Despite all of China’s aggressive efforts to shore up their energy autonomy over the course of this year, the precariousness of Beijing’s energy security has been thrown into the spotlight in recent weeks as the country is plagued by severe energy shortages in the wake of an unofficial blacklisting of Australian coal. As China scrambles to ration electricity for millions of citizens, entire cities have reportedly gone dark. This latest development is just another chapter in a lengthier saga of rising tensions and failed diplomacy between China and Australia. “Relations between the two nations soured last year after Australia supported an international inquiry into China’s handling of the coronavirus pandemic,” CNBC reports. While Beijing’s Australian coal boycott is dominating headlines and wreaking the most havoc in China, coal is just one import on a much longer list of Australian goods that China is targeting in this unofficial geopolitical standoff.
China is the single biggest coal consumer in the world, and Australia has been one of Beijing’s biggest suppliers. Even though China has recently pledged to curb the nation’s hefty carbon footprint and reach carbon neutrality by 2060, the world’s second largest economy continues to rely heavily on coal. The sudden stop to the flow of the fossil fuel into China has caused coal prices to shoot through the roof at the very same time that the country is experiencing a cold snap, causing the demand for coal to rise to even higher numbers than usual. This double whammy has created “chaos” in Chinese markets according to the Financial Review. “The protectionist policy has ensured coal prices inside China have been dramatically higher than outside the country for more than six months now, and in early December the Chinese government stopped the nation's four big coal price indexes from publishing daily prices,” the news outlet reported on Wednesday.
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Chinese coal producers are unlikely to be able to ramp up production enough to meet demand, reports CNBC. Reports show that power rationing is already well underway in China, and although there are no official reports to corroborate, a widely shared December article purported to list planned blackouts by the Shanghai State Grid. Eyewitness accounts have reported on many Chinese cities going dark, despite China’s official stance that there’s nothing wrong and that the country has plenty of energy to go around. Secretary general of the National Development and Reform Commission Zhao Chenxin, who has a hand in Chinese energy policy, was quoted by the New York Times as reassuring Chinese citizens: “In general, please believe that our ability to ensure stable energy supply is not a problem.”
Contradicting the party line that everything is under control, news outlets on the other side of the political divide, namely The Sydney Morning Herald, is reporting on a “Grave humanitarian situation” arising from the coal restrictions that have left sailors with shiploads of blacklisted coal stranded in foreign waters. And then there’s the fact that entire provinces are experiencing blackouts in the dead of a particularly cold winter.
As the situation becomes more dire in China, Beijing is showing no sign of flinching. Despite all of the efforts Beijing has made over the past year to reinforce the country’s energy autonomy and energy security, however, it’s painfully clear that the country is as reliant as ever on energy imports.
But there is another player in this game that may very well come out as the ultimate loser in this scenario: the coal industry. “China is forcing Australia to confront what many countries are concluding: The coal era is coming to an end,” the New York Times reported last month. While it may be a painful process for China, this squeeze might just be the step that Beijing needs to finally wean itself off of coal for good.
By Haley Zaremba for Oilprice.com
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Being the world’s largest economy with an estimated GDP of $29.5 trillion in 2020 based on the purchasing power parity (PPP) which is the most reliable yardstick used by both the World Bank and IMF to measure GDP, and the driver of the global economy, the world is China’s oyster when it comes to energy imports. Australian coal exports could easily be replaced with Russian coal imports.
If President Trump failed to win a trade war against China, does anybody think Australia has any chance?
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
Oilprice, needs to hire some oil and gas experts to provide more accurate real world what if questions, because your lack of experience is notable.