Ukraine war contributes to China’s coal addiction

The Ukraine war is overshadowing the decarbonization of China, which is ramping up production to avoid power outages. It is a rational financial option for the leading polluter.

Europe’s scramble for alternatives to Russian gas is sending world prices soaring, diverting liquefied natural gas shipments from Asia. Although China has bought Russian oil, gas and coal at deep discounts, official data shows that the country’s global imports of these three products fell between January and April in year-on-year terms, despite a slight increase in power generation during the period. . Thus, even if domestic demand remains subdued as lockdowns ease, China could face power shortages during the northern hemisphere summer. That would be a red line that Xi Jinping has warned officials not to cross after the pursuit of carbon reduction targets contributed to the embarrassing 2021 energy crisis.

Drawing on its own rich and cheap reserves makes economic sense: China relies on coal for 60% of its energy, of which domestic production accounts for 90%. With the concentration of state giants, such as Shenhua, Beijing has increased its control over the sector. Since May, benchmark 5,500 kcal/kg steam coal at Qinhuangdao port has been capped at €161 a tonne for spot cargoes, less than half the price of a close equivalent exported from the Australian port of Newcastle.

Beijing’s new target of gaining 300m tonnes of coal capacity this year, up 7% in annual production, is translating into stiff daily targets in major producing provinces such as Inner Mongolia. Meanwhile, power generators such as Datang International are investing in new coal plants. Without breakthroughs in carbon capture technologies, the world will struggle to isolate a key gas supplier and cut emissions.