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New Study: China’s Expanding Overseas Coal Power Industry

Dr Frank Umbach & Dr Ka-ho Yu, European Centre for Energy and Resource Security (EUCERS)

China is the world’s largest energy consumer overall and the largest coal consumer in particular, using nearly as much coal as the rest of the world combined. It is also the largest coal producer, providing more energy to the world’s economy than the entire Middle Eastern oil production. Since 2011, it has also become the world’s largest importer of coal.

But in contrast to China’s oil and gas investments abroad, Beijing’s expanded investments in foreign coal mining and coal power projects have failed to garner much international attention. This lack of interest exists, presumably, because the West does not see comparable geo-economic and geopolitical implications in these investments, even if said investments cast a shadow over on-going energy policy and emission reduction debates at the global climate summit in Paris and beyond.

This perception continues despite emerging and visible China-backed changes to the current international economic and geopolitical balance and infrastructure. Chief among these moves are both Beijing’s new economic and diplomatic project One Belt, One Road (OBOR), as well as the developing world’s mounting dissatisfaction with the West’s refusal to providing financial support to coal projects in developing countries, where coal remains a key energy resource for economic growth. In this context, these countries have now turned to Chinese and new institutions such as the Asian Infrastructure Investment Bank (AIIB) for their financing needs. In addition, China may triple its global offshore assets and thus become the world’s largest overseas investor in the next decade.

The limited debate on Chinese coal investments abroad also overlooks several factors. First, China and other countries are actively and increasingly exploring new coal options – in particular the gasification of coal. Second, as part of its official strategy, Beijing has continuously increased its overseas investment in coal mining and power projects during the last decade. Third, China may have the third largest coal reserves behind the United States and Russia, but it may last a decidedly low 30 years, which helps explain the Chinese search for coal import supplies and investment abroad. Finally, China is currently restructuring its own coal industry by closing many smaller, inefficient mines and companies.

Moreover, two other factors need to be considered in the context of China’s current efforts to restructure its coal industry. First, it is important to question whether China may be merely following the U.S. and European examples of favouring foreign rather than domestic investment in energy intensive industries. Such a move would, in turn, have the added benefit of reducing domestic greenhouse gas emissions (GHGE), but at the cost of so-called carbon leakage by merely transferring CO2 emissions to other countries and leading to even higher global GHGE.

Second, the weakening Chinese economic growth and recent stock market meltdown has triggered considerations to relocate foreign and Chinese production facilities elsewhere. But this situation might also constrain future investments at a time when the Chinese government has initiated a new geopolitical investment strategy. Likewise, it may also decrease China’s foreign investment in coal mining and power projects.

Against this background and the recent global climate summit in Paris of last December, this study analyses China’s overseas investments in coal mining and coal power projects. It sheds light on China’s new business opportunities and risks, as well as on the geopolitical implications for European and global energy markets. By analysing developments in world markets and the major directions of China’s future climate, energy and coal policies, the study reveals the following:

Global Coal Markets: Shifts in Production and Demand Patterns

With a reserve-to-production (R/P) ratio of 110 years, coal will be available for much longer than conventional oil or natural gas reserves – 52.5 and 54.1 years, respectively –; while global coal reserves have been halved during the last decade due to rising coal demand particularly in Asia and China. Future technology and better prices could grant access to currently unusable coal concentrations that are 20 times larger than existing coal reserves.

After oil, coal is currently still the second most important energy resource for global energy consumption. It is cost-competitive and not limited to any regions and countries. Coal is not just used as a fuel for coal-fired electricity generation and heat, but also to make steel, cement, fertilisers, and is a feedstock for the chemical industry.

For more than 20 years, global growth in absolute volumes in coal-fired generation has been greater than that of all non-fossil fuel sources combined – including during the last few years.

Almost all international energy organisations and experts expect global energy demand to continue climbing through 2040, with Asia experiencing the largest growth in energy needs.

Full paper