National Commentary

The Peak Oil Crisis: China’s Latest Drought

We all need to pause for a minute and consider the possible implications of the droughts that are engulfing China. One of these is in the north — Inner Mongolia, and the second more serious one covers most of southwestern China.

If the weather patterns revert to normal and the May monsoons come on schedule in the next month or so, then all should be well and we, along with 60 million or so Chinese farmers, can stop worrying. But these are not normal times and even the disappearance of the El Niño in the central Pacific may not bring enough rain to mitigate the situation. Then, there could be serious trouble not only for the Chinese and southeast Asian peoples, but for the rest of us as well.

There will be at least three major consequences of recurring drought conditions in southwestern China. First will be that millions of people and head of livestock will have to find a source of water or move. Gone are the days when a government could let nature take its course as millions perished. Water will have to be brought in, wells drilled or people moved to areas where the water is adequate. In China, this is always a problem for a country with 22 percent of the world’s population and only seven percent of the world’s fresh water.

Next comes the food supply. So far the government’s official line is that losses will not be significant for only a few percent of the 750 million rural Chinese are heavily affected by the drought. Last winter China’s chief meteorologist warned, however, that two years of drought would be a disaster for China which would be unlikely to be able to import sufficient food from abroad. A country sitting on $2.4 trillion in foreign exchange cannot sit by and let people starve. Should Beijing attempt to buy its way out of food shortages, world food prices would move sharply higher.

Gone are the days when a government could let nature take its course as millions perished.

The third problem of a lasting drought is the collapse of hydro-generated power in China. Starting after the 1949 revolution, China went on a dam building binge unlike any the world has ever seen. Most sources report that the country has built some 87,000 dams of all shapes and sizes in the last 60 years. These range from small local power, irrigation and flood control dams to the largest ever built on the earth. Hydro-power generation in China reached a peak as a share of total power generation in the mid-1980’s when central planners concluded that coal-fired plants could be build more quickly and cheaply than massive hydro dams. Hydro power production dropped from 33 percent of China’s power production to about 20 percent by 1996. With growing concern about global warming, the pendulum has swung again and Beijing is making a major effort to build as much hydro-electric generation capacity as quickly as possible. China now has nearly 50 percent of the world’s inventory of large dams and this number is growing.

The current problem of course is that two-thirds of China’s water power resources are located in southwestern China where drought conditions are most severe. So far we have only had scattered reports as to the drought’s impact on power production in southern China where some 30 percent or more of the power comes from hydro. Some reports speak of a 30 percent fall in hydro power production in a given region, while others say that 90 percent of the hydro power stations in the region are paralyzed. The Longtan power station, the second largest in the country, is only weeks from shutting down completely. Reports of power shortages are starting to emerge from the southeastern industrial regions as Beijing attempts to increase its GDP by 10 percent this year.

Although scattered rain storms are starting to alleviate the situation is parts of the affected areas, it will be several months before we know whether there will be enough rain to fill nearly empty reservoirs. Indian meteorologists are optimistic about the prospects for the coming monsoon season. They point out that in the last 100 years, 17 of 20 weak monsoon years have been followed by good ones.

Chinese meteorologists do not seem as certain. The long term forecast is for higher than average temperatures in southwestern China during the next few months and occasional references to the consequences of continuing drought continue to occur. Should this happen however, we can expect increasing demand for coal from China. This year China’s coal-fired electricity production was scheduled to grow by seven percent, but domestic coal production is scheduled to increase by only three percent with the remainder being made up by imports.

So far little has been said in public about the impact of the drought on Chinese oil imports and by implication world oil prices. Beijing’s oil imports have been increasing rapidly in recent months, which is the principal reason why gasoline prices in the US are now approaching a national average of $3 a gallon. Conventional wisdom attributes this increasing demand to rapid economic growth and the unprecedented increase in automobile sales which reached 1.73 million in March. In recent years, however, Chinese manufacturers when faced with power shortages turned to locally generated diesel power units to keep going. Should the hydro-power shortages continue for long we can expect that higher oil imports and world prices will not be far behind.


Tom Whipple is a retired government analyst and has been following the peak oil issue for several years.