Thursday, August 12, 2010

Chinese Energy Options

In an effort to reign in China's double digit growth in energy demand, the government of China will close over 2,000 energy-intensive factories, according to the New York Times (10 August 2010). To make certain that the factories close, the Ministry of Industry and Information Technology has said the factories would be denied bank loans, export credits, business licenses, land --even electricity. Such closings will help China reach its 5 year plan of reducing the amount of energy used per economic output by 20%, it could also make China more competitive. The Times reports that the steel mills to be closed are the smaller, older units: leaving the producers of more sophisticated kinds of steel untouched.

Despite such efforts at conservation, China's needs continue to place a strain on world energy production. China is continuing its efforts to sign bilateral deals with countries that have problems with the United States. As an example, the Los Angeles Times reports a senior European official calling Chinese business activities in Iran as "amazing." State Department official Robert Einhorn said that China backfills when responsible countries distance themselves from a particular country. China has invested over $40 billion dollars in the Iranian petrochemical industry, and is engaged in all aspects of the industry. Most recently, according to Iranian deputy oil minister Hossein Noghrekar Shirazi, China has proposed to build seven new refineries in Iran. (LA Times, 09 August 2010).

Chinese energy purchases from pariah nations defeat the purposes of American sanctions against those regimes, but it has the advantage of freeing up energy supplies from other countries for use by the United States and its European allies. Turkmenistan was considering a natural gas swap arrangement with Iran in order to get its gas to market. (Iran sells its gas on the open market and uses the money to buy Turkmen gas, since the Turkmen have no way to get their gas to the world markets.) Because of the sanctions against Iran, however, Turkmenistan is looking more favorably at the possibility of a pipeline to send its gas to Europe via Azerbaijan.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at