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China's Sustainable Energy Future Depends on Efficiency, Economic Transition and Renewables – Not Slower GDP Growth

Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Storm Tracker: More than 860,000 customers still in dark in Michael's wake

Factbox: Utilities, Oil Producers Brace for Hurricane Michael Along U.S. Gulf

China's Sustainable Energy Future Depends on Efficiency, Economic Transition and Renewables – Not Slower GDP Growth

China's rise on the world stage has many dimensions. GDP growth and integration into the global economy have tended to get the lion's share of attention, but there are a host of other issues that also merit attention. One of these is energy. The challenge for China is to avoid consuming an implausibly large amount of oil which, barring a revolution in unconventional production, it will have to import in ever rising quantities as it moves toward advanced country status. In order to achieve this outcome, China will have to follow a radically different energy consumption path compared with the current group of advanced nations.

In this report, S&P Global's China Senior Analyst Group looks at China's rise through the lens of long-term energy demand and sustainability. After documenting China's energy path to date, we look at the government's current policy objectives and construct three scenarios for growth and energy use through 2050. We then assess to what extent these scenarios fit into the global energy picture, particularly as they relate to oil demand (the gas story is similar, but is not the focus of this report).

These paths include: i) the government's energy strategy which envisages a substantial increase in the use of renewable energy; ii) a Japanese style "lost decade" of growth from 2020-2030 where investment falls and a there is a slower transition from fossil fuels and coal towards renewable energy; iii) an energy demand structure for China that follows the fossil fuel-heavy historical pattern of the Organization of Economic Cooperation (OECD) countries. Our results show that the Chinese government's (ambitious) plan does result in a sustainable global oil demand path; China's oil demand is not very sensitive to slower GDP growth; and that China cannot follow the energy-use path of more advanced OECD economies because this would lead to explosive oil demand, blow out China's current account, and put enormous strain on the energy bills of many global trading partners and emerging market peers.

China's Energy Story To Date

China's energy demand story has evolved rapidly as its appetite has risen sharply along with its GDP, albeit at a more moderate pace. China's share of global primary energy consumption rose from 16.4% in 2005 to 22.9% in 2015. Meanwhile, the U.S. share dropped by 4.2 percentage points to 17.3%, and the share of the rest of the OECD fell about 2 percentage points to 24.6%. In both the OECD and China, energy use grew more slowly than GDP over 2005-2015, suggesting ongoing increases in energy efficiency.

Another way to look at this issue is through contributions to global energy growth. What share of the addition to global energy demand growth is coming from China? The answer is that China counted for more than one-third of global energy demand as of 2015 U.S. (on a three-year average basis since the numbers tend to be choppy). The corresponding number for the U.S. is less than 10%. This implies that China will continue to be the main driver of global energy demand for years to come. And its policy choices will definitely matter.

In addition to being the largest marginal consumer of energy, China's primary energy consumption composition is vastly different from the rest of the world and, as we will see below, composition has a huge impact on sustainability. China relies very heavily on coal at the expense of oil and gas (see chart 2 overleaf). A whopping 64% of China's primary energy demand is generated by coal, roughly four times the U.S. and OECD shares. In contrast, China relies on oil and gas to meet only a quarter of its energy needs, far below the nearly 70% share in the gas-guzzling U.S. The global average is 57% for oil and gas and 29% for coal.

Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Communications providers are working to restore services in areas impacted by Hurricane Michael, but storm debris, power outages and significant fiber damage are hindering progress in those counties most devastated by the storm.

As of Oct. 14, a number of counties along the Florida Panhandle had more than half of their cell sites down, including Bay County — home of Panama City and Mexico Beach, described as "ground zero" of the storm by U.S. Federal Emergency Management Agency administrator Brock Long — where 66.1% of cell sites were down. Similarly, neighboring Gulf County had 69.6% of cell sites down, according to data from the U.S. Federal Communications Commission.

Based on the amount of damage in the area and ongoing power outages, it could be weeks before services are restored. Long said Oct. 12 that after search and rescue, restoring communications in impacted counties is among FEMA's top priorities.

"You have to be able to communicate to appropriately respond and we are trying to do everything we can to get the private sector vendors, the Verizon [Communications Inc.]'s of the world, to get in to try to get their systems back up and running," he said.

Long added, however, that the process is not easy. "There was a tremendous amount of debris. When you look at the damage in Mexico Beach, that is where the ocean rose potentially 14 feet … and shoved buildings out of the way. When you have that type of damage, it takes time to get in and go through," he said.

Hurricane Michael made landfall Oct. 10 near Mexico Beach as a Category 4 hurricane with 155-mile-per-hour winds.

For its part, Verizon said the "vast majority" of Florida and Georgia service has been restored, with 99% of the company's network in Georgia in service and 97% of its network in Florida. But the company noted there are pockets, particularly near Panama City, where the damage is severe.

"The storm caused unprecedented damage to our fiber, which is essential for our network — including many of our temporary portable assets — to work. Our fiber crews are working around the clock to make repairs, and while they are making good progress, we still have work to do to get the fiber completely repaired," the company said Oct. 14.

Fiber is the connecting component of a network that carries data from point to point. It is necessary for Verizon's permanent and temporary cell sites to be operational. The company noted that while it has multiple fiber paths to carry data, "The severity and intensity of the storm caused damage to all duplicate routes in the Panama City and Panama City Beach area."

In terms of wireline services, the FCC said 291,300 subscribers remain out of service as of Oct. 14, including 205,643 subscribers in Florida. The figures were down from a day earlier, when a total of 337,223 subscribers were without service, including 233,843 in Florida.

The top residential video and broadband provider in Bay County is Comcast Corp., according to MediaCensus data from Kagan, a research group within S&P Global Market Intelligence. Comcast, the largest cable operator in the U.S., said in an Oct. 12 statement that it is working to get Xfinity services back online.

"As power returns … and it becomes safe for our technicians and restoration crews, we will work to repair any damages affecting our network," the company said.

As of Oct. 15, more than 162,000 customers in Florida remained without power, including all 27,275 customers served by Gulf Coast Electric Cooperative. The cooperative said in an Oct. 12 Facebook Inc. post that its distribution system "suffered catastrophic damage"

In Gulf County, the top residential video provider is AT&T Inc.'s satellite video service DIRECTV, according to MediaCensus data, while the top residential broadband provider is Mediacom Communications Corp., the fifth-largest cable operator in the U.S.

Mediacom said Oct. 14 that its recovery efforts are underway but its network in Florida has 14 miles of severely damaged fiber near Walton County, as well as 25 miles of damaged fiber east of Panama City that is obstructing video transmission from Gulf County to Walton County.

"Our current priority remains focusing on repairing damage to our high-speed data transport network and main transmission facilities and repairing downed lines where we have access to the area. We have outages from widespread loss of commercial power along with downed lines, and structural damage throughout our systems," the cable operator said.

Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Houston, Oct. 11 2018 — Hurricane Michael made landfall at the Florida panhandle as a Category 4 hurricane Wednesday with 155 mph winds, quickly destroying demand for power, natural gas and refined oil products. Shut-in oil production rose modestly from Tuesday to over 700,000 b/d, but the storm has stayed east of much of the region's production, which means supply should be back online quickly.

Meanwhile, the severity of the storm has surprised to the upside, which could a mean longer lasting and more severe impact on demand for power, natural gas, refined products and ultimately crude oil.

"We expect the impact on refined products demand to be below that of previous hurricanes in the Gulf Coast such as Harvey in 2017, as the region impacted by Michael has lower population density than Houston ... Nevertheless, the impacts are favoring the high side of our estimates given the sheer severity of the storm," said Claudio Giamberti, Head of Demand and Refining at S&P Global Platts Analytics.

As of 7 pm EDT, the eye of Michael was moving over southwestern Georgia with maximum sustained winds still at 100 mph, according to the National Hurricane Center. The storm is expected to move northeast across the Carolinas before heading back out to sea Friday morning.

Storm Tracker: More than 860,000 customers still in dark in Michael's wake


Florida, Georgia, Carolinas hardest hit

Peakloads down about 20% on week

Houston, Oct. 11 2018 — As the remnants of Hurricane Michael churned through the South Thursday, it cut power to more than 870,000 customers, shaving large chunks off daily peakloads and, while more than 30,000 technicians began working to restore service.

The center of Tropical storm Michael was about 25 miles south of Greensboro, North Carolina, as of 2 pm EDT Thursday, the National Hurricane Center said. It still had maximum sustained winds of 50 mph, moving northeast at 23 mph with an expected move offshore from southeastern Virginia Thursday night.

Since it made landfall near Mexico Beach on the Florida Panhandle between 1 pm and 2 pm EDT Wednesday, the storm left more than 860,000 people without power, but some of those services have been restored.

Factbox: Utilities, Oil Producers Brace for Hurricane Michael Along U.S. Gulf

Houston, Oct. 09 2018 — With Hurricane Michael expected to make landfall on the Florida Panhandle as a Category 3 storm Wednesday, offshore oil and gas producers were busy evacuating crews and shutting in production Monday. By mid-day, nearly 20% of Gulf of Mexico oil production had been taken offline. That number will likely have risen when reported Tuesday as operators continued to shut down platforms Monday afternoon.

Meanwhile, just 24 days after Hurricane Florence made landfall, electric utilities were gearing up for Hurricane Michael restoration efforts by staging crews and supplies in the storm's path. Lost power demand is likely to have a knock-on effect on natural gas demand and prices.

After it brings over 100 mph winds to the western-most portion of Florida, Hurricane Michael is expected to turn northeast, bringing wind and rain to Alabama, Georgia and the Carolinas before heading back out to sea. Thiis article covers the key takeaways across commodities.