Impact of China and India's economic growth on global energy demand and supply

       Author: Iloka Benneth Chiemelie

       Published: 15-October-2014

       

      Introduction

The dramatic growth of Chinese and Indian economy has amazed the world over the past decades. During the period from 1978 to 2007, the averaged real GDP was 9.9 percent in Chin while India experienced 5.6 percent. The gap between Indian and China has been narrowed in recent years and both government remain committed towards reducing poverty and increasing their growth performance. It is also expected that their current momentum in development will continue in the course of years to come. As such, the main question remains as to what impact the economic growth of these two countries will have on oil demand, oil price, and global energy demand across countries. This is question is what this research aims to address to some length.

2.      Coal and Oil to power China and India for decades to come

Increased level of industrialization has surged energy demand to the highest level in history for both countries. But will be world be able to continue providing China and India with sufficient energy to power their economy? Both government are now focused on ensuring sufficiency in their energy supply in order to support high economic growth and prevent decline in energy supplies that could result in both social and political unrest. Coal and oil remain the highest mix of their energy type and requirement for decades to come (Zhao, 2009). Besides the two major energy mix above, British Petroleum (2014) presented new blends of energy mix to include:

a)      Natural gas;

b)      Nuclear energy;

c)      Hydroelectricity; and

d)     Renewable energy.

3.      Volume of demands to be meet by local sources and importation

Due to 2004 spikes in coal prices in China, rapidly invested in the coal industry. The country’s 11^th five year plan is geared towards integration, consolidation and orderly development of its coal industry in the bid to ensure a competitive and stable production unit. More foreign investments have also been introduced in the Chinese coal sector, with such investments focused on modernizing existing huge mines and also development of new mines with high focus on new technologies, especially those technologies that have huge environmental benefits (Zhao, 2009). Just like China, India has also been successful in developing its energy sources in order to advance overall production capabilities and ensure efficiency in demand and supply matrix. The consumption and production capabilities of both countries are analyzed below in terms of how dependent they are on local and imported sources of energy (Zhao, 2009).

3.1. Oil

Neither China nor India presently have sufficient production capability to meet oil energy demand in their counties. From 1997 to 2007, demand for oil in China increased from 196 million tons to 366 million tons (representing almost 100% increased), while production increased by mare 26 million tons for its original 160 million tons in 1997 to 186 million tons in 2007, thus representing significant gap between demand and supply and increasing China’s dependence on importation of oil. India is not feeling any better as its oil production totaled 0.69 mb/d in 2006 with projected further decrease to 0.62md/d in 2015 and 0.39 md/d in 2030 (Zhao, 2009). Thus, with a flat domestic production and limited reserves, both China and India greatly rely on international markets for more than half of their oil supply.

3.2. Natural gas

Based on the review presented by BP (2014), China recorded the world’s largest consumption rate of natural gas at 10.8% increased, while India recorded world’s largest volumetric decline at 12.2% decreased in demand. China also recorded world’s second largest increase in production at 9.5%, while India’s supply declined by 16.3% (BP, 2014). As such, both countries are still relatively dependent on importation for their natural gas supply as they are not presently capably of meet demands locally.

3.3. Coal

China’s consumption as of 2013 accounted for 67% of global demand while Indian accounted for 21% of global demand. On the supply side, China experienced 1.2% increase from the previous year as the global production rate for coal declined by 0.8%, thus making both countries dependent on importation for coal supplies (BP, 2014).  In any case, it is important to note that the 2013 figure is China’s weakest absolute growth since 2008, which could point to decline in demand for coal as a source of energy in China.

3.4. Nuclear and hydroelectric

The world experienced nuclear energy growth by 0.9% in 2013 and this is the first increased since 2010. China was top of the chart list for countries that fostered for such global growth. However, nuclear energy remained the least demanded in the globe at 4.4% in 2013, which is also the smallest demand share since 1984 (BP, 2014). This implies that both China and Indian has some level of sustainability and efficiency for this energy source.

China and India led the below average increase for global hydroelectric energy at 2.9% in 2013 as hydroelectric energy accounted for 6.7% of global energy demand. There is a high level of efficiency and sustainability in hydroelectric production and consumption for both countries (BP, 2014).

4.      Conclusion

From the above analysis, it is clear that the elasticity of demand and supply for China and India is in a download slope is summary of all energy resources are to be taken into consideration. This is because while both countries have been successful to establish equilibrium or upward slope for both nuclear and hydroelectric energy (which are the least demanded sources of energy), they are highly dependent on other sources of energy like oil and coal (which are the highest demanded sources). This is because their local demand is far below their local production capabilities, thus making their dependent on importation. If they are to maintain equilibrium or shift the demand and supply slope upward, it is recommended that they demand less of energies they lack in local production and more of energy they have abundantly in local production. This will be brought to effect through advancement in technologies to shift consumption towards their production capabilities. Don’t expect it to be as easy as it sounds tho!

5.      References

Zhao Hong (2009) An Energy Comparison Of The Asian Giants: China And India, Asian Affairs, 40:3, 377-390.

British Petroleum (BP) (2014). BP Statistical Review of World Energy June 2014. Available at: http://www.bp.com/content/dam/bp/pdf/Energy-economics/statistical-review-2014/BP-statistical-review-of-world-energy-2014-full-report.pdf [Accessed on: 8^th of August, 2014].