11-11-04

China is stepping up efforts to secure sufficient energy supplies as its rapid economic growth has pushed it into second place in global oil consumption behind the United States, resulting in friction with Japan over its natural gas exploration project in the East China Sea and fuelling the recent surge in oil prices.
China is the largest coal producer and the sixth-largest oil producer in the world. It produces about 3.5 mm bpd of crude oil and 170 mm tpy. However, due to its economic boom, China has been unable to meet its own energy needs with domestic production since the first half of the 1990s.

Oil also has started to occupy a growing share of China's rising energy consumption. In 1990, oil accounted for 17.1 % of China's total energy consumption, while coal's ratio was 76.2 %. But by 2002, oil's share had risen to 24 %, with coal dropping to 65.6 %. This structural change in China's energy consumption has been partly caused by an increased number of car users, with about 2 mm automobiles sold per annum in recent years. Last autumn, there were shortages of gasoline and diesel oil in Guangdong and other provinces in the South China region, forcing gas stations to limit sales.
The shift of focus in its industrial structure from coal-consuming steel, cement and fertilizer production to oil-consuming electric and electronics industries, also has contributed to the rise in oil consumption.

China's oil imports exceeded exports for the first time in 1993. Since then, its oil imports have generally risen each year, apart from some fluctuations caused by the changing economic situation. In 2004, China's crude oil imports are forecast to rise 21 % from the previous year to 110 mm tons, while its imports of oil products, such as diesel oil, are seen jumping 40 % to 40 mm tons. In 2010, China is expected to import 200 mm tons of crude oil and oil products.
The Chinese government, which considers it essential to secure supplies of energy to maintain economic development and national security, is attempting to develop oil and natural gas fields and construct pipelines inside and outside the country. China started construction work in September on a pipeline running from the Caspian Sea coast in Kazakhstan to the Uighur Autonomous Region of China.

Currently, China imports a few million tons of oil from Russia by rail. When Chinese Premier Wen Jiabao visited Russia in September, the two countries agreed that China would increase its rail imports to 10 mm tons next year and 15 mm tons in 2006.
The 4,000 km natural gas pipeline running from the Talim basin in the Uighur Autonomous Region to Shanghai was completed on Oct. 1 and is scheduled to start operations in October 2005. China also is accelerating its oil and coal development in the Bo Hai Gulf. The country started to construct a factory in August to process gasoline and diesel oil from coal.

However, China's aggressive pursuit of energy resources has sparked friction with Japan. The most serious problem between the two countries is China's natural gas exploration project in the East China Sea, which lies near the border of the Japan-China exclusive economic zones.
Though the gas field has been set up on the Chinese side of the border, it is probable that China may siphon off natural gas on the Japanese side of the ocean bed. Japan has requested that China present information about the underground structure of the natural gas field.

On Oct. 25, the two countries had talks on the gas field, but China did not present any useful information. Both sides stuck to their guns regarding their interpretation of the EEZ border throughout the meeting.
Japan and China also are competing over an oil pipeline to be developed from East Siberia, Russia. China is insisting on the quick construction of the pipeline running to Daqing, Heilongjiang Province, while Japan wants one to Nakhodka to be constructed first.

Japanese and Chinese companies also are competing for exploration rights for natural gas resources in Indonesia and other countries.
However, China has started to call for Japan and South Korea -- other large energy consumers -- to join with it in setting up a framework for discussions on the energy issue.