The future shape of several crucial energy sectors in China may have been changed, as the US-China trade war gradually rolls out.
“It is unlikely that there will be any major changes in Chinese power industry’s structure in the near future—given that the priority now is to deal with Trump. “
A friend of a renown Chinese utility said that to me the other day when asked whether several executive shake-ups announced recently have deeper political connotations or whether these arrangements herald merger potentials among some energy powerhouses in China.
This is just one of the small examples of how the current trade war could affect the Chinese energy industry in long-term. Two years ago, China kicked off a high-profile State-owned enterprises (SOEs) reform and restructuring, hoping to improve the cost efficiency and forge some competitive players in the international market. The reform gave birth to some “Pantagruel” in the energy sector, such as the State Energy Investment Group, and it was planning to create more.
But if we look around now, no one in the West Second Ring Road of Beijing is using the phrases of restructuring or reform anymore. Why? The macroeconomic priorities have shifted.
To be fair, China’s pressing economic issue plays a more prominent role. But the mounting tension with US (last year already with a looming trade war) is also a factor of the current halt on the reform.
It Went High in 2017
Turning back the clock, before 2017 China and US energy cooperation appeared to be heading to a historical high point.
On the base level, in fact, domestic energy industry here always has a preference of the “US way” anyway– sometimes not legit. With various cases, the best example is Beijing’s pick of AP1000 as the single reactor technology to development in the coming decades, while it was the French who had previously helped build up the nuclear power foundation.
Other than that, China’s first power reform (the decoupling) and the current retail market reform, China’s quest for shale gas development… All of such decisions reflect an image of the US.
2017 witnessed some ground-breaking events that could have brought US-China energy cooperation to a higher point.
In natural gas, Trump’s visit to Beijing leads to the inks of five gas cooperation deals. Among them, three are MOU’s for potential long-term LNG purchase agreements and one allows Chinese firm (Sinopec) to secure a stake in Alaska’s upstream.
These could have helped China diversify its gas import sources and US to start to sell gas to China in large scale—both could have been events shaping the global hydrocarbon supply structure.
And in nuclear, the industry looked in awe, if not disbelief, that China agrees on investing and building the Traveling Wave Reactor—technology developed by US firm Terrapower.
Now it Faces a U-Turn
But the high mark is now followed by a U-Turn.
The trade war erupted, putting some of the gas deals in doubt. And since gas deals are signed for long-term (10-20 years), it will impact China’s gas supply structure in the future.
The mindset over US technology is also rapidly changing, since 2017. China has not approved any new reactors for almost three years now (2.8 yrs). The critical reason is not that Beijing does not want to, but its doubt over the first-of-its-kind AP1000 reactor in Sanmen. The unit has delayed over five years in construction due to several hiccups in the equipment manufacturing from the US side.
Last year, Beijing seemed to request Sanmen-1 run several extra tests—even though in the standard procedure, it was ready to put on fuel, showcasing Beijing’s concern over the US technology. It is not surprising to see the industry is speculating on deeper meanings of China’s recent deal with Russia to import four, instead of previously expected two, VVER-1200 units. Two of these units will embark on the site that was meant for AP1000.
It is also not surprising to see China and Russia are warming up again—especially in various sectors that Moscow could offer alternative options. Besides nuclear, there is gas, too.
Essentially, the shifting of politics and industry mindset will determine the shape of the Chinese energy industry for 20-30 years.