My predictions for the energy sector in 2015:
- Sluggish energy demand amid sufficient supply
Growth in energy demand is predicted to stay below 2.5% in 2015.
- Sufficient electricity supply
Strained power supply or power rationing is not expected to affect the whole country. Power generation is expected to drop by another 100 hours in addition to an average 200-hour decline in 2014. This is because in 2015 power generation is forecasted to be equal to or even slightly lower than that in 2014. A slow manufacturing sector will crimp demand for electricity.
- Continued bearish outlook for coal sector
The coal-fired thermal power sector is expected to see a tepid or even negative growth as efforts in curbing air pollution intensify. The coal sector is expected to quicken restructuring amid low coal prices: coal mines with poor mining efficiency will be shut down while large coal mines will cut back on production.
- Accelerated installation of non-fossil energy units
A total of eight nuclear power units are expected to become operational in 2015. There are difficulties, however, to connect them to the national power grid amid weak power consumption growth. Moreover, a considerable volume of electricity from other non-fossil energy sources (wind power and hydropower) will be abandoned. To build new power transmission lines would not help much, with no measures or policies to improve the infrastructure.
- Strong transportation demand to drive oil consumption
Oil imports are expected to top 300mn tons in 2015, slightly higher than 2014. Domestic crude oil output is estimated to decline as production is to be slashed following dramatic profit decrease. Domestic oil output is projected to drop below 200mn tons in 2015, with the gap to be bridged by imports. Generally, 2015 will be a chilly winter for the oil sector.
- International crude oil prices to remain weak in 2015
Crude oil prices are not likely to rise due to a supply glut. I would predict the price would range between US$60 and US$70 in 1H 2015 before capping US$80 in 2H 2015. The oil market will be in correction throughout 2015 while the production capacity of high-cost oil products (shale oil, oil sand) is expected to be slashed. China’s oil exploitation sector will see falling profits due to higher production cost, thus it is desirable to increase cheaper oil imports.
- Natural gas to be fastest growing energy product.
LNG spot price has dropped by 60% year on year to US$7 per MMBTU in the wake of falling international oil prices. The LNG price in Asia, once double the European price, is now slightly lower. In China natural gas only contributes to as low as 5.8% of primary energy consumption due to higher prices, and this ratio is expected to rise with lower prices and intensified efforts in curbing air pollution. In China natural gas will be used in households and the service sector.
Global natural gas production capacity is estimated to grow by 40mn tons in 2015, mainly from Australia, driven by high prices boosted by strong demand in the previous years. Natural gas prices are therefore expected to be low in 2015.
In view of the above, the energy sector will focus on restructuring, technological innovation and international cooperation in 2015. We should be more determined to replace obsolete power/coal production capacity with wind or solar power and non-fossil energy sources. We may start from creating a level playing field, pushing forward market-oriented pricing reform and deregulating crude oil and natural gas imports. For example, we can invite tender for wind power and solar power franchise, establish a price competitive mechanism, simplify approval procedures for wind and solar power utilization, permit private enterprises to import natural gas and crude oil, and open infrastructure built for such purposes to private enterprises. Only after serious considerations can we take reform measures that target higher productivity.
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