Growth in China's energy demand will decline in 2005, due to slower economic growth expected year.

The government has said it would continue to strengthen and improve its macro-controls this year.

The government will take a series of measures to prevent fixed asset investment from growing too much to ensure a fast and stable economic development.

The growth in gross domestic product, fixed asset investment and industrial production is expected to fall this year.

Energy demand will drop compared with last year as a result of the slowdown in economic growth.

Electricity

Electricity demand is mainly determined by economic growth, particularly the growth in industrial production.

Because of the fast industrial output growth, the consumption of electricity by the industrial sector increased rapidly in recent years.

The sector's electricity consumption accounted for 74 percent of last year's total.

Profits by industries such as chemicals and building materials, which consumed a majority of the electricity, grew by a large margin last year, due to the strong demand.

The production capacity of these sectors will further improve this year, resulting from the fast growth in fixed asset investment.

Electricity demand by these sectors will also continue to grow steadily.

But the rate of growth will drop slightly compared with last year.

Since last May, growth in industrial output began to fall.

It dropped to 14.4 percent in December. The growth rate was 19.4 percentage points lower than in March.

Growth in industrial output will continue to drop this year, as a result of the government's macro-economic controls.

Meanwhile, the adjustment in electricity prices and the implementation of the scheme to link electricity and coal prices is beneficial for the price mechanism to play its role.

If weather conditions remain normal this year, electricity demand will reach 2.43 trillion kilowatt hours, an increase of 12 percent year-on-year.

The industrial sector's electricity demand will grow a year-on-year 13.5 percent.

Since the beginning of last year, electricity production has entered a rapid period of growth.

Fast-growing fixed asset investment increased the sector's production capacity.

And the newly installed electricity generation capacity is expected to reach about 70 million kilowatts.

The overall electricity supply and demand situation will improve this year.

But electricity supplies will continue to fall short in peak periods such as the first quarter and third quarter of this year due to seasonal reasons and the varied progress in power network construction in different parts of the country.

Provinces in eastern China such as Jiangsu and Zhejiang will witness the most tight electricity supply situations.

Relatively insufficient coal supplies will also cause coal prices to further rise.

This means the electricity price will also increase, since the government has connected the two.

The electricity price is expected to grow about 4 percent this year.

Coal

The industrial sector's coal consumption currently accounts for more than 90 percent of the total.

Five major industries such as electricity, metallurgy, building materials and oil processing consumed 75 percent of the total coal supply.

Coal demand will grow steadily, due to the fast development of the electricity and metallurgical sectors.

The electricity industry is expected to increase its coal consumption by 120 million tons this year, while the metallurgical sector is expected to increase its consumption by 30 million tons.

Since 2002, fixed asset investment has grown annually in the coal industry.

Fixed asset investment in the industry grew year-on-year by 63.7 percent during the first 11 months of last year, which was much higher than the overall growth in the manufacturing sector.

Booming coal demand and the relatively higher prices will stimulate production.

The coal industry's increased output will reach 120 million to 180 million tons this year.

Total coal output is expected to hit 2 billion tons, an increase of 8.5 percent from last year.

However, coal stocks will be lower than normal, because of transportation problems.

The safety situation is also serious in the coal industry, which increases uncertainties about the coal supply.

The price rise on the international market, booming domestic demand and low stocks will also keep the coal price in China at a higher level.

The coal price is expected to grow more than 10 percent this year.

Oil

Because of insufficient domestic oil resources, increased oil demand can only be satisfied by imports.

Experts have said global oil production is capable of meeting demand in the years to come.

Maintaining a stable oil supply and obtaining the highest level of profits are in accordance with the interests of major oil exporters.

The increasing dependence of oil exporting countries and oil consumption countries on each other is also beneficial for the two to strengthen co-operation.

World oil supplies will remain stable.

In 2005, oil demand will fall, due to the slower pace of global economic development.

The International Energy Agency predicted that the global oil demand will be 83.7 million barrels per day in 2005, an increase of 1.7 percent from last year.

The growth rate was lower than 3.2 percent in 2004.

China's finished oil demand grew rapidly in recent years, because more people have started to buy private cars and the logistics industry has developed rapidly.

The increasing use of diesel for generating electricity also fuelled demand.

The transportation industry will continue to be the major consumer of finished oil products this year.

Finished oil consumption is expected to grow about 10 percent this year.

Suggestions

The rapid growth in supply but slower growth in demand means that the energy supply and demand situation will improve this year.

However, some deep-rooted problems exist in the energy market.

A rational energy price mechanism has not been established.

The strained coal, electricity and finished oil supply since 2003 was mainly because of strong demand.

But the immature price formation mechanism should also be blamed.

For example, some areas' decision to stop generating electricity was not because of insufficient coal resources.

Power stations are unable to reach agreements with coal production companies on coal prices.

The government should push forward the reform of the energy price formation mechanism.

It should also establish and improve the reserve system for energy products.

Energy is vital to China's social and economic development.

It is also a guarantee of a decent standard of living.

The government needs to take measures to ensure a stable energy supply.

The establishment of an energy reserve system needs the participation of both government and companies.

The government should also encourage imports but restrict exports of products which consumer a large amount of energy through the adjustment of tariffs and improvement of relevant regulations.

(China Daily February 4, 2005)