As a quick follow up to a post I made last week, I am becoming increasingly concerned about the energy situation in China. It is something I have been thinking about for quite a while, and was unfortunately proven right a few months ago. more importantly though, I have been seeing a number of signs (Shanghai commercial lights off @ night) and hearing that there are still rolling power outages in what are typically areas with enough energy.

Then, Forbes last week reported that More than 70 pct of China power firms making losses,

the China Electricity Council said that 40 pct of China’s 4,773 power firms made losses in the first two months of the year, and that profits were down across the board as a result of record high coal prices, fixed tariffs and the freak weather conditions that struck southern China over the period.

and, today the People’s Daily China’s power coal reserve falls to 12 days amid rising prices

The nation’s entire coal reserves slumped to 46.69 million tons as of April 20, down 12 percent from 53 million tons in the early March, said Wang at a news conference on Tuesday.

The national stockpile was only sufficient for 12 days of consumption, three days fewer than the March record. Coal inventories for plants in Anhui, Chongqing and Hebei were only enough for less than a week, he said

But, more than these stories, where I would like readers to focus, is last week’s Reuters article China to update rail lines to boost coal supply where some real insights into just how difficult the problem will be short/ medium term will be (I have added the numbers):

1. Some 19 lines linking top coal areas in the north to ports in the east would be updated or rebuilt, increasing transport volume to 1.7 billion tonnes, said Dong Yan at the Institute of Comprehensive Transportation of National Development and Reform Commission.

2. Some 200 million tonnes of coal was taken by truck each year from producers in places such as Shanxi, Inner Mongolia and Shaanxi to ports in the north and east

3. China’s coal consumption would rise to 3-3.1 billion tonnes in 2010, and to up to 3.3-3.7 billion tonnes in 2015, which compared with 2.54 billion tonnes in 2007, driven by strong demand from power plants, Dong said.

Add all this together…

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With snow storms reeking havoc on China’s power grids a few week back, it was clear that we needed to hold a session on energy, and as I mentioned in my post last week… we had a lot to discuss.

For me, this was a situation that was inevitable, and if you were following the news over the last 18 months it would have been pretty easy to see that energy was becoming a scarce resources.

So, without further ado, here are some of the highlights from the event. There were 5 people involved in this evening from industry, finance, law, and policy, and after 3 hours I think we were able to cover a lot of ground.

Feel free to post your comments on the below. they are cut down from the complete notes, but let us know how you see some of the issues. Energy is an issue that we are all going to have to keep a close eye on as it reaches into everything. Just today a few really interesting news stories (here, here, and here) were released indicating that steps are being taken in the right direction.. but it is clear that the margin for error has decreased and that more than ever it is important for progress to be made.

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Over the last several months, I have been covering what I felt was going to be hard times for energy, and what that would mean for manufacturers operating in the area. My most timely piece in this was the post entitled People May Think I am Overreacting…. (a follow up to Why China’s Recent Drought Matters to YOU) 10 days before the snow storm knocked out power to 17 provinces. In that post, the leaders of Guangdong had just issued a call for help:

issue an “urgent notice” on Wednesday to the country’s power generators, coal companies and railways to address an electricity shortage that has led to rationing in more than a third of China’s provinces in recent weeks.

Little did we know that 10 days later a snow storm would be the the final straw that landed on a broken camel’s back. There have been rail capacity issues for 2 years, the grid is a mess, hydropower has suffered from a drought in 2007, China’s bulk shipping fleet was maxed out, and so on and so on.

Unfortunately, the only thing through all of these problems that can be fixed in a reasonably short timeline, is the damage from the snow storm…. and that means that as long as rail capacity doesn’t improve, rain doesn’t fall, and the boats cannot be retrofitted ASAP, the worst case scenarios will begin to play themselves out.

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A few days prior to our last meeting (see: Inflation: What if, What Else, & What Are the Odds - Results), the news of snow storms knocking out power across China began rolling in, and through my post China’s Power Crisis. What is Happening. What the Impact Is/ Could be. And What You Should Do I looked to address some of the impacts that investors, buyers, NGOs, policymakers, etc should expect to see.

With these shortages manifestating from several issues surrounding energy, transportation, and development, I am bringing the group back together next week to meet on China’s energy issue.

As a basis for discussion, here is a handful of the questions that we will be tackling:

1. What were the causes of the recent outages in China, and what will be the administrative response to solve the underlying issues on a long term basis
2. Will the energy law (draft attached) be passed this year, will the events earlier this week catalyze the central party to push it, and what impact on the draft will the outages have?
3. Is China seeing a natural barrier to economic growth?
4. Where must the central party invest over next 3-5 years to stabilize its energy infrastructure?
5. What should multinational firms do to protect themselves?
6. What are the opportunities for multinational firms should the lights go out?

So, with that, I will ask you the reader to offer your perspectives based on your experiences. Without a doubt, energy will continue to be an issue that planners will continue to struggle with, and this is not the last time we will see headlines of energy shortages, inflation, etc.

Last week I posted a piece on a looming energy crisis in China entitled Why China’s Recent Drought Matters to YOU.  Didn’t get any comments, but a few people I have spoken to have played the threat of any economic impact down.

Well, if the fact that China is now  recalling ships as part of a national coal transport drive, then perhaps you’ll consider the fact that Coal shortages, transport problems cause power gaps and that the recent diesel shortages have made the problems severe enough for the central party to

issue an “urgent notice” on Wednesday to the country’s power generators, coal companies and railways to address an electricity shortage that has led to rationing in more than a third of China’s provinces in recent weeks.

and the problems will only get worse.

Perhaps I am overreacting a bit, but in the off chance I am right and the power starts rolling in and out, what would the impact be?

Sure, there are summer blackouts, but has anyone put together a plan to deal with a rolling blackout  that lasts through the spring and summer (assume drought conditions continue)?

On a wider sustainability issue, I there is a great article  The future: China changes the whole world where we the following paragraph will give you a sense of the amount of resources required to power China’s engine.

By 2006, China already consumed 32 per cent of the world’s steel, 25 per cent of the world’s aluminium, 23 per cent of the world’s copper, 30 per cent of the world’s zinc and 18 per cent of the world’s nickel.

To date, the second tier cities have yet to really achieve the same growth as the coastal cities, so a few more questions.

How much longer can China continue to grow and drive material prices up before a slowdown occurs?  After all, at 11.4%, China’s economy posts biggest rise in 13 years

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