China - Long-term issues and options (Vol. 4 of 7) : Annex C : energy

Report No. 5206-CHA China: Long-Term Issues and Options Annex C: Energy May 22, 1985 East Asia and Pacific Region Programs Department Energy Department FOR OFFICIAL USE ONLY Document of the World Bank This report has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. .  CURRENCY EQUIVALENTS The Chinese currency is called Renminbi (RMB). It is denominated in Yuan (Y). Each Yuan is I Yuan = 10 jiao = 100 fen In early 1984 the officiaL exchange rate of the Yuan to the US dollar was around Y 2 US$1. The internal settlement rate (ISR) of Y 2.8 = $1, however, was used in most merchandise transactions. The offical exchange rate is now about Y 2.8 = $1. On January 1, 1985, the Government abolished the ISR. FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS AIC - Average incremental cost bcm - Billion cubic meters cIC - Coal Industry Company CINOPEC - China Petro-Chemical Corporation National CMA - Coal Mine Administration CNOOC - China National Offshore Oil Corporation ctkm - Converted ton-kilometer EOR - Enhanced oil recovery gcal - Giga-calorie GVAO - Gross value of agricultural output CVIAO - Gross value of industrial and agricultural output cVIO - Gross value of industriaL output kcal - kilo-calorie IOC - International oil companies LPG - Liquid petroLeum gas MOC - Ministry of Communications MOCI - Ministry of Coal Industry MOG - Ministry of Geology MOPI - Ministry of Petroleum Industry MOR - Ministry of Railways mtpy - million tons per year MWREP - Ministry of Water Resources and Electric Power pkm - passenger-kilometer SEC - State Economic Commission SPC - State Planning Commission TCE - Tons of coal equivalent tkm - ton-kilometer tpd - Tons per day  FOR OMIcAL USE ONLY ENERGY CONVERSION FACTORS 1 ton of coaL equivalent = 7 million kilocalories 1 ton of oil = 10.2 million kilocalories I ton of coal (run-of-mine average) = 5.0 million kilocalories (export) = 6.5 million kilocalories 1,000 cubic meters of natural gas = 9.31 million kilocalories 1,000 kWh of electricity = 2.89 million kilocalories (unless specified otherwise) (1980 Thermal replacement value) This doaument has a resticted distribution and may be used by recipints only in the performanc or I their oflcal duties. Its contents may not otherwise be disclosed without World Bank authorization.  CHINA: LONG-TERM ISSUES AND OPTIONS ANNEX C: ENERGY Table of Contents* Page No. 1. CURRENT ENERGY CONSUMPTION IN CHINA IN AN INTERNATIONAL PERSPECTIVE ................................. 1 A. The Mix of Energy Sources ..................................... 5 B. The Sectoral Structure of Consumption ......................... 6 C. The Energy Intensity of China's Economy ....................... 10 Energy Consumption per Unit of Output Value ................. 11 Energy Consumption per Physical Unit of Output and End-Use Efficiencies ...................................... 13 Energy Consumption in Major Industrial Sectors .............. 16 Energy Consumption in the Transport Sector .................. 18 Energy Consumption in the Residential/Commercial Sector..... 20 2. FUTURE COMMERCIAL ENERGY DEMAND ................................... 22 A. Methodology ................................................... 23 B. Aggregate Energy Demand and the Problem of Adequate Fuel Supply . . . 26 Industry-Led Growth Scenarios . . . 27 The BALANCE Macro Case . ................. .. . .32 C. Trends and Issues Concerning Specific Types of Energy ......... 36 Coal ........................................................ 36 Oil and Gas ... 38 Electricity ... 45 D. Trends and Issues in Industrial Energy Demand . . 49 E. Energy Consumption in the Transport Sector . . 63 3. DEMAND MANAGEMENT AND PRICING ..................................... 69 A. Introduction .................................................. 69 B. The Allocation System . . . 70 C. Price Systems . . . 72 Determination and Role of Prices . . . 72 Recent Reforms . . . 74 Overview of Energy Prices . . . 75 D. Energy Conservation . . . 82 E. Price Reform . . . 85 * Chapter 4 of the Main Report summarizes the main findings and conclusions in this Annex.  Page No. 4. COAL ......*....... ........................................................... 88 A. Overview ...................................................... 88 B. Organization of the Coal Industry ............................. 88 C. Coal Reserves .................................................. 89 D. Coal Production ............................................... 90 Cost of Production .. 92 E. Sector Issues and Constraints .. 93 Regional Coal Development .. 93 Type of Mine Development .. 94 Mining Methods ....................................... .......... ........... 94 Coal Processing ............................................. 95 Project Design and Management ............................... 96 F. Growth to the Year 2000 ....................................... 96 Investment Requirements ..................................... 99 G. Intersectoral Coordination .................................... 99 H. EnvironmentaL Impact of Coal Use .............................. 105 5. PETROLEUM ........ 109 A. Production of Oil and Gas ................. 109 Overview ............................................. 109 Investment Requirements ..11................... i Oil Reserves and Production ..11................. i Natural Gas Production and Potential .............. 113 Sector Constraints and Issues .................. 115 Future Strategy ............................................. 119 B. Petroleum Refining ............................................ 121 Overview ............................................. 121 Refinery Input and Output ................... 121 Refinery Construction and Operation . ................ 123 Outlook for the Future ...................................... 124 6. POWER ........ 125 A. Overview ., .. 125 B. Production and Distribution ................................... 125 Efficiency ............................................. 127 C. Development Strategy and Prospects ............................ 128 D. Investment Requirements ....................................... 129 E. Major Issues and Options ..................... 130 Hydropower ............................................. 130 Nuclear Power ............................................. 131 Role of Coal ............................................. 132 Size of Nuclear and Coal-Fired Units .............. 133 Grid Expansion and Integration ................. 133 System Planning ............................................. 134  - iii - Page No. 7. RURAL ENERGY SUPPLY AND DEMAND .................................... 135 A. Current Rural Energy Consumption .............................. 137 B. Regional Dimensions in Household Fuel Supply and Demand ....... 139 C. RuraL Energy Planning ......................................... 143 D. Issues in RuraL Energy Development ............................ 144 Afforestation and Fuelwood Supply ........................... 144 Biogas Production ........................................... 147 Improved Rural Stoves ....................................... 148 Direct Solar and Wind Energy Utilization .................... 1 49 Petroleum Product Consumption in Agriculture ................ 150 Rural Electrification ....................................... 152 APPENDICES A. Energy Consumption Statistics for 1980 ............................ 156 B. International Comparisons of Energy Consumption ................... 161 C. Future Demand Scenarios ........................................... 188 D. Coal . ............................................................ 205 E. Power Plant Location Exercise ..................................... 211 F. Power . ........................................................... 215 G. Rural Energy ...................................................... 223 MAPS IBRD 16436R2 Petroleum Production and Refineries IBRD 18224 Major Coal Flows, 1980 LIST OF TABLES IN THE TEXT 1.1 Primary Commercial Energy Production and Consumption ............ 2 1.2 Energy Balance 1980. 3 1.3 Percentage Shares of Final Energy Consumption, 1980. 4 1.4 Petroleum Product Consumption, 1980. 7 1.5 International Comparisons of Sectoral Energy Consumption, 1980 8 1.6 Final Energy Consumption in Industry, 1980. 9 1.7 International Comparisons of Primary Energy Consumption Relative to GDP, 1980 .12 1.8 Energy Consumption in Industry per Unit Gross Value of Industrial Output in Selected Countries and Years .14 1.9 Production and Energy Consumption in Small and Large Plants, 1980 .15 1.10 Comprehensive Energy Consumption in Truck Transport - US, France and China .. .. .......................... 19  -iv - Page No. 2.1 Primary Commercial Energy Demand, Year 1980-2000 ............... 26 2.2 Fuel Consumption: QUADRUPLE-BASE Scenario ..................... 28 2.3 Ranges of Aggregate Energy Demand for the QUADRUPLE Macro Case.. 29 2.4 Comparison of Aggregate Energy Demand in the QUADRUPLE and MODERATE Macro Cases .......................................... 31 2.5 Comparisor. of Aggregate Energy Demand in the QUADRUPLE and BALANCE Macro Cases .................. 33 2.6 Total Final Commercial Energy Demand by Sector, QUADRUPLE and BALANCE Macro Cases ........................................... 34 2.7 Comparison of Fuel Demand in the QUADRUPLE and BALANCE Macro Cases ......................................................... 34 2.8 Future Coal Demand, QUADRUPLE and BALANCE Macro Cases ........... 37 2.9 Scenarios of Petroleum Product Production and Oil Distillate Demand - Year 2000 ................................... ....... .. 40 2.10 Future Demand for Petroleum Distillates ......................... 41 2.11 Sensitivity Analysis of Petroleum Distillate Demand in Road Transport and the Chemical Industry ...................... 43 2.12 Projected Electricity Demand/GDP Growth Elasticities, 1980-2000 45 2.13 Projected Electricity Demand by Sector, QUADRUPLE and BALANCE Macro Cases . . 46 2.14 Growth of Electricity Demand in Industry, QUADRUPLE and BALANCE Macro Cases ...................................... . 48 2.15 Energy Demand in the Manufacturing Industries, 1980 and 2000 .... 50 2.16 Energy Intensities and Shares of Gross Output Value in the Manufacturing Industries ............................... 52 2.17 Energy Consumption Intensities in the Chemical Industry; Recent Trends in Selected Countries and Scenarios for China ... 55 2.18 Projected Energy Consumption Coefficients per Unit Cross Output Value in Manufacturing Subsectors, Year 2000, QUADRUPLE Macro Cases .. 57 2.19 Recent Changes in Energy Consumption per Unit Gross Manufacturing Output Value in Selected Countries .............. 58 2.20 Scenarios of Reductions in Energy Consumption per ton of Product in Four Energy-Intensive Industries, 1980-2000 ....... 59 2.21 Projected Share of Electricity Consumption in Total Energy Consumption in Manufacturing .................................. 62 2.22 Share of Electricity in Energy Consumption in the Machine-Building Industry in US, 1958-81 ...................... 61 2.23 Share of Electricity in Total Energy Consumption in the Textile Industry, Selected Countries and Years ................ 63 2.24 Energy Consumption in the Transport Sector, 1980 ................ 64 2.25 Scenarios of Future Energy Demand in Transportation ............. 67 3.1 Change in Primary Commercial Energy Consumption per Unit GVIAO.. 69 3.2 Chinese Retail and International Energy Prices, Early 1985 ...... 76 3.3 Average Mine-Mouth Coal Prices for Selected Countries, 1982 ..... 78 3.4 Petroleum Prices, Early 1985 .................................... 79 3.5 Electricity Tariffs, 1982 .80  Page No. 4.1 MOCI Training Facilities ........................................ 89 4.2 Comparison of Coal Resources and Reserves - USSR, US and China.. 90 4.3 Raw Coal Production by Type of Administration, 1965-82 . . 91 4.4 Coal Production Scenarios .. 97 4.5 Regional Coal Production, 1980-2000 ............................. 98 4.6 Interregional Coal Transport by Rail, 1982 . ............ 101 5.1 Crude Oil Production by Region and Major Field . .......... 112 5.2 Natural Gas Production ....................... 114 5.3 Crude Oil Production and Refining Characteristics . ......... 122 5.4 Output of Major Refined Products, 1980-83 . ............ 122 6.1 Major Grids, 1983 ............................................... 127 7.1 Rural Energy Consumption, 1980 .................................. 138 7.2 Forested Land Area in China, Circa 1976 ............... 146 7.3 Reported Inventories of Tractors and Trucks for Agricultural Use, 1965-83 ..................... 151 7.4 Petroleum Product Consumption in Agriculture . ........... 152 7.5 Distribution and Development of Small-Scale Hydropower Resources 154 LIST OF APPENDICES A. Energy Consumption Statistics for 1980 . ................ 156 A.l Commercial Energy Consumption by Sector, 1980 ............... 157 A.2 Primary Commerical Energy Production and Consumption ........ 160 B. International Comparisons of Energy Consumption . ........... 161 B.1 Share of Electricity in Total and Industrial Final Consumption of Energy in Selected Countries ............... 162 B.2 Per Capita Final Consumption of Commercial and Total Energy in the Residential/Commercial/Public Sectors in Selected Countries, 1980 ........................... .. . 163 B.3 Growth Rates of Electricity Generation and Real GDP in Selected Countries and Time Periods ....................... 164 B.4 International Comparison of the Relative Importance of Principal Mode of Freight Transport ....................... 165 B.5 International Comparisons of Final Energy Consumption Per Unit Gross Value of Industrial Output, Selected Countries and Years ..................................... 167 B.6 Structure of Mining and Manufacturing Gross Output . Value in Selected Countries and Years ..................... 169 B.7 Changes in Fuel, Electricity and Total Energy Intensities of Industrial Output in Selected Countries and Years ............................................. 171  - vi - Page No. B.8 International Comparison of Key Indicators in Steel Production ................................... ...... 172 B.9 Energy Consumption in the Cement Industry in Selected Countries................ ..............* 173 B.10 International Comparison of Rated Fuel Consumption for Trucks ................ 174 B.ll International Trends in Total Energy Consumption in the Chemical Industry during the 1970s . .......... 175 B.12 Share of Different Energy Sources in Total Energy Consumption in the Chemical Industry in Selected Countries, 1980s .... 176 B.13 Average Annual Percentage Change in Energy Consumption per Unit Gross Output Value in the Chemical Industry in Selected Countries ..177 B.14 Trends in Electricity Intensity in the Machine-Building Industries in Selected Countries . . 178 B.15 Share of Electricity in Total Energy Consumption in the Machine Building Industries in Selected Countries.. 179 B.16 Long-Term Trends in Fuel and Electricity Intensities in the Machine-Building Industries, US . .180 B.17 Trends in Fuel and Electricity Intensities in the Food and Related Products Industry in Selected Countries .. 181 B.18 Share of Electricity in Total Energy Consumption in the Food and Related Products Industry in Selected Countries 182 B.19 Long-Term Trends in Fuel and Electricity Intensities in the Food and Related Products Industry, US . .183 B.20 Energy and Electricity Intensities in the Food and Related Products Industry, US, 1981 . .184 B.21 Trends in Electricity Intensity in the Textile Industry in Selected Countries ..185 B.22 Share of Electricity in Total Energy Consumption in the Textile Industry in Selected Countries. . 186 B.23 Long-Term Trends in FueL and Electricity Intensities in the Textile Mill Products Industry, US . .187 C. Energy Demand Scenarios, Year 2000 .188 C.1 Summary of Energy Demand Scenarios, Year 200 .189 C.2 Energy Demand: Macro QUADRUPLE Case, Targeted Coal Production Macroeconomic Assumptions .190 C.3 Energy Demand: Macro MODERATE Case, Targeted Coal Production Macroeconomic Assumptions .193 C.4 Energy Demand: Macro BALANCE Case, Targeted Coal Production Macroeconomic Assumptions .196 C.5 Energy Demand: Macro QUADRUPLE Case, High Coal Production Macroeconomic Assumptions .199 C.6 Energy Demand: Macro BALANCE Case, High Coal Production Macroeconomic Assumptions .202  - vii - Page No. D. Coal . .......................................................... 205 D.1 China's Coal Production, 1970-82 ............................. 206 D.2 Long-Run Marginal Production Costs and Mine Location ......... 208 E. Coal Transport Versus Electricity Transmission .................... 211 F. Power . .......................................................... 215 F.1 Installed Capacity, Electricity Generation and Sales ......... 216 F.2 Electricity Generation by Region and Types of Plant .......... 217 F.3 Electricity Development Scenarios . ................... 218 F.4 International Comparisons of Power Sector Investment Levels.. 219 F.5 Electricity Development Programs and Projects ................ 220 C. Rural ....... 0 223 G.1 Estimated Crop By-product Production per Rural Person, by Province, 1981 .......................................... 224 G.2 Biogas Popularization by Province, 1981 ..................... 225 C.3 Rural Electrification, 1979 and 1982 ......................... 226  1. CURRENT ENERGY CONSUMPTION [N CHINA IN AN INTERNATIONAL PERSPECTIVE 1.01 Production of primary commercial energy in China grew very rapidly during 1965-78, with average annual increases of approximately 10% (see Table 1.1). With the rapid growth in production during these years, the elasticity of growth in cymmercial energy consumption relative to growth in GNP averaged at about 1.5._' Policies focused primarily on expanding production, not on how efficiently energy was used in the country. In 1979, however, growth in energy production slowed, and in 1980 and 1981 production declined. As planners realized the potential for energy savings and the difficulty of increasing production, energy policies entered a period of transition. Strategies to improve efficiency in energy use became as critical as those to expand domestic energy production. 1.02 This chapter provides background on energy consumption in China and places it in an international perspective. It reviews the structure of energy consumption in China, including the mix of energy sources and energy use by type of economic activity. Comparisons with other countries reveal both striking similarities and differences, suggesting some possible explanations for current patterns, trends that may be expected in energy consumption and the potential for increasing the efficiency of energy use in specific activities in China. 1.03 A simple energy balance for China in 1980 is presented in Table 1.2. A variety of Chinese sources were reviewed to piece together the energy balance, including government publications and published articles by Chinese energy experts. On the whole, current Chinese data provide an inter- nally consistent picture of energy consumption, but uncertainties regarding actual consumption in several key areas are recognized, including residential consumption and energy use in rural areas. While new information regarding energy use in China may provide more accurate detailed figures than those available today, the general thrust of data presented here is considered reliable. Further details and a discussion of statisical problems are given in Appendix A. A summary of final energy consumption- Ls shown in Table 1.3. Tables in Appendix B provide much of the basis for the international comparisons described below. 1/ Energy consumption/GVIAO elasticities during the same period averaged about 1.1. 2/ Final energy consumption throughout this report is defined to include total domestic consumption minus use and losses in the energy production industries, the oil refinery industry, and electricity conversion.  Table 1.1: CHINA: PRIMARY COMMERCIAL ENERGY PRODUCTION AND CONSUMPTION (Millions of tons of coal equivalent) 1965 1970 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 Oil Production 16.4 44,7 112.4 127.1 136.4 151.7 154.7 154.3 147.5 148.8 154.6 166.8 Exports 0.4 0.6 17.5 15.2 16.2 19.7 23.9 25.5 26.8 29.9 29.6 n.a. Consumption 16.0 44.1 94.9 111.9 120.2 132.0 130.8 128.8 120.7 118.9 125.0 n.a. coal Production 165.6 252.9 344.4 345.4 393.4 441.4 453.9 443.0 444.0 475.7 510.7 551.4 Exports /a 3.3 2.3 3.2 2.3 2.6 3.1 4.6 6.1 6.3 6.3 6.4 n.a. Consumption /b 162.3 250.6 341.2 343.1 390.8 438.2 449.3 436.9 437.7 469.4 504.3 n.a. Natural Gas Production and consumption 1.5 3.9 11.8 13.4 16.1 18.2 19.3 19.0 16.9 15.8 16.2 16.5 t Primary Electricity /c Production and consumption 4.6 9.1 21.2 20.3 21.2 19.4 21.1 24.0 26.7 30.1 34.6 34.2 Total Commercial Energy Production 188.1 310.6 489.8 506.2 567.1 630.7 649.0 640.3 635.1 670.4 716.1 768.9 Exports 3.7 2.9 20.7 17.5 18.8 22.9 28.5 31.6 33.1 36.2 36.0 n.a. Consumption /b 184.4 307.7 469.1 488.7 548.3 607.8 620.5 608.7 602.0 634.2 680.1 n.a. /a Includes coke exports but excludes small quantities of coal imports. 7-b Defined as production minus exports, and hence, stock changes are included. Tc Figures do not portray an accurate time series for primary electricity production because original data in kilowatt-hours are converted at annual average thermal replacement values. See Appendix Table A.2 for original data. Source: Appendix A, Table A.2.  -3- Table 1.2: CHINA: ENERGY BALANCE, 1980 (Millions of tons of coal equivalent) Total Natural Elec- comercial Bio- Oil Coal gas tricity energy mass Total Primary Supply Production 154.3 443.0 19.0 24.0 640.3 219.1 859.4 Exports 25.5 5.9 - - 31.4 - 31.4 Stock changes - 4.3 - - 4.3 - 4.3 Domestic supply 128.8 432.8 19.0 24.0 604.6 219.1 823.7 Energy Industry Conversion. Losses and Use Power industry Thermal power production 28.3 78.2 6.0 (100.1)/a 12.4/a - 12.4/a Heat supply credit /b (4.7) (3.9) (3.3) - (11.9T - (11.9Ty Station and T&D losses - - - 18.4 18.4 - 18.4 subtotal 23.6 74.3 2.7 (81.7) 18.9 - 18.9 Petroleum industry Extraction 6.0 0.4 2.1 2.4 10.9 - 10.9 Refineries 13.1/c - - 1.2 14.3 - 14.3 Subtotal 19.1 0.4 2.1 3.6 25.2 - 25.2 Coal industry 0.7 29.0 - 7.9 37.6 - 37.6 Final Consumption Transportation 21.0 19.0 - 0.6 40.6 - 40.6 Residential/commercial 1.9 90.2 0.3 10.6 103.0 219.1 322.1 Agriculture /d 13.1 21.5 - 10.8 45.4 - 45.4 Industry 42.4 189.4 13.9 70.1 315.8 - 315.8 Other /e 7.0 9.0 - 2.1 18.1 - 18.1 Total 85.4 329.1 14.2 94.2 522.9 219.1 742.0 /a Electricity is calculated at a thermal replacement value net of the heat supply cre- dit. Nevertheless, a statistical discrepancy of 0.5 HTCE exists as the standard thermal replacement value used for electricity in China for 1980 (and here also) does not quite match the reported net energy consumption in thermal power production. /b Fuel which is consumed in the production of heat which is eventually supplied to con- sumers outside of the power industry. /c Includes 3.8 MTCE of unallocated consumption. 7T Excludes township and village industries (formerly referred to as commune and brigade industries) outside of the agricultural processing field. /e Includes construction and other nonspecified sectors. Source: Appendix A.  - 4 - Table 1.3: CHINA - PERCENTAGE SHARES OF FINAL ENERGY CONSUMPTION, 1980 Total Natural commercial Total Sector Oil Coal gas Electricity energy Biomass energy A. Energy Composition (X) Agriculture 28.8 47.4 - 23.8 100.0 - 100.0 Transportation 51.7 46.8 - 1.5 100.0 - 100.0 Industry 13.4 60.0 4.4 22.2 100.0 - 100.0 Other 38.7 49.7 - 11.6 100.0 - 100.0 Residential/commercial Commercial energy 1.8 87.6 0.3 10.3 100.0 - - Total energy 0.6 27.9 0.1 3.3 31.9 68.1 100.0 Total Commercial energy 16.3 63.0 2.7 18.0 100.0 - - Total energy 11.5 44.3 1.9 12.7 70.4 29.6 100.0 B. Sectoral Shares (Z) Agriculture 15.3 6.5 - 11.5 8.7 - 6.1 Transportation 24.6 5.8 - 0.6 7.8 - 5.5 Industry 49.7 57.6 97.9 74.4 60.4 - 42.6 Other 8.2 2.7 - 2.2 3.4 - 2.4 Residential/commercial 2.2 27.4 2.1 11.3 19.7 100.0 43.4 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Table 1.2.  A. The Mix of Energy Sources 1.04 A unique feature of energy consumption in China is the high share of coal in both commercial and total energy consumption. In 1980, coal accounted for approximately three-quarters of primary commercial energy consumption and one-half of total primary energy consumption -- the highest shares in any major country. Even in India, where it is also a major energy source, coaL accounted for only 54% and 32% of primary commercial and total primary energy use, respectively, in 1980. 1.05 China's heavy reliance on coal is due primarily to the existence of large, Low-cost reserves. There are coal deposits of varying quantities in every major region of the country. Before the relatively recent development of China's petroleum industry, the role of coal was even larger: in 1965, it accounted for almost 90% of primary commercial energy use. The share of coal consumption today is high in aLl major economic sectors -- even in transport, where railway consumption brings the share of coal to almost one half of the sector total. 1.06 Biomass fuels are China's second most important energy source, accounting for over one-quarter of primary consumption and an estimated 30% of final consumption. Small quantities are consumed in some urban areas and in some rural industries, particularly in the Southwest, but the lion's share of biomass fuel use is in rural households. Although actual consumption levels in other countries are as difficult to determine as in China, biomass fuels appear generally to account for higher shares of energy consumption in other low-income developing countries. Estimates in OECD sources place biomass fuel consumption in India at 46% of final energy use. 1.07 One feature of energy consumption in China that is not comonly recognized is the low share of electricity consumption compared with that of other countries. The share of electricity consumption in China has been increas;ng since 1970 despite serious supply constraints in the power sector, rising from some 13% of final commercial energy use to almost 15% in 1975 and to 18% in 1980. This share is stil Alower, however, than in any of the five major developing countries reviewed-l (see Appendix B, Table B.1). In India, for example, electricity provided 30% of final commercial energy in 1980. One factor that helps explain China's consumption figures is the relatively low electricity use in the residential and commercial sectors. On a per capita basis, 1980 consumption in these sectors was 26 kWh in China, compared with about 60 kWh in India, 250 kWh in South Korea, and 400 kWh in Brazil. Perhaps more important, however, is the low share of power use by industry in China relative to other countries with substantial industrial sectors. A key ele- ment in this difference is the relative inefficiency of fuel consumption in Chinese industry, which serves to decrease the relative share of electricity in total industrial energy consumption. 3/ Electricity consumption is calculated at a thermal replacement value of 2,900 kcal/kWh for all countries.  - 6 - 1.08 Oil accounted for about 21% of primary commercial energy consumption in 1980. Petroleum product demand is met through domestic refinery produc- tion. More than 10 million tons of crude oil was burned as a direct fuel in the power and industrial sectors in 1980, although use of crude oil as a direct fuel has fallen sharply in recent years. This practice resulted largely from the characteristics of the crude and transport and refining constraints in certain locations. In 1980, fuel oil and direct crude consump- tion accounted for just about one-half of oil consumption outside of the petroleum production and refinery sectors. Another unusual feature of petro- leum product use is that gasoline is the dominant fuel for trucks. Thus, while consumption of gasoline in automobiles is almost negligible, the trans- port sector still accounts for over 90% of gasoline consumption (see Table 1.4). Natural gas represented only 2.7% of primary commercial energy consumption in 1980. B. The Sectoral Structure of Consumption 1.09 China's industrial sector dominates final commercial energy consump- tion, accounting for some 60% of the total in 1980. Industry also accounts for at least half of final consumption of each of the commercial fuels and three-quarters of final electricity consumption. While the share of indus- trial energy use in China is high, it is not extraordinary by comparison to other countries with major industrial sectors, particularly when all forms of energy are considered (see Table 1.5). 1.10 As of 1980, China's metallurgy, chemical, and building materials industries accounted for 65% of final industrial energy consumption (see Table 1.6). This pattern is similar to that of other major countries. The structure of energy use in these three energy intensive industrial subsectors, however, has several special characteristics. In the chemical industry, coal accounts for 452 of energy use -- a far higher share than in any other major country. A key reason is that synthetic ammonia production accounts for an unusually high share of energy use in China's chemical industry -- about one half -- and coal and coke provide about three-quarters of the total fuel and feedstock used in the ammonia industry. In metallurgy, the iron and steel industry dominates the subsector, accounting for 87Z of energy consumption in 1980. In the building materials subsector, brick manufacturing dominates. In 1980, China produced some 150 billion bricks, 110 billion of which were produced by rural collective industries. Brick and tile production accounted for almost one-half of energy use in the building materials industry, and consumed approximately 50% more energy than the cement industry.  Table 1.4: CHINA: PETROLEUM PRODUCT CONSUMPTION, 1980 /a (Millions of tons) Gaso- Diesel Kerosene/ Fuel oil/ line oil jet fuel LPG crude lb Other Total Power industry - 0.5 - - 18.9 - 19.4 Transportation /c 8.9 4.2 0.3 - 1.0 - 14.4 Residential/commercial - - 1.0 0.3 - - 1.3 Agriculture 0.8 8.2 - - - - 9.0 Industry/other - 3.8 2.3 0.9 18.3 5.91d 31.2 Total 9.7 16.7 3.6 1.2 38.2 5.9 75.3 /a Excludes consumption and losses in the petroleum industry and refineries. /b Includes 10.5 million tons of crude oil which is directly burned. /c Includes own-account trucks. /d Includes lubricants (2.0 million tons), some of which are consumed in other sectors, but data on sectoral breakdowns are not available. Source: Mission estimates.  - 8 - Table 1.5: INTERNATIONAL COMPARISONS OF SECTORAL ENERGY CONSUMPTION, 1980 (%) Share in final Share in final commercial total energy energy consumption consumption /a Share of trans- lndus- Trans- Res/comf Indus- Res/com/ port in final try port pub/b try pub oil consumption - (A) - B -(C) Developing Countries China 60.4 7.8 19.7 42.6 43.4 24.6 Argentina 35.0 30.6 22.9 36.7 25.6 55.2 Brazil 47.3 26.0 20.0 42.8 25.7 46.4 Mexico 37.4 33.9 18.9 39.2 17.7 56.4 India 55.1 22.2 13.7 30.6 52.5 44.1 South Korea 43.3 12.3 42.8 40.8 46.2 27.7 Developed Countries US 31.0 25.2 36.2 - same as in A - 62.0 Canada 38.4 20.2 35.9 ' 51.2 Japan 54.3 14.1 27.0 " 28.6 France 42.8 18.4 33.0 " 34.8 West Germany 41.0 15.7 38.4 " 34.4 Italy 44.7 18.5 30.8 " 35.8 UK 33.3 18.6 43.6 " 52.2 /a Includes biomass. /b Residential, commercial and public services sectors. Source: OECD. Biomass consumption figures for South Korea were revised using World Bank sources.  Table 1.6: CHINA: FINAL ENERGY CONSUMPTION IN INDUSTRY, 1980 (Millions of tons of coal equivalent) Oil Coal Natural gas Electricity Total Basic metallurgy 6.6 54.2 1.3 19.1 81.2 Chemicals 12.4 34.3 7.6 21.7 76.0 Building materials 2.0 42.3 0.1 4.7 49.1 Machine building 3.5 14.4 0.7 9.4 28.0 Pulp and paper 0.6 5.4 0.1 2.3 8.4 Textiles 6.0 10.0 0.4 5.4 21.8 Food, beverages and tobacco 0.6 9.7 0.3 2.5 13.1 Other /a 3.0 9.3 0.1 5.0 17.4 Unallocated /b 7.7 9.8 3.3 - 20.8 Total 42.4 189.4 13.9 70.1 315.8 /a Forestry industry, clothing, leather goods and cultural articles (includ- ing printing). /b Includes power industry heat supply credit (see Table 1.2) and any conr- sumption not specified for other sectors. Source: Appendix A.  - 10 - 1.11 China's residential and commercial sector 4/ accounted for some 20% of final commercial energy consumption in 1980. Including biomass, the sector accounted for approximateLy 43% of final energy use -- the same share attri- butable to industry. Measured on this basis, the consumption share of the sector is significantly lower than in India and higher than in most developed countries. On a per capita basis, consumption is significantly higher than in India, but less than one-half of that in South Korea and less than one-third of the level in Japan, where space heating requirements are somewhat com- parable (see Appendix B, Table B.2). 1.12 The share of the transport sector in both total final commercial energy consumption and final petroleum consumption in China is exceptionally low relative to developed countries and other major developing countries. In 1980, China's transport sector accounted for just 8% of final commercial energy use, while the share in most other major developing countries was at least twice as high (see Table 1.5). The fundamentaL reason is that road transport, which is far more energy-intensive than other modes,5- is under- developed in China. In 1980, for example, road transport accounted for just 9% of total net freight transportation, compared with 32% in India (1977), 35% in South Korea (1981), and 59% in Brazil (1980) (see Appendix B, Table B.4). The share of fuel consumption by passenger sedans is almost negligible. C. The Energy Intensity of China's Economy 1.13 Comparisons with other countries reveaL an exceptionally high energy intensity in the Chinese economy, particularly in the industrial sector. The analysis below is based on a variety of analytical methods, including compari- sons of energy consumption per unit of output value and per physical unit of output, and comparisons of end-use efficiencies for various energy applica- tions. While the actual comparisons shown indicate the degree of current energy intensities in China, they should by no means be interpreted as repre- senting the actual potential for energy conservation, which can be accurately analyzed only in a case-by-case evaluation that considers actual conditions in China. 4/ Consumption in the residential and commercial sector is defined according to the Chinese term, minyong, or "use by the people." It includes con- sumption by urban and rural households, commercial enterprises (shops, restaurants, etc.), government offices, and some municipal services, such as recreation facilities and street lighting. 5/ Road transport in China consumes about nine times as much energy per payload ton-kilometer as rail transport. In India and the USA, road freight transport is about 10 and 4 times as energy intensive as rail transport, respectively.  - 11 - Energy Consumption Per Unit of Output Value 1.14 Cross-country comparisons of energy use per unit of output value can provide only a rough picture of relative energy intensities in different countries, owing to factors such as different methods of calculating output value statistics, different relative prices, and problems resulting from use of official exchange rates to convert monetary statistics to comparable units. Such comparisons can, however, be useful in that they provide aggre- gate measures that reflect differences in energy demand caused by differences in economic structure. 1.15 Consumption of both commercial and total primary energy per unit GDP in China is well qbove that of any other major developing countries reviewed (see Table 17).6) Compared with Germany, France, Italy, and Japan, commercial energy intensities in China are more than four times higher, while total energy intensities are about six times higher. 1.16 One factor contributing to China's high level of energy use relative to GDP is a high share of industrial output in GDP. While industry and infra- structure typically account for less than 20% of GDP in other low-income countries, these sectors currently account for almost one-half of GDP in China -- a share that surpasses average levels in both middle-income and industrial- ized market economies. Only the developed, centrally planned economies have, on average, higher shares of industrial output. 1.17 More typical of energy use patterns in low-income countries, however, is China's high ratio of residential/commercial energy consumption to GDP (or residential/commercial energy consumption per capita relative to GDP per capita). This ratio usually decreases as development proceeds, because per capita household energy use grows more sLowly than CDP per capita over the long run (partly owing to end-use efficiency improvements). Another important contributing factor in China, compared with most other developing countries, is the existence of substantial winter heating requirements in many parts of the country. 1.18 Economic development of a Low-income country typically brings an increase in the share of industrial output in GDP, which tends to increase energy intensities. At the same time, residential/commercial sector consump- tion tends to rise more slowly than GDP. In China, however, both the excep- tionally high share of industrial output and the high aggregate demand for basic household energy requirements relative to GDP serve to increase energy intensities. 1.19 These factors alone do not explain China's high energy intensity relative to GDP. Total energy consumption per unit of gross output value in the industrial sector is also exceptionally high compared with most other 6/ This apparently cannot be explained to any great extent by under- estimation of China's GDP in 1980 (due to possible noncomparability of price levels and/or exchange rates). See Annex E of the Main Report.  - 12 - Table 1.7: INTERNATIONAL COMPARISONS OF PRIMARY ENERGY CONSUMPTION RELATIVE TO GDP, 1980 Share of industry Primary commercial Total primary Residential/commercial & infra- energy consumption energy consumption energy consumption structure per unit CDP per unit GDP /a per unit GDP /a in GDP/b *___ -----_ _-- (kgce/US$T (Z) Developing Countries China 2.13 2.90 1.14 48 Argentina 0.44 0.49 0.10 n.a. Brazil 0.61 0.88 0.19 37 Mexico 0.80 0.84 0.11 38/c India 1.05 1.77 0.83 26 Korea, Rep. 1.06 1.12 0.48 41 Developed Countries Canada 1.39 1.39 0.45 33 France 0.45 0.45 0.14 36 Germany, Fed. Rep. 0.49 C.49 0.18 n.a. Italy 0.53 0.53 0.16 43 Japan 0.51 0.51 0.13 41/c UK 0.57 0.57 0.22 35 us 1.05 1.05 0.35 34 /a Includes biomass. /b Includes all industry, construction and transport. /c 1979. Sources: Energy consumption data: China: Table 1.2. Others: OECD, Energy Balances of OECD Countries. 1970-82; Energy Balances of Developing Countries, 1971-82. Riomass consumption estimates for South Korea were revised, based on World Bank sources. GDP data: China: IBRD, China: Recent Economic Trends and Policy Developments (March 1983). Others: IBRD, World Development Report. 1982.  - 13 - countries (Table 1.8). While the energy intensity of industrial production is similar to that in India, it is over twice the levels in South Korea and the US, almost three times the level in Brazil, and over three times the current level in Japan. The relative intensity of fuel and feedstock use in Chinese industry is particularly striking -- exceeding that in Japan by more than five times. Electricity intensities, on the other hand, are more in line with those of other countries. 1.20 Energy intensities in industry are of course highly dependent upon the structure of industrial output. Although comparisons of China's indus- trial output structure with that of other countries are clouded by differences in relative prices, it appears from available statistics that the structure of Chinese industrial output between major subsectors is not radically different from that of other developing countries with substantial industrial output (Appendix B, Table B.6). Indeed, the share of output from the three most energy-intensive major industrial subsectors -- basic matallurgy, chemicals, and building materials -- is surprisingly similar in China, Japan, and South Korea. However, within each industrial subsector -- and particularly within the chemical industry -- there are major differences in output structure (see para. 1.10). Energy Consumption per Physical Unit of Output and End-Use Efficiencies 1.21 The available data on energy consumption per physical unit of output and on end-use efficiencies in China suggest that, compared with other countries, several factors contribute to China's exceptionally high energy intensities in industrial production. These factors include the scale of industrial plants, the technology employed in industrial production, the raw materials used, industrial organization, and factory operating practices. In the past the efficiency of energy use, particularly fuel use, received little emphasis in China's industrial development policy, and little regard had been given to providing incentives for enterprises to use energy efficiently. In addition, the dominance of coal as an energy source and the use of coal as a feedstock have contributed to inefficiencies, as it is difficult to use coal as efficiently as oil or gas. 1.22 Although data are only available for a handful of major industrial commodities, the generally higher Levels of unit energy consumption in China do not, however, fully account for the comparatively high degree of energy intensity in industrial production suggested by output value comparisons. Statistical distortions and differences in the structure of output within major industrial subsectors also appear relevant. 1.23 At an aggregate level, one of the most important factors underlying high levels of unit energy consumption in Chinese industry is the preponder- ance of small-scale enterprises in energy-intensive industries. As Table 1.9 shows, unit energy consumption in these small-scale plants tends to be well above levels in large plants, owing primarily to both the inability to realize economies of scale and the use of less advanced technology. Moreover, the quality of commodities produced is usually lower in small plants. In some cases, nevertheless, small plant production may offer significant advantages, including reduced transport requirements, use of labor-intensive methods, and  - 14 - Table 1.8: ENFRGY CONSUMPTION IN INDUSTRY PER UNIT GROSS VALIE OF INDUSTRIAL OUTPUT IN SELECTED COUNTRIES Energy consumption per unit output value (kilograms of coal equivalent per 1980 ITS$) Country Year Fuel and feedstock Electricity/a Total/b China 1980 0.82 0.23 1.06 France 1980 0.17 0.13 0.30 Germany, F.R. 1980 0.15 0.11 0.26 Japan 1980 0.16 0.15 0.30 UK 1980 0.13 0.09 0.23 US 1980 0.29 0.17 0.47 Brazil/b 1978 0.26 0.14 0.40 India/b 1978 0.71 0.33 1.04 S. Korea 1980 0.30 0.17 0.48 Philippines/b 1979 0.49 0.18 0.66 Turkey 1979 0.24 0.21 0.44 /a Electricity consumption is calculated at a thermal replacement value of 2,900 kcal/kWh for all countries. /b Includes biomass consumption. Source: Appendix B, Table B.5.  - 15 - Table 1.9: CHINA: PRODUCTION AND ENERGY CONSUMPTION IN SMALL AND LARGE PLANTS, 1980 Small plant share Energy consumption per ton produced Industrial of total production (tons of coal equivalent) product (Z) Small plants Large plants Crude steel 24/a 1.57/b 1.20/b Synthetic ammonia 55 3.00 1.45/c Cement 68 0.18/d fl.21/d Plate glass n.a. 0.87/e 0.30Je Coke n.a. 2.60 1.96 /a Estimate for small- and mediumr-sized plants under local control, as a per- centage of total iron and steel company production. lb Figures denote "comparable energy consumption" which includes only energy used for the production of iron and steel, and not other types of energy, such as energy consumed in mining, equipment manufacturing, etc. ic Excludes medium-sized plant production. 'd Comparisons of energy consumption are misleading in that the quality of cement produced in small plants is far lower than that in large plants. /e Refer to tons of coal equivalent per standard case. Sources: Mission estimates, based on a variety of Chinese sources.  - 16 - -- at times -- the use of locally available. relatively low-cost energy and raw materials. 1.24 Currently, boiler fuel for industry and space heating accounts for more than 35% of total final commercial fuel consumption.7 Nearly 200,000 boilers are currently used in China, of which some 70% have steam production capacities of less than two tons per hour. According to Chinese estimates, average thermal efficiencies are roughly 55%, compared with averages of some 70% abroad. The dominance of coal helps explain this difference, but the preponderance of small unit sizes, technology dating to the 1930s and 1940s, Lack of mechanization, and inefficient operating practices all contribute to high consumption rates in China. Energy Consumption in Major Industrial Sectors 1.25 Iron and Steel. As shown in Appendix B (Table B.8) 1980 energy consumption per ton of crude steel in China was approximately double the level in Japan, and more than double the levels achieved in ItaLy and Spain, where electric arc furnaces, lagely based on scrap inputs, account for about one- half of steel production.- Compared with rates in other developing countries, unit consumption was some 60% higher than in Brazil, about the same as in Egypt, and some 20% lower than in India. 1.26 Compared with the most advanced iron and steel industries (i.e., in Japan), one cf the key factors underlying the relatively high unit energy consumption in China is a lack of full production integration, resuLting in large energy requirements for reheating pig iron and cold steeL. In addition, some integrated plants have suffered from a Lack of effective integration of production and production capacities in the various Links of the production chain, resulting in energy wasted through beLow-capacity operation of energy- intensive equipment. 1.27 Locally operated small and medium-scale plants apparently contri- buted 20-25% of steel production in 1980, with energy consumption rates per ton of steel approximately 30% higher than rates in China's large, key plant sector. 7/ Final commercial fuel consumption includes final consumption of crude oil, fuel oil, coal and natural gas, used as direct fuel. Thermal power plant boilers are excluded. 8/ Refers to "comparable" energy consumption, that is, energy used in crude steel production (coke, sinter, pellet, iron, and steel production; rolling; plant transport of equipment and processed raw materials; and losses). Total energy consumption in the iron and steel industry is referred to in Chinese sources as "comprehensive" consumption, and includes consumption in the production of pig iron not used in steel production, mining and beneficiation of ore, refractory production, alloy production, workers' residences, some equipment manufacturing, and any sideline activities pursued by iron and steel companies.  - 17 - 1.28 Open-hearth furnaces accounced for some 32Z of steeL production, a much higher percentage than in most developed countries. In 1980, onLy 6.6Z of steel production was cast using continuous casting machines -- one of the lowest percentages in the world. While not as low as in Japan, blast furnace fuel rates in China's key pLants are comparable to rates in the US and UK (4.3-4.5 gcal/ton pig iron), and far lower than in India (over 6.0 gcal/ton pig iron). 1.29 Chemical Industry. Striking disparities exist in the unit energy consumption levels of different plants within China's chemical subsector, owing primarily to differences in Levels of technology and in plant scale. Large, modern plants based on imported, state-of-the-art technologies of the 1970s exist alongside smaller, Less efficient plants, using designs which often incorporate outdated technologies. 1.30 Thirteen large (1,000 tpd) synthetic a monia plants, which use natural gas or naphtha feedstocks, were imported during the 1970s. In 1980, these plants accounted for 21Z of synthetic ammonia production, consuming an average of 10.1 gcal per ton -- a Level typical of new plants constructed abroad during the 1970s. However, small-scale plants (30-100 tpd) producing ammonia bicarbonate from coke or anthracite accounted for 55Z of synthetic ammonia produccion in 1980, and consumed twice as much total energy /er ton as the large plants, and one-hundred times as much electricity per ton.- Medium-sized plants of domestic manufacture based on coal, fuel oil, and natural gas feedstocks accounted for the balance of production, with unit energy consumption Levels in the neighborhood of 17.5 gcal/ton. Taken together, unit energy consumption in the synthetic ammonia industry was abouc 18.0 gcal/ton -- about 2