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Confidential. © 2017 IHS MarkitTM. All Rights Reserved. Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
China’s coal conundrum What could enable an earlier coal and CO2 peak?
Xizhou Zhou, Senior Director
Head of Power, Gas, Coal & Renewables Group – Asia Pacific
March 13, 2017 | China Environment Program | The Wilson Center
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Key Implications
• Given current policies and investment trends, IHS expects that Chinese carbon emissions will peak before 2030, even with increasing investment in coal-fired power and coal-conversion sectors.
• The economic transition away from heavy manufacturing the past few years means that the carbon peak could come earlier and at a lower level than previously thought.
• In addition to economic growth, government policies (e.g., further environmental mandates) and market factors (e.g., cost competitiveness of alternative fuels and technologies) will also be critical for the future of coal – and thus any coal conversion projects.
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IHS long-term scenario outlooks Coal demand trajectory came down significantly between 2015 and 2016 outlooks
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0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2000 2005 2010 2015 2020 2025 2030 2035 2040
China: Coal consumption outlook
Source: IHS © 2017 IHS Markit
mt o
f sta
ndar
d co
al
Reference scenario 2016
Reference scenario 2015
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Why the substantial drop in 2016 outlooks?
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0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
2000 2010 2020 2030 2040
Energy intensity of the Chinese economy
Source: IHS © 2017 IHS Markit
mto
e pe
r bill
ion
2015
US$
of Outlook
-2
0
2
4
6
8
10
12
14
16
18
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030
Services
Non-manufacturingindustry
Manufacturing
Agriculture
China's real GDP growth (%) and its components
Source: IHS © 2016 IHS
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Renewables and gas played a role too, but coal-fired power continues to grow
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0
2,000
4,000
6,000
8,000
10,000
12,000
2000 2005 2010 2015 2020 2025 2030 2035 2040
Other
Solar
Wind
Gas
Nuclear
Hydro
Coal
China power generation outlooks (Reference scenario 2016)
Source: IHS
Pow
er g
ener
atio
n (T
Wh)
© 2017 IHS Markit
Outlook
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Power/heating and feedstock are the main sectors for future coal consumption growth in China
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-100
0
100
200
300
400
500
600
2005-10 2010-15 2015-20 2020-25 2025-30 2030-35
Power Heating Industry
Feedstock Residential Other
Incremental thermal coal consumption in China
Source: IHS Markit © 2017 IHS Markit
mill
ion
tons
of S
CE
Negative value: Demand reduction
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Coal as a feedstock: the most versatile fuel
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Source: IHS Markit 01112-8
via methanol Synthetic natural gas (SNG)
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Where does coal-to-methane fit in China’s gas supply? Multiple gas supply sources competing for China’s gas market
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China’s natural gas supply system
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IHS Markit 2015-25 Asia long-term liquefied natural gas price outlook
How do energy companies examine their supply strategies? Will coal-based SNG be economically competitive
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0
2
4
6
8
10
12
14
16
100 150 200 250 300 350 400 450 500
SNG production cost vs coal price
Source: IHS Markit © 2017 IHS Markit
US
dolla
rs p
er M
MB
tu
Coal price in RMB per ton Note: Assume 75% utilization rate. Coal prices are based on lignite 3800 kcal.
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Current policies will enable China’s reach its COP21 commitments, but deeper cuts are possible
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0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2000 2005 2010 2015 2020 2025 2030 2035 2040
China: Energy-related carbon emissions outlook
Source: IHS © 2016 IHS
mt e
nerg
y-re
late
d C
O2
emis
sion
s
“Autonomy” scenario 2016
Reference scenario 2016
Reference scenario 2015
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Summary of key implications
• 2030 peak carbon is very much achievable for China, even with higher coal usage in the power and coal conversion sectors.
• Economic restructuring is key to lowering coal consumption, and
any changes in the restructuring will alter future carbon trajectory.
• Environmental policies and market factors will determine the future of coal conversion. More regional coal ban? Future fossil fuel prices?
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IHS Markit: Industries we serve
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Energy Chemical Automotive Financial Markets
Product Design Technology, Media & Telecom
Maritime & Trade Aerospace, Defense & Security
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Who we serve
All global investment banks
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46 of 50
largest global asset managers
35 of 50 largest U.S. banks
All largest hedge funds
24 of 25
largest global oil companies
94 of 100
largest U.S. corporates
10
largest automobile companies in the world
>80% of the Fortune Global
500
All G20 governments
>70% of the Fortune
US 1000
All largest global
custodians
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Energy-Wide Perspectives
Our Energy & Natural Resources Group
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Europe, Middle East
& Africa
North America
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Regional organization / global expertise
Upstream Oil & Gas
Oil Markets, Downstream, and
Chemicals
Power, Gas, Coal & Renewables
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