The Energy Implications of the Sichuan Earthquake

Green Leap Forward

May 20th, 2008 by Julian

The Green Leap Forward joins the people of China and the rest of the world in these few days of mourning over the victims of the Sichuan earthquake (see all the coverage on China Daily here). We also join arms with our brothers and sisters in Myanmar who are dealing a horrific natural catastrophe of their own.

For those of you who would like to donate to the China quake relief efforts, CNReviews provides a pretty comprehensive relief and donation guide. Google has also set up a useful interactive earthquake relief site.

The claim on human lives in China, some 35,000 by now, in addition to the 225,000 injured and more missing, has shook the nation and comes in the wake of a tumultuous year so far—the ice storms in the southern provinces earlier this year and the clashes in Tibet in March.

The economic effects of the quake, so far, seem to be slight. The energy impact, on the other hand, may be a little more far-reaching.

According to a BusinessWeek article:

Sichuan is a major onshore gas producer and the country’s largest hydropower generating region. The quake’s destruction has affected natural-gas exploration and production and has hit hydropower operations hard. Sichuan’s electricity grid is running at 76% of pre-earthquake levels, with 27 power stations shuttered, China’s State Power Grip announced on its Web site on May 19.

China can ill-afford severe disruptions to the gas and hydro industries, which are vital to fueling the country’s double-digit GDP growth. Sichuan supplied some 27% of the country’s national gas production in 2007. While natural gas still only accounts for 3% of the national energy mix, Beijing plans to raise that proportion to 10% by 2020, with Sichuan’s rich reserves playing a key role in that expansion.

The International Business Times substantiates the BusinessWeek report:

The area subjected to the quake produces about 22 percent of China’s natural gas supplies and contains many coal mines and hydro-electric dams which generated about 62 percent of the provinces total electricity production. Many of the 396 power stations on the river system and their dams were damaged. Several major reservoirs are being drained to prevent their dams from failing. Beijing ordered coal mines, oil and gas wells, and chemical plants affected by the quake to shut down until the situation could be assessed. Twenty-two coal mines in Sichuan, Chongqing and Gansu provinces were affected by the quake.

Loss of significant amounts of natural gas, coal, and electricity production for an indefinite period suggests that China will have to step up imports of coal and oil products. Already some 700,000 barrels of emergency fuel supplies have been dispatched to the area.

The IBT report goes on to suggest that world energy prices will be under pressure during the summer as China imports more oil to prepare for the Olympics and the support recovery from the earthquake. Already, the state-owned oil company PetroChina is halting petroleum exports based on “robust domestic demand” and the central government has acted to release oil from its state reserves.

This other report tells of a spike in nonferrous metal prices, especially zinc, after the quake.

Dongfang Turbine Badly Hit

The operations of Dongfang Turbine, China’s largest steam turbine producer, were virtually wiped out. According to BusinessWeek, Dongfang, which produces 30% of China’s locally made turbines, estimates direct losses from the earthquake will reach $1 billion. Its parent company, Dongfang Electric Corp., has seen its stock price plummet as the steam turbine business accounted for 20% of its operating revenues in 2007.

Incidentally, Dongfang Turbine is also the third largest domestic manufacturer of wind turbines. Although some reports suggest that facilities for its wind turbine business was unaffected (e.g. South China Morning Post:”The company said the earthquake had little impact on other production facilities, including those that made hydroelectric turbine generators, steam-power generators, power station boilers, wind power and nuclear power equipment and engine generators.”), an industry source has told me that most of their wind business’ senior engineers have unfortunately perished and one their a wind components factory was badly damaged. The quantifiable impact to its overall business, or wind industry in general, is unknown at this time.

Assessing the Dam-age

The impact on the region’s dams and hydropower are potentially even more serious. According to BusinessWeek:

On May 14, the Water Resources Ministry announced that 391 dams were believed badly damaged. “There are major safety issues right now with the reservoirs, hydropower stations, and lakes in the earthquake zone,” Minister Chen Lei said in a statement released on the ministry’s Web site. “The area has numerous reservoirs and lots of damage, and the extent of the danger is unknown.”

Unlisted SinoHydro, China’s largest hydro company, has announced that close to 100 of its employees have died, 500 have been injured, and 10,000 made homeless following the quake. Estimated property damage: almost $250 million, with $330 million needed for reconstruction, the company says.

Even more alarming is the possibility of one of China’s earthquake-weakened dams or reservoirs bursting…Even before the quake, Beijing had admitted there are major flaws in many of the country’s 87,000 dams. “Roughly 37,000 dams across the country are in a dangerous state,” [Ministry of] Water Resources deputy minister Jiao Yong said earlier this year, noting that many had been built decades ago.

In the wake of the earthquake, the New York Times reports that the military has been dispatched to shore up weakened infrastructure, such as the almost 400 dams damaged or weakened in the region that pose a public safety threat. One such dam is Zipingpu Dam, up the river from the earthquake-hit city of Dujiangyan, is featured in this video:

This piece by TreeHugger, while recognizing that the Sichuan quake was a result of natural geologic forces, calls for a careful look at the ability of large dam projects, such as the Three Gorges Dam, to trigger earthquakes of their own. See also this this piece by China Economic Review.

Nuclear Facilities Unaffected?

There are reportedly a few nuclear facilities in the quake zone, including two nuclear fuel production sites and two atomic weapons sites in Sichuan province, where the quake struck, between 40 and 90 miles from the epicentre. The official word, according to a senior military official, is that all nuclear facilities are safe…but western experts are monitoring the situation closely.

Regardless, the quake does put a dent on Sichuan’s nuclear ambitions.

Carbon Implications

In terms of the carbon markets, it is feared that some 5% of the country’s carbon credits supply could be reduced as a result of the quake, as clean development mechanism projects totaling some 15 million tons worth of carbon lie within a 150 km radius of the epicenter.

However, this reduction in supply may be more than offset by an impending fall in demand for carbon credits, as the World Bank warns.

Looking Ahead

It is an understatement that to say that China’s building codes are not always followed. The large number of school buildings that collapsed have attracted attention to the systemic failure of meeting prescribed building codes, prompting the promise of governmental action. But it should come as no surprise that the need to “build things faster and cheaper”, especially in the rural areas, have come at the sacrifice of a few things, such as regulatory compliance.

An op-ed in the China Daily urges governments to see the massive rebuilding needs in the wake of the earthquake as an opportunity to incorporate higher levels of energy efficiency and environmental standards, in the wake of an impending construction boom that could otherwise have derailing environmental consequences.

It is hard to imagine that amidst the chaotic frenzy to restore a sense of normalcy across the region, that such far sighted considerations will be given much weight over the immediate needs of those affected. When the dust settles, however, there will be an opportunity to consider, and not without international cooperation, what it means to rebuild a more sustainable set of infrastructure.