If evidence were needed that China's energy landscape was shifting dramatically, the latest figures on fossil fuel production should dispel any doubt.
Crude oil output fell in July to the lowest level since October 2011, according to data released by the country's National Bureau of Statistics on Friday. Coal mining slowed 10 percent to 1.9 billion metric tons during the first seven months of the year.
China doesn't seasonally adjust these data but you can strip out volatility by calculating 12-month numbers. On that basis, apparent oil consumption -- a measure of domestic production plus imports net of exports -- peaked last August and has been declining ever since:
The picture in coal is even more dramatic:
In other countries, natural gas has been the prime beneficiary of declining demand for dirtier fossil fuels. That's less the case in China, where antiquated price controls are limiting consumption even as a glut pushes down the global cost of liquefied natural gas:
Some of this is a result of the general deceleration of China's industrial economy, but not all. Despite these fuels' sputtering performance, electricity consumption in June was still up about 4.3 percent on a year earlier, or 2.8 percent on a trailing 12-month basis.
Hydropower has been the main winner. Trailing 12-month electricity output from China's dams has climbed 33 percent since June 2014, more than compensating for the 1.9 percent decline in generation from other sources.
While the Three Gorges Dam has been the poster child for this industry, it's far from the whole story. Since that project's completion in 2012, China's hydroelectric-installed capacity has increased another 30 percent, to 297,000 megawatts in 2015, according to Bloomberg New Energy Finance data. That's equivalent to the total capacity of the next four biggest players -- Brazil, the U.S., Canada and Russia -- put together.
The declines that coal and oil have suffered ought to find a floor at some point. But the rapidity of this shift should serve as a warning for those hoping Chinese demand will bail out a global fossil fuels sector awash in excess capacity.
If anything, the next few years are likely to apply further pressure, as the completion of the country's ultra-high-voltage grid opens up generators in the east to competition from the north and southwest, where vast quantities of hydro, wind, and solar generation are currently wasted because there's insufficient local demand.
Thermal coal demand in China's coastal provinces will shrink 20 percent to 640 million metric tons from 800 million tons once the grid network is up and running and a larger proportion of this capacity is put to use, Deutsche Bank's James Kan wrote in a note to clients last August.
That should worry those who've chased the 27 percent improvement in prices for Chinese import coal this year. The 160-million-ton shortfall Kan forecasts is equivalent to all of the coal China imported in the 12 months through June.
In that scenario, the bigger risk isn't that coal imports will slip, but that local mines will follow the example of the country's steel industry and turn to exports to plug the domestic demand gap. If there's one thing worse for struggling commodity producers than flagging Chinese demand, it's growing Chinese supply.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
(Corrects hydroelectric-installed capacity figure in eighth paragraph.)
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