The most populous country in the world, China has an insatiable appetite for energy. Imports are crucial, but the country also produces a large amount of its own energy. Despite this opportunity, foreign investment can be tricky, as state-owned companies dominate almost every sector of Chinese business.
China's goal is to generate at least 15% of its energy output from renewables by 2020. The Chinese government has been incredibly supportive of renewable energy, investing billions of dollars in the industry over the last five years. As a result, China is the world's largest hydro power producer, the fifth-largest wind producer, and a dominant player in the solar market.
The government's role in renewable development, specifically solar, has been widely criticized on a global scale. Supporting its solar industry with cheap loans, low taxes, and free land allowed Chinese solar companies to saturate the market with underpriced solar systems. The U.S. has since raised tariffs on solar, and Europe is exploring the option as well.
China has 16 nuclear reactors in operation with a total output of 11,816 MW. Twenty-six more reactors are currently under construction, with an estimated electric net capacity of 26,620 MW. The country is trying to increase nuclear's share of electricity generation from 2% to 5% by 2020. China more than tripled its uranium imports last year and is constantly working on deals for future supply. Last year, the country signed an agreement with Cameco to secure 29 million pounds of uranium concentrate through 2025.
China has the third-largest coal reserves in the world, after the U.S. and Russia, and is the largest producer. In 2010 the country produced 3.5 billion short tons of coal. China is also the largest consumer of coal. Coal makes up more than 70% of the nation's energy consumption, and China became a coal importer for the first time in 2009.
China is the world's fourth-largest oil producer. The country produced 4.3 million barrels of oil per day in 2011. It consumed more than twice that number, however, and the impetus for China's exploration and production companies to acquire more assets worldwide is strong.
China has 20.4 billion barrels of proven oil reserves, a number that is 4 billion barrels higher than it was two years ago. Estimated production for 2012 is 4.5 million bpd, but demand is expected to increase to 10.3 million bpd this year, which means China will continue to rely heavily on imports to meet its needs. The country imports the majority of its oil from the Middle East (47%) and Africa (30%). Saudi Arabia and Angola are China's two biggest individual suppliers.
China has conventional natural gas reserves of 107 trillion cubic feet, but when you factor in unconventional shale gas reserves, the story changes. China's ministry of land and resources estimates the country holds 918 TCF of gas. The EIA thinks it's a little bit more than that, and that China's technically recoverable shale gas reserves are 50% higher than those of the United States.
The country produced 3.3 TCF of gas in 2010, and its output has grown significantly since 2008.
There is plenty of risk to go around when it comes to investing in China's energy scene.
For companies outside of China, dealing with a business environment that is completely dominated by state-owned businesses can be incredibly challenging. No economy on earth sports as many state-run companies as China does; said companies make up 80% of the value on the country's stock exchange. For comparison, that number is 62% in Russia, and 38% in Brazil. The government is the biggest shareholder in the country's 150 largest companies.
This sort of structure makes it incredibly easy for the Chinese government to enact policies that benefit its investments. For example, in January, the Chinese state approved shale gas as a mining resource, allowing more Chinese firms to legally develop the resource. The approval came with an asterisk, of course: Foreign companies may not participate unless they partner with Chinese companies.
For individual investors, investing in Chinese companies can be a very dangerous game indeed. To say the rules governing publicly traded companies are different in China would be to imply that there are rules. Fraud is a major concern, as companies cook their books and conjure up assets. Even Chinese companies that are on the straight and narrow can still be difficult investments, at least for American investors, given the immense cultural and geographic distance.
Additionally, perfectly acceptable Chinese stocks can have their world turned upside down at the slightest whim of the Chinese government. Censorship is a big issue now, and it has affected companies like RenRen, and completely shut down other Internet companies.
Caveat emptor, indeed.
PetroChina is the real deal. The company produced 2.4 million barrels of oil per day last year -- that's 100,000 more than ExxonMobil. In the face of growing demand for oil at home, PetroChina has gone looking for production opportunities abroad. The company has spent $7 billion over the last two years buying up foreign assets.
China's National Offshore Oil Company, or CNOOC, has gone beyond its offshore roots. Last year it plunked down a $1 billion for a joint venture with Chesapeake Energy in the U.S. This spring, the company started seismic operations in Anhui province in an effort to drill natural gas wells.
CNOOC's overall goal in 2012 is to produce 330 million to 340 million barrels of oil equivalent.
Much like its peers, Sinopec is also diversifying its asset base abroad. Last year the company paid $2.16 billion for a Canadian exploration and production company, picking up assets in 69 oil and gas fields. In the early moments of 2012, Sinopec paid Devon Energy $2.2 billion for a 33% interest in five different U.S. shale plays, including the Niobrara, the Utica, and the Mississippi Lime.
Sinopec produced 81.5 million barrels of crude in the first quarter of 2012, marking a 4.5% increase over the first quarter of 2011. Natural gas production rose 11.8% over the same period, to 143.2 billion cubic feet.
Chinese solar companies don't have the greatest reputations by and large, but Trina Solar is in better shape than most of the others. Last year the company set a world record for multicrystalline cell output. First-quarter results this year weren't sparkling, however, as shipments fell 10.6% quarter over quarter and revenue dropped nearly 20%.
China Shenhua Energy (OTC: CSUAY.PK)
China Shenhua is the largest coal company in China. Shenhua Group, under the direct supervision of the Chinese government, has a 76% controlling interest in its subsidiary.
Last year, the company produced 281.9 million tons of commercial coal, a 14.8% increase from 2010. Through the first five months of 2012, China Shenhua produced 130.4 million tons of coal.
Suggestions for further reading:
- Surprise: Chinese Solar Companies Falling Behind U.S. Rivals
- China's Ascent to Global Energy King
- China's Quest for More Energy
- The Biggest Sign of a China Bubble
- Why China Could be the Future of Natural Gas
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Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article. If you have the energy, check out what she's keeping an eye on by following her on Twitter, where she goes by @TMFDuffy.
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