Politics of Power: Chinese Greenhouse Emissions

As this column has emphasized before, global environmental and climate trends will hinge on the emissions of the developing world. Just this month, China’s largest oil refiner, China Petroleum & Chemical Corporation (Sinopec), has indicated to the world that China may reach peak oil and gasoline consumption much quicker than previously predicted by western energy companies and consulting groups. For instance, the esteemed Paris-based International Energy Agency (IEA) has forecasted that China’s oil demand will most likely increase through 2040. This is a massively different time frame than the official predictions by Sinopec. China sees peak diesel consumption in 2017 and peak gasoline consumption within the next 10 years.

These Chinese predictions are a sobering revelation to any oil-bull. The common theme among energy companies is that demand trends in India and China will remain positive for decades to come — supporting global oil markets in the process. This Chinese-Indian demand is essential for stability in the oil market given the very real slowdown in oil consumption from developed nations. Exxon-Mobile, the world’s fourth largest oil company, predicts that from 2010 to 2040, gas and diesel energy needs in the 32 countries of the OECD are projected to fall about 10 percent. However, Exxon believes that these needs are expected to double throughout the rest of the world.

The signs are already evident that these IEA and Exxon predictions may be overly enthusiastic. In China, diesel demand declined last year, and growth in crude oil consumption has shrunk. Crude oil use is projected to rise about three percent this year, less than half the rate of the total economy. These declines in growth rates are symptoms of very powerful forces from within China. For instance, the political leadership in China is trying to transition the economy away from debt-fueled real estate investments and heavy ‘smoke-stack’ industries towards service industries and increased domestic-consumption. This will limit the need for energy-intensive investments and stymie the growth of petroleum use.

Even Sinopec itself, with 30,000 gas stations and 23,000 convenience stores, is prepping for a future in which selling fuels is not its primary business plan. As a microcosm of the Chinese economy, it hopes to rely on the consumption of goods and services at its shops and filling stations. Sinopec Chairman Fu Chengyu is quoted as saying, “In the future, fuels will become a non-core business of Sinopec … petroleum or oil and gas will continue to be a major energy source in the future, but they won’t be the only source; more emphasis will be put on our new energy and alternative energies.”

China is the world’s largest greenhouse gas emitter. As such, the policy decisions made in Beijing will have a greater effect on global climate change than any other unilateral announcements. According to the World Bank, China accounted for roughly 24 percent of global greenhouse gas emissions in 2014. Within the country, roughly 16 percent of greenhouse gases are emitted from the consumption of petroleum products. It appears that through Sinopec’s retail plan, China is signaling that it is committed to meaningful reductions in emissions. However, there can always be more progress and greater efficiency. It will be illuminating to follow China’s path to peak gas and diesel over the next few years.