Host Jason Bordoff sits down with Chairman Fu Chengyu to discuss the future of energy in China and its impact on the world. Chairman Fu is the former Chairman of China Petroleum and Chemical Corporation (Sinopec) and China National Offshore Oil Corporation (CNOOC), and he is a board member at CGEP. Among many topics they discuss, several include: China's One Belt One Road initiative and its strategy for energy development; renewable energy growth in China and the outlook for coal; the state of China-Russia cooperation in the energy sector; and China's relationship with the Trump Administration.
View the full transcript
Jason Bordoff: Hello and welcome to the Columbia energy exchange on podcast from the center on global energy policy at Columbia University. I'm Jason Bordoff. Before we kick off today’s episode I want to thank you, our listeners for tuning any tweak and encourage you to rate and review us on iTunes. Your feedback, obsess make the program better and bring you the best insights about today’s most important energy topics. And we really read all the comments that’s how I know energy enthusiast likes how international the guests are and how global this open focus of the program is. Now on to today’s show.
Today we’re talking about China. No country in the world is more important to the energy sector on China, the numbers are just staggering, it’s the world’s largest investor in renewable base generation, it’s a leader in energy efficiency policies. China is responsible for half the world’s global coal consumption and half the world’s coal production. It’s the world’s largest import of oil or rapidly rising force in global gas markets on and on you can't understand where the global energy picture is headed without understanding China and to help us do that today we’re honored to be joined by Chairman Fu Chengyu, he’s the former chair of CNOOC and Sinopec and we’re going to talk with him about China’s role in the global energy sector. Few people have a more distinguished career, are more knowledgeable and have spent more time and are more senior in China’s energy sector than Chairman Fu, he’s also a member of the center on Global Energy Policies Advisory Board. He joined us in New York for workshop where we discussed China’s Belt and Road Initiative which will have enormous implications for the energy sector and the environment around the world nearly a trillion dollars of capital China plans to spend to build infrastructure including much energy infrastructure in emerging markets around the world, we sat down in New York to talk with Chairman Fu about that and much more. Chairman Fu thanks for joining us on the Columbia Energy Exchange. It’s good to have you in New York again.
Fu Chengyu: Okay, thank you for asking me to be here.
Jason Bordoff: So we’re here at the center on Global Energy Policy at New York for this workshop today discussing the Belt and Road Initiative and what the energy and environmental implications of it are, just start for our listeners, explain to them and I know we could go on for the whole half hour but try to keep it brief since we only have half hour for people who aren’t familiar explain what the Belt and Road Initiative is?
Fu Chengyu: The Belt and Road Initiative is running the proposals and are initiated by President Xi Jinping and he based on the situations at the time during the 2013 and when the global economy slowed down, Chinese economy slowed down and there’s trade protectionism and powellism and anti-globalization so how to find a new driver of forces for global economic growth and how to make the economic globalization can more shared with the countries evolved and with the people evolved, so this is the background that presently initiatives, Belt and Road Initiative and, but he also proposed that the key for this success is to adopt shared benefits. And through consultation and collaboration and so there’s no specific requirement for any country involved with the Belt and Road but based on their requirement and they will see how China can work with them. So –
Jason Bordoff: And just how people understand this scale, the scale is massive right, over trillion dollars, 60 countries, the Middle East, southern and central Europe and other parts of southern and central Asia?
Fu Chengyu: And this is really about Belt and Road Initiative involved in 69 countries with 4.6 million people. And which more than 63% of the total global population, and world total GDP and you see this majority of the Belt and Road countries are developing countries, their economic and development lie relatively low and the GDP per capita is just above one third of the world average. So there’s a tremendous need for growth of their economy and also there’s a tremendous opportunities for those countries to grow their economy and so China proposed that how we can make everybody a winner. So they said we’re not asking you to do something, but you tell me what you want us to do something. How we can corner it with your strategy, your national strategy? And how your policy and my policy can coordinate it, so that we can join hand to do together and this involved five areas, the infrastructure and the trade and the finance and the – see what the people to people connection and also how to coordinate their policies, so through those they want to achieve this Belt and Road to be a road – build a road into the piece. And build a road for the prosperity.
Jason Bordoff: I mean that’s a very exciting and optimistic vision, it won't surprise you there are some in the U.S. and elsewhere who have asked whether the motivation of this is more soft power diplomacy, geopolitical, expanding China’s sphere of influence in the world, creating commercial opportunities for Chinese companies, so just your response to some of the concerns you here about the Belt and Road Initiative I think it’ll be interesting to hear.
Fu Chengyu: And I think the consents is from the world community especially from U.S. I think the – they don’t know the consents over the purpose and the intension of Chinese complement. And right now they will present the challenge or straighten to the existing power, all international order, the existing is international order, all financial regime and so some say like this. I think the best in consents was China setting a new rule for the world the in the future, all they tried to get benefit for them on, so this is really the consents but I believe Chinese leaders and especially president Xi Jinping. He knew, he understood the consents either from U.S. or from western part. However just the beginning, even China itself don’t have much experience about what to do in the future. But they only have their own thinking all over of their good will, however during the processes in the future years. I think they were gradually found out problems, headaches and they also found out the solutions to deal with those. Especially they will make U.S. and all the western countries who can send about this, make them to see the facts.
Jason Bordoff: And the reason we’re talking about it and the energy institute is because energy is such an important part of the investments being made, not only direct energy but also indirect ports and bridges and marine terminals and rail lines and other things that affect energy demand, what is the strategy when it comes to energy investment for Belt and Road?
Fu Chengyu: I think China has adopted to the green growth, low carbon growth and especially the last minute that the Congress Party has passed that’s the 19th congress where they adopted to this again. And so Canada for party is commitment to China and also I think I think this will – to the Chinese –
Jason Bordoff: What does that mean when you say green growth, I mean there are projects that
coal plant is being financed and packed and sent elsewhere, upstream oil investments and other hydrocarbon infrastructure, so how does – what does the phrase green growth mean when they talk about it?
Fu Chengyu: You know China now experiencing a big headache which has the environmental closing issue, domestically, so this driving China to – the environmental protection for air, water, soil and also they have a setup the straightest criteria and second they are going to develop more fossil fuel industry. So in the past years of this – and this project has grown very fast, however the total size, the weight of this comparably the traditional energy is sits more.
Jason Bordoff: It sits more.
Fu Chengyu: But it will grow faster and second with the existing fossil fuel energy sector they will make it a cleaner, so energy efficiency and they derive new technologies to reduce the emission of the pollutants and if you cannot meet the criteria you will start selling your _____ [00:11:42]. And those criteria would be applied for Chinese investment overseas. So either this fossil fuel are renewable energy or the fossil fuel with clean technologies.
Jason Bordoff: What about nuclear power?
Fu Chengyu: Nuclear power will be one of the sectors that will grow faster in China, but I don’t believe this will be growing faster in the international market especially Belt and Road unless certain countries did request to develop those, but I believe and China is developing new criteria – safety criteria for the nuclear energy. And I believe they are not going to use those elsewhere.
Jason Bordoff: And is part of this also about – is part of the motivation China’s and domestic energy security Chinese firm recently took a large piece of Rosneft, there were new deals signed for oil supply between China and Rosneft, there’s speculation that even – a piece of Aramco moving forward, so are these investments in the oil and gas sector motivated by security of supply and diversification concerns as well?
Fu Chengyu: You know, my personal point of view I – and also I imagine as repeatedly in China market that there’s no energy security issue, it’s not a real issue, because that might be an issue of insure the supply, you know there’s an open market either in oil industry or other industries, you know in the past years the regional was going on for years, but there’s never stopped the supply of energy, but only problem is expensive or relatively cheaper, so just a market price. And China will be the same to pay this price as others. The only thing we need to consider how we can promote efficiency of energy. The same barrel oil we can produce more productivity of products, so this is something that we need folks for the investment in this area for Chinese companies. I think there’s purely for the financial investment.
Jason Bordoff: I just mentioned Rosneft, so what is this kind of state of Russian Chinese energy corporation now in terms of power of Siberia, pipeline moving forward and other –
Fu Chengyu: That’s a pure business – financial investment and pipeline in U.S. state is not 100% yours, you just participate, and the crude that we report is the 3D, so especially with Russia, Russia in the past years the – they need foreign investment, so we actually we pay – and they deliver the process later, just kind of a 3D.
Jason Bordoff: You think Saudi Arabia is actively trying to attract foreign investment now with their economic reforms, well Chinese, a lot of Chinese capital will be going into Saudi and do you think some of that might be for a private –
Fu Chengyu: I believe they – Saudi Aramco has contacted with Chinese companies and – but whatever they discussed those parties is talking of our economics. So if they cannot calculate their own account or economics I think there will be no deal.
Jason Bordoff: What impact if any do you think the Trump administration has had on China’s foreign investment strategy, the U.S. in some respect has walked back from multilateral for and has that created – do you see other countries turning more towards China, looking for to diversify their alliances and their partners because of more questions about what the U.S. foreign policy will be and the dependability of the United States maybe – is that – is that part of the motivation or is that accelerating the kind of investments that the Belt and Road Initiative involves?
Fu Chengyu: I think I heard some of the critics, the present Trump saying he’ll give up the leadership to China but I just tell the truth. From our leader to the ordinary people nobody believe China will be the leader of the world and but China do want to do something by their own consideration, whether not Trump do it, but China would do it, but China told not to lead somebody else, but to do for our self. If somebody else believe this is good they want to do it together that’ll be fine, if not we do our own. For example the Paris agreement, we believe we are doing this for the goodness of our people. And also this will be benefited to the global either climate change issues. However we first look at our self. We believe what we are doing to benefit our future generations. U.S. Trump would not do it that’ll be fine. We’re not asking somebody to do the same, but we believe we should do this.
Jason Bordoff: And so China is not changing its course or its plans because of --
Fu Chengyu: No China will continue to do this and does not matter Trump do it or not, and also China’s culture emphasizes on leading by example. Not leading by its order. So if we do something somebody see this is good, we can – we can do it. If they don’t know it, okay we do ourselves.
Jason Bordoff: How was president Trump’s – what was the –share with me your perception of how people reacted to president Trump’s visit and specifically with regard to energy there were several energy deal it might be too strong but there were memorandum of understanding or intentions to do transactions for US LNG maybe LNG in Alaska investments even in natural gas and petrochemicals in west Virginia are those real? Are those investments that will happen in the U.S.?
Fu Chengyu: You know to the Chinese from the government leaders to the other people they pay great deal of importance as to president Trump’s visit to China and also – and Chinese understand that the relationship between China and U.S. are one of the most important relationship in the world, so the trade especially we have a lot – the trade surplus, should not be – should be solved however, we cannot solve in a short period of time. China do not want to have a big surplus and they – one of the ECO’s of that I believe China proposed – you know presented to president Trump is how we can buy more from you to balance the trade?
Jason Bordoff: And energy might be one of those things you buy?
Fu Chengyu: Yes, this is new area and there will be a big trunk of the money that we can spend and all the areas that U.S. have a lot of high tech, specifically they were not – so this is something I think gradually will make the toss first.
Jason Bordoff: You mentioned – you mentioned the Paris agreement and China staying the course you know after a couple of years of relatively flat missions Chinese see here two missions are projected to grow pretty strongly this year and I think the missions profile in last few years gave rise to some hope that maybe China would achieve its Paris goal of peaking missions much earlier than its target date is the recent rebound in CR2 missions, reason to be more skeptical of that.
Fu Chengyu: No. And you see that the search this year is – does not more than the last year. You see compared with last two years it’s in search, but still in that level and if you look at the consecutive three years the average is still going down this is one thing. Second that I believe _____ [00:21:28] just the CO2 – this – because of the coal consumption goes up, but this is just temporary.
Jason Bordoff: And China had announced too much excitement that it would launch a nationwide mission trading scheme which then had been delayed, so what’s the current status of the missions trading scheme?
Fu Chengyu: And the trading has started for three years already, however we have in China we call trial trading and by seven trading houses and the plan was to put them together into one trading platform, but this might be delayed. The seven trading house would continue to trade and this is not as far as we expected that will accelerate the combination all seven platform into one, second this would – you know they’re trading only in seven provinces, they want trading in whole China, so this might not be as fast as we expected. Perhaps – I mean the fast should be by the end of this year. Perhaps they were the late with the next year to have one platform trading through whole China not just in seven provinces.
Jason Bordoff: That might be delayed.
Fu Chengyu: That might be delayed, delayed to next year should be happening this year.
Jason Bordoff: Because –
Fu Chengyu: Because you know seven trading houses, they have seven criteria, pricing criteria and they gave quota in their business all differences, they need time to uniform all those criteria.
Jason Bordoff: Coal obviously continues to dominate Chinese energy use, think about two thirds of total primary energy demand but after many years of very rapid annual growth – at first has coal peaked in China, is your sense – coal is not – has it reached its peak now?
Fu Chengyu: Well we have passed the peak already.
Jason Bordoff: You’ve passed the peak and it’s going down now. What are the primary drivers of that and what – is coal the outlook now just to kind of a plateau at this level or do you see coal, really coal really starting to fall more sharply and is that going to be driven by economics or talk about the policy measures that have been put in place to address pollution concerns, not only in the power sector, but small coal fired boilers and other places.
Fu Chengyu: Coal burning in the past well improved by economics and the local economic development level which means if you can afford for higher price for say either gas or oil, they will stop this, however lot of areas they cannot – economically they cannot afford for higher energy price. And now in these years there’s two changes one government really put higher criteria and the second –
Jason Bordoff: Higher criteria meaning –
Fu Chengyu: On the environmental – pollution, yes. Yeah and then they force lot of coal burning either refinery, not refinery, either power generating plants or the heat supply center with boilers, so there’s – you see last three years that the coal burning dropped down shortly. I believe in the future this will be continued to trend. Maybe there is – is slower that will trend and will not change, but continue to go down. And one because of the regulation issue and second the – if you burn more coal you pay more for curing the environment. So economically it’s not fable.
Jason Bordoff: And that’s obviously tied to the outlook for renewable and to gas demand talk about how important, what’s China’s sort of policy on gas use, again not only in the power sector, but in other place, other places in the energy sector. To what extent is China’s rapid gas demand growth, policy driven, to what extent is it driven by cheaper and more easily available gas in the global markets and where’s that gas supply coming from, domestically verse pipeline verse LNG.
Fu Chengyu: And if you look at the big market require the clay energy, gas is the major high growth area, however you look at the total gases supply capability is really limited. Domestic production is relatively small, so it has above one – let me see, 100 billion cubic meters that might be 100, 160 billion meters, but the total requirement has low high and there’s no gas. So China the government required the local community to change their boiler, burning coal to gas. However they changed but no gas. And so however gas from like Russia because I said is one way and LNG is another way.
Jason Bordoff: And talk about the LNG market in China, we’ve seen you had a date in 2017 incredibly strong LNG import growth in China what’s driven that and how price sensitive is that? If the price of the LNG would arise again to levels we saw a few years ago in Asia would that kind of destroy LNG in port demand or is this really policy driven, cleaning up the environment so China’s committed to LNG.
Fu Chengyu: I think just the price driven, first one that the liquefaction plants in different countries are a lot more than in the past. And second the Shale gas in U.S. is a lot cheaper so tracking oil price down. So in the past that the LNG price is linked with the oil price, so now the newer LNG from U.S. they may detach from the oil price. They may link the bill _____ [00:29:12] harbor price or something like this. So because the spot market price is quite low, so if you want the – the buyer to sign long term contract they hesitated. So I think just time is – eventually we have to buy more gas to China market.
Jason Bordoff: And you see you mentioned U.S. Shale which is being exported now from the gulf coast then we saw this announcement about potentially developing LNG in Alaska is that a real option for China or does it just make more economic sense to take experts that are coming from these projects coming online from the gulf.
Fu Chengyu: And what need to be done for the fusibility study on the economics and don’t know about this because there’s a lot things that haven’t done in detail, because of the pipeline cost. And liquefaction maybe not that cost high pipeline –
Jason Bordoff: And in addition obviously the rapid gas and LNG demand growth very rapid growth in renewable energy in China, the world energy outlook just came out and I noted it said that China would account for third of new wind and solar power installations and 40% of electric vehicle investments through 2040, so just dominant in that market. What are some of the challenges integrating so much renewable energy at China’s electricity grid and how much – how rapidly can this continue to sustain the kind of growth rates that we’ve seen?
Fu Chengyu: I think there’s one of the major issues is the grade capacity to deal with this either wind or solar which is not 100% consistent. And second there’s some policy issues, especially on the local – local provincial policies and you know in the past years so China over supply of coal – coal mining and coal burning, you might have heard – we gave up a lot of wind and solar capacity in the last two years and using the coal burning electricity. The major concern of the local government is for the jobs, because the mining, the coal generation, they give up this, they need to find jobs for those guys.
Jason Bordoff: Well in fact the Chinese government is trying to limit operating hours and other things to boost –
Fu Chengyu: Actually this is a local – local government, each of the local government take different attitudes and policies and since I think China will continue to build more wind farms and the solar energy, but I think this maybe using few years transform the coal burning plants.
Jason Bordoff: And you know we’ve also seen very rapid growth in solar in the U.S. and around the world because prices have come down faster than many people thought, part of the reason for that is that China invested heavily and made the government decision to invest heavily in growing the solar industry there so much so that there’s now a trade dispute with the U.S. government over solar policies –
Fu Chengyu: But actually in the solar energy or wind energy government did not invest.
Jason Bordoff: Do you think that – do you think there’s similar interest in batteries, electric vehicles that China sees both an opportunity to address pollution concerns and have more sustainable transit but also an opportunity to be very powerful in a globally emerging new industry.
Fu Chengyu: I think NEXA [phonetic][00:33:40] search will be e-cars and the government do not finance but they gave you policy support like subsidize at the beginning and I think in the next few years the electric cars will go very fast. And this is one of the areas that can really provide clean environment.
Jason Bordoff: And that’s an important policy objective for China and it will – it provides support now for like to vehicles, where you can park and where you get your driver’s license and license point, so it will continue to provide support and so you’re bullish on electric vehicles, now what does that mean for global oil demand growth and oil prices than is the idea peak oil demand real? And sooner that you know in the near turn time for 20, 25 or so –
Fu Chengyu: If we just see the situation in China and this whether or not oil will reach the peak all depends on the coal, the price if the oil price higher than 60, I think oil demands will be slow down. And the oil price is like 50, 40 and the oil demand will goes up a lot more. And then coal consumption will be down. If oil price is relative high coal consumption will slow down with a really slow price.
Jason Bordoff: Well I wish could spend much more time talking about all these things, it’s a pleasure to have a chance to learn from you about the latest developments in China and all around the world, Fu Chengyu thanks again for joining us on Columbia Energy Exchange for visiting us in New York thanks to all of you for listening, I'm Jason Bordoff, please join us next time.