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China 2020

Oil & Money 2012Conference

“Energy Strategies in Turbulent Times”

Victor Z. GaoIntercontinental Park Lane Hotel, London

November 13, 2012

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From G4 to G5From Mr. HU to Mr. XI

• November 15, 2012: CPC Party General Secretary

• 2013 (March): PRC Presidency• 2012? 2013? Chairman of the

Central Military Commission

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OECD re China• On November 9, 2012, OECD announced

that:– By 2016, China’s GDP will surpass USA.

– By 2060, China’s GDP will be 28% of the world.

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Doubling GDP in 10 YearsAt the 18th Party Congress last week, China announced to double its GDP of 2010 by 2020.

– 2010 = Rmb 39.80 Trillion.

– 2011 = Rmb 47.16 Trillion (US$7.3 Trillion based on official exchange rate, not on PPP).

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Is It Sustainable?• Doubling GDP by 2020 will mean a near doubling

of energy consumption in China.

• Where will the energy come from?

• Is this sustainable?

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Mega Trends

• Industrialization;

• Modernization;

• Urbanization;

• Globalization.

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Year of Transition• 2012 is the year of transition in China.• Leadership change once every ten years.• From G4 to G5.• The transition may take 2 to 3 years to complete.• 2012: the lame-duck government; less efficiency.• Jockeying for power: the Chinese style.• New initiatives and momentum under G5.• China’s leadership change coincided with the US

presidential election (once every 20 years).

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The Largest Energy Producer• In 2011, China was the largest energy producer in the world.• Total energy production was the equivalent of 3.18 Billion ton of

standard coal.– Coal = 3.52 Billion ton;– Crude oil = 200 Million ton;– Finished oil products = 270 Million ton;– Natural gas = 103.1 Billion cm;– Power generating capacity = 1.06 Billion kw;– Power generated = 4.7 Trillion kwh;– Oil pipelines > 70,000 km;– Natural gas main pipelines = 40,000 km.

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Energy Sufficiency• China has maintained 90% in energy sufficiency.

• Self-reliance in energy development.

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The Dominance of Coal• In 2011, coal @ almost 70% of China’s energy

production.

• (Globally, coal < 30% of energy production.)

• Oil and gas = 22% of China’s energy production.

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Low Per Capita Energy Ownership

• Coal: 67% of the world average;

• Crude oil: 5.4% of the world average;

• Natural gas: 7.5% of the world average.

• Per capita energy consumption compared with the developed countries: 1/3.

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Achilles’ Heel: Imported Oil• Dependence on imported oil has increased from 32%

around 2000 to 57% in 2011.• Dependence on imported oil expected to go up to 70%.• Potential dangers:

– Maritime security for oil shipping;– Safety and security of cross-border oil pipelines and gas pipelines;– Major jump in imported oil price and gas price;– Insufficient strategic reserves.

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New Achilles’ Heel: Imported Gas• Dependence on imported natural gas:

– Became net natural gas importer in 2006; – Import @ 5.8% of the total in 2007;– Import @ 30% of the total in 2012.

• Consumption of natural gas:– 2001: 27.4 Billion cm;– 2012: 150 Billion cm;– 2020: 350 Billion cm.– At present

• Natural gas = 4.6% of China’s energy production.• Only 14% of China’s populations is using natural gas.

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Pillars of China’s Energy Strategy• Energy savings!• Maintain energy sufficiency at home;• Diversified development;• Environmental protection;• Deepening reform;• Increasing international cooperation;• Improving people’s livelihood;

• Promoting innovation in energy production and consumption.

• Building a safe, stable, economic and clean modernized energy structure.

• Promoting sustainable energy development in order to promote sustainable economic and social development in China.

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“We will go to wherever there is oil!”• Promoting international energy cooperation almost in all

parts of the world: Africa, Central Asia, Gulf and Middle East, North America, South America, Australia, ASEAN.

• Improving coordination of domestic energy production and international supply.

• Promoting the establishment of a new international energy order.

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America’s Energy Sufficiency• America’s import of oil from the Middle East is decreasing

fast.

• America is moving aggressively to achieve energy sufficiency, especially focusing on shale gas.

• By 2020, half of the crude oil America will consume will be domestically produced.

• By 2035, America may not even import crude oil from the Middle East.

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China vs. America’s ES

• China has all the reasons to whole-heartedly support America’s drive for ES.

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Americhina• Americhina = America + China

• China will fully support America’s drive to achieve energy sufficiency and will provide:– Capital;– Equipment; and– Market for energy resources produced in other

countries thus freed up by America’s ES.

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Chinada• Chinada = China + Canada

• China can significantly help Canada to become an “energy superpower”, by providing:– Capital (US$100 Billion earmarked for the coming few

years);– Equipment; and– Long-term, reliable and increasing demand.

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Chinadarica• Chinadarica = China + Canada + America• A new trilateral energy relations?• China can provide capital and equipment to help America

achieve ES.• China does not need to import oil and gas directly from

America.• China can provide capital, equipment and demand to

Canada, especially when America will no longer need to import that much energy from Canada in the future.

• A win-win-win situation.

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The Rest of the World• In the process of America achieving ES, China can provide

demand for the oil and gas that America will no longer need to import from the rest of the world, including the Middle East, Africa and Latin America.

• What are the economic, strategic and geopolitical implications from this major shift in the global energy market?

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China’s Ultimate Goals• 20% of global economy

– @ 10% in 2011 (official exchange rate).

• 20% of global trade– 2011 total foreign trade @ US$3.64 Trillion; at 50% of GDP.

• 20% of IPR – Thomson Reuters: China will surpass Japan and US as No. 1 in new patent

application in 2011.

• 20% of Fortune 500 companies– Need to double.

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China 2020• The largest economy in the world.• 20%+ of the global economy.• 20%+ of global trade.

• Rmb as a reserve currency.

• China will be the largest importer of oil and gas, and will continue to look for mega deals in oil and gas throughout the world.

• America may export some oil and gas to China.

• Prepare for the transition from 5G to 6G of leaders.

• China will have greater democracy and transparency and better governance and rule of law.

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Thank you very much!Victor Z. Gao

gao@bbuser.com

gaovictor@hotmail.com(86) 1390 136 1250