are in involved in nuclear investment; even Sichuan, a
hydro-rich region, had planned to invest more than 40 billion yuan (US$5.8
billion) to build a 4GW nuclear plant at Pengan county in Nanchong city. After
China Guangdong Nuclear Power Holding Co was selected as the contractor in
2007, the Sichuan provincial government initially planned to start the
construction in 2010, with a target to commission the facility in 2014.
However, the danger of having a nuclear plant in the vicinity of an active
earthquake region was illustrated by the radioactive water spill incident at a
Japanese nuclear reactor as a result of a 6.8-magnitude earthquake that struck
the country on July 16, 2007. Not surprisingly, soon after the earthquake, a
source within the China Electricity Council said that Beijing would become more
conservative in terms of positioning nuclear plants in the future.
While China may restrain its nuclear development ambition for a while, the
fundamental illness in the country's energy system revealed through the recent
earthquake is hard to ignore. Since Deng Xiaoping opened the communist country
to the outside world in 1979, nominal GDP has grown at an astonishing annual
rate of 16%. The impressive economic success so far, however, has blurred the
fundamental fact that China's current development model is based on the
exploitation of poor rural communities and resource-rich hinterland in favor of
developed urban centers and coastal regions. While Beijing may have realized
the political urgency of lowering the wide income gap between peasants and
urban dwellers, the present national energy strategy continuously advocates
heavy energy subsidies provided by the poor hinterland to the developed coastal
regions.
For example, after the construction of the world's largest hydro-electric
station - the 22.4GW Three Gorges Dam (TGD) project started in 1994 in Hubei
province, adjacent to Sichuan, both Sichuan and Chongqing (formerly an
administrative part of Sichuan) have had to deal with millions of forced
immigrants, upstream flooding and earthquake risks. Since TGD's first hydro
turbine was commissioned in 2003, the cumulative electricity output so far has
reached 230.8 terrawatt hours (or trillion watt hours - TWh). On June 16, the
daily output of the 22 operating turbines stabilized at 300GWh.
When the whole project is completed in 2009, the annual output of the 32 hydro
turbines is expected to be more than 100TWh. Yet Sichuan, Hubei, and Chongqing
have been hit badly by electricity shortages in recent years. In contrast, a
significant portion of TGD’s output is transferred to the coastal regions at
reduced rates. Guangdong alone received nearly a quarter (24.6%) of TGD's
electricity sales.
As a result, Sichuan, Chongqing and Hubei are forced to consider the expensive
and environmentally risky nuclear power as the answer for their energy security
challenges. A similar situation exists for coal-rich Henan, thus the
aforementioned resource-rich provinces along with Hunan, Jiangxi, Anhui, Gansu
and Jilin have competed furiously with each other for the construction permit
of China's first nuclear power station in the hinterland provinces.
Environmental consideration
The Sichuan earthquake also cast doubt on China's ambitious hydro-development
plan. With an economic exploitable capacity of 401.8GW, China ranks top in the
world in terms of hydro development potential. In 2004, Beijing set an
ambitious target of expanding installed hydro capacity to 125GW in 2010 and
150GW in 2015. By the end of 2007, national hydro capacity had already reached
145.26GW [2]. With its hydro electricity output representing 18% of the
national total in 2006, Sichuan is one of China’s key hydro development
regions.
During the project appraisal process of the TGD project, environmental and
ecological risks of large hydro dams were deliberately ignored due to political
manipulation. Since then, environmental impact assessment has gradually been
integrated into the project appraisal of large hydro projects, which is evident
in Premier Wen Jiabao's decision to halt construction of 13 dams on the Nujiang
River in 2004.
As dam projects with hydro-electric capacity less than 25MW need to obtain
permits only from local government, a small hydro investment frenzy is going on
across the country. Currently, 110 of 181 administrative counties in Sichuan
have their own small hydro projects. Many small hydro-electric stations that
have emerged in recent years are considered as "four-no" projects, which means
there is no project application, no construction planning, no engineering
design, and no regulatory approval.
Not surprisingly, many of the ill-designed small hydro dams and some of the
large ones that have managed to bypass the environmental impact assessments are
prone to structural failure, which partly explains why as many as 391 hydro
dams in Sichuan have been damaged recently. The lessons learned so far should
be enough to convince China's decision makers consider more environmental and
ecological consideration when debating hydro development plans in the years to
come.
Compared with a business-as-usual scenario for the rest of the economy - as if
there were no Sichuan earthquake - China's nuclear and hydro development
trajectories are expected to be hindered, and the implications for China's coal
industry are quite profound.
Coal has long fueled China's industrialization ambitions, given the country's
more limited petroleum resources. Heavy reliance on coal has resulted in
mounting environmental problems ranging from fresh-water contamination to
deteriorating air quality. As a result, substitution of significant amounts of
dirty coal is one of the strongest arguments in favor of China's ambitious
nuclear and hydro development targets. If nuclear and hydro development are
scaled back, most of the shortfall is likely to be compensated by coal-fired
power plants. Renewables, including wind farms, could play only a relatively
marginal role in the foreseeable future.
State-owned collieries alone are unable to meet the country's strong demand,
and the National Development and Reform Commission (NDRC) under the State
Council was recently forced to encourage the resumption of coal production at
small township and village enterprises (TVE). While the implied demand spike
for coal caused by the earthquake will further strain a tight coal supply
chain, the chance for China's decision-makers to recognize the importance of a
healthy private sector presence in the coal mining industry has increased.
Long-term oil and gas development
Sichuan is not considered to be a major oil producing province, but is a key
regional petroleum market. with annual oil product consumption approached 10
million tonnes (Mt) in 2007. In the wake of the earthquake, PetroChina is
reconsidering its plan to build a $5.7 billion refinery and petrochemical
complex in the province's Pengzhou city.
The company had planned to complete the complex by 2010,
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