Why China is so keen on new energy
The country must reduce its reliance on the Malacca oil route by reducing its consumption of crude
SHANGHAI has recently introduced a new mode of transportation. These vehicles resemble shared bicycles, but their frames contain hydrogen, providing assistance to riders. Known as “hydrogen bicycles”, around 1,500 of these shared bikes have been deployed on the city’s streets.
Once confined only to textbooks, “hydrogen energy” is now entering the public eye. In addition to hydrogen bicycles, various regions across China are promoting hydrogen-powered trucks, buses, and passenger vehicles.
In February this year, East China’s Shandong province announced a policy exempting hydrogen vehicles from highway tolls, which delighted hydrogen truck and bus operators, potentially saving them thousands of yuan annually.
Some cities have allocated financial resources to subsidise the hydrogen vehicle industry.
In the Dadong district of Shenyang in Liaoning province, buyers of hydrogen vehicles can receive up to 1.05 million yuan (S$195,846) in subsidies. Over in Wuhu in Anhui province, building a large hydrogen refuelling station can earn a subsidy of up to 2.5 million yuan. In the Xixian New Area in north-west China’s Shaanxi province, companies producing hydrogen fuel cells can receive subsidies of up to 10 million yuan. In Haiyan in Zhejiang province, companies involved in key hydrogen fuel cell components can receive up to 20 million yuan in subsidies.
Given these developments, some might wonder why China, having established a robust electric vehicle (EV) industry, is investing in hydrogen vehicles.
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China’s energy strategy
In March 2022, Wang Chuanfu, founder of Chinese automaker BYD, noted at a public forum that 70 per cent of China’s oil is imported, with 70 per cent of this imported oil passing through the Strait of Malacca, and 70 per cent of the oil being used in the automotive industry. This highlights the strategic significance of new-energy vehicles (NEVs), he said.
China is rich in coal but lacks sufficient oil and gas. Among fossil fuels, oil is the scarcest resource in China. Each year, China consumes more than 700 million tonnes of crude oil, with more than 70 per cent imported, mainly from the Middle East and Africa. Transporting oil across oceans is most cost-effective by tankers.
But those must pass through the Strait of Malacca – a route where the United States and India hold great sway – even though the territory of the strait is governed by Singapore, Malaysia and Indonesia.
China must reduce its reliance on the Malacca oil route by reducing its consumption of crude. Hence, China adopted a strategy early this century to replace petrol vehicles with NEVs.
However, NEV is a broad term encompassing a variety of energy types, including EVs, as well as those powered by hydrogen, methanol, ammonia or even solar energy, without a clear best option. Therefore, China opted for a comprehensive development approach, supporting multiple vehicle types all at the same time.
China’s support for electric and hydrogen vehicles has been evident over the years, but significant efforts have also gone into methanol vehicles.
Methanol, as a fuel, has unique advantages: lower carbon dioxide emissions than petrol, as well as a lower cost. Methanol cars also have higher refuelling efficiency, taking only three minutes to fill up.
The Ministry of Industry and Information Technology has piloted methanol vehicles in Shanxi, Guizhou, Shaanxi, Gansu and Shanghai.
In 2019, Guiyang introduced a policy offering a 5,000 yuan subsidy for M100 methanol-fuelled passenger cars. In 2022, the government of Jinzhong, Shanxi province, announced a 30,000 yuan subsidy for heavy-duty trucks that run on methanol.
Chinese car companies such as Geely Automobile Holdings, China FAW Group, Sinotruk Hong Kong and Shaanxi Automobile Group have also been promoting methanol vehicles.
The Geely-owned brand Farizon Auto has invested billions in Jinzhong, building a methanol vehicle manufacturing base with an annual capacity of about 50,000 vehicles. The methanol economy has become a hallmark of the prefecture-level city.
NEV achievements
China has made remarkable achievements in the lithium, hydrogen and methanol energy industries over the past decade.
In 2023, China’s EV production and sales accounted for over 60 per cent of the global market.
By the end of 2022, China ranked third globally in hydrogen vehicle ownership, behind South Korea and the US, and had the most hydrogen refuelling stations in the world. China is also the largest producer and consumer of methanol vehicles globally.
The rapid expansion of NEVs has significantly reduced China’s oil consumption. According to Wang Lining, head of the Petroleum Market Research Institute at the CNPC Economics & Technology Research Institute, NEVs displaced the consumption of about 17 million tonnes of refined oil in 2023.
If China’s NEV ownership surpasses 50 per cent of the total vehicle fleet, the annual demand for crude oil would drop by at least 200 million tonnes.
However, reducing reliance on the Malacca oil route requires more measures, including improving exploration and development technologies to ensure domestic crude oil production, and enhancing international relations to develop alternative transportation routes.
China’s top oil-producing city is Tianjin, home to the Dagang Oilfield and the Bohai Oilfield. The Bohai Oilfield produced 34 million tonnes of crude oil last year, indicating the potential of offshore oil reserves.
China’s oil reserves on land are 3.8 billion tonnes, while offshore reserves have surpassed 25 billion tonnes. In 2023, offshore crude oil production exceeded 62 million tonnes, up more than 3.4 million tonnes, accounting for 70 per cent of the increase of crude oil production nationwide.
According to the China National Energy Group, offshore oil production will grow to between 70 million and 80 million tonnes annually by 2045 – accounting for over 40 per cent of production by 2060.
Additionally, China is exploring shale oil reserves, estimated at 4.4 billion tonnes, the third-largest in the world. In recent years, shale oil production has accelerated, increasing from 470,000 tonnes in 2008 to over four million tonnes in 2023, an about nine-times increase in 15 years.
Import strategy
China’s oil import strategy includes diversifying its sources.
In 2010, China’s top five sources of imported oil were Saudi Arabia, Angola, Iran, Russia and Sudan.
Except for Russia, oil from these countries has to pass through the Strait of Malacca. China has since reduced crude imports from Africa and the Middle East, and increased them from Russia, which now provides 19 per cent of China’s oil imports, up from 6.4 per cent in 2010.
Malaysia, located across a narrow sea from China, has also become a major supplier, with imports averaging US$521 per tonne, 23.5 per cent cheaper than Australian oil.
To avoid the Malacca route, China has developed two new oil transportation routes.
The first is by transporting oil from the Middle East or Africa to Myanmar’s Maday Island, then through the China-Myanmar oil pipeline to the south-western Chinese province of Yunnan. This 771 km pipeline has transported 64.9 million tonnes of oil since it was commissioned in 2017.
The second is by transporting oil from the Middle East to Pakistan’s Gwadar Port, then through the China-Pakistan Economic Corridor to Northwest China’s Xinjiang Uyghur autonomous region. Despite being shorter and more secure, this route’s high construction costs and technical challenges have delayed its completion.
Strategic hydrogen investments
Also, China’s energy companies, particularly the state-owned giant China Petrochemical, better known as Sinopec, have been investing heavily in hydrogen.
By the end of 2023, Sinopec had developed 128 hydrogen refuelling stations, becoming the world’s largest operator of such stations, providing 40 per cent of the nation’s hydrogen supply. In August, Sinopec completed China’s first large-scale green hydrogen production project in Xinjiang.
This investment raises the question of whether this is a desperate move by traditional energy companies to counter the rise of EVs, or a proactive exploration of new businesses. CAIXIN GLOBAL
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