China’s domestic coal production peaked in 2012. It looks like the top is in. China would produce more domestic coal if they could. The fact that they don’t means that they can’t. Ten years ago in the eastern coal province of Shandong, underground coal mines were at an average depth of 675 metres, more than halfway to their final depth of 1,200 metres. Operating costs tend to start rising strongly when a resource is more than half-depleted. Notably, Chinese coal miners have complained that they cannot compete with imported coal on price. Imports have risen to 300 million tonnes per annum, mainly from Mongolia, Indonesia and before it was banned, Australia.
So where did the Chicoms obtain the extra power to keep their economic growth going from 2013? … Hydro made a big contribution, [but] the best rivers are now mostly dammed. … Renewables destabilise the grid and nuclear has a slow rollout. China continues to build coal-fired power stations, presumably to run on imported coal.
There is another complication for China. The northern half of the country gets quite cold in winter. During the 1950–1980 period of central planning, the Chinese government established free winter heating of homes and offices via the provision of free coal for fuel boilers as a basic right. Due to budgetary limitations, however, this right was only extended to areas located in North China, which is defined by the line formed by the Huai River and Qinling Mountain range as shown by the following map:
The use of coal for domestic heating has a downside, in that the life expectancy of those living north of the Huai River is five years shorter than those living south of the river due to the air pollution in winter caused by burning coal for heat.
China’s power producers are going into the northern winter with coal stocks 40 million tonnes lower than they should be for this time of year. Rotating blackouts have already started in China.
China also has peak oil in the rear vision mirror. Peak domestic oil production was in 2014 and the country has now entered a long decline. Perhaps that doesn’t matter so much when the country is already importing 10 million barrels per day, making it the world’s largest oil importer. It looks like peak oil for the world was in 2019, when US shale oil began to decline. The oil price will respond positively.
China has built near to one million barrels per day of coal-to-liquids capacity. But that industry is now competing for feedstock with the power industry. Coal is no longer cheap in China, as shown by the rise in 2021 in the Zhengzhou thermal coal futures for the nearest contract:
Another consequence of peak coal in China is that it will derail the economics of renewable energy. Solar panels have been made in China using power from coal costing US$0.04 per kWh. Those solar panels, when installed in ideal conditions next to gold mines in the West Australian desert, produce power costing US$0.15 per kWh, equivalent to that from diesel. Using power from solar panels to make solar panels would send the price of the power produced to perhaps US$0.40 per kWh. You can’t use power from solar panels to make solar panels. The cost of the power produced would end up being infinite. Tripling of the power cost in China, which is a near term possibility, would have a similar effect.
Energy poverty is real poverty and we have seen peak China.
Read it all here.