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China's road to energy security

It was a mid May night, and trucks queued up at a gas station by the East 5th Ring Road of Beijing. The line was several hundred meters long, blocking a lane of the main road. At the station, the oil nozzles were left idle – the supply of diesel had run out and the new delivery wouldn’t come until after midnight.

"We have no oil here. Don't wait any more. Please go to another place," clerks at the Sinopec station shouted to the drivers, some of whom responded that their vehicles were out of fuel and couldn't go any further.

When the delivery came, it would not be enough, a driver said. The limited stock would be sold on ration. Most vehicles would be partly filled and some would have waited in vain. The same situation was also seen at other stations, and it had been like that for days, the driver added.

The situation had a direct link with soaring oil prices on the international market. To the country's decision makers, it was a harsh reminder of a vital issue – energy security.

Though the aggregated figure looks quite impressive, China is poor in energy resource reserves on per capita calculation. Proven reserves of fossil fuels have increased in recent years, but this cannot change the overall picture. Production of energy has continued to grow with the demand growing faster due to a rapid development of the economy, the quickening pace of urbanization and the rising living standard.

The country's coal reserves ranked third globally. Production was the greatest, accounting for about 40 percent of world output in 2007. Given the current speed of exploitation, the reserves would be exhausted in a little over 80 years. The comparatively small reserves of oil and gas would dwindle even faster, in 15 years and 30 years respectively.

The government announced an energy strategy that prioritized conservation to optimize consumption; it relies on domestic production and seeks diversified sources to secure supply and to develop new and renewable energies as alternatives for the future. "We will strive to establish a steady, economic and clean energy supply system," Zhang Guobao, minister in charge of the energy sector of the National Development and Reform Commission (NDRC), said at an international conference in January.

It might be necessary for China to maintain a fast economic growth, but energy consumption may grow at a slower pace if a good job is done in conservation. The country's unit gross domestic product (GDP) energy consumption was three to eight times as much as those in the United States and Japan. Adjusting the demand of industries is a way to reduce energy intensity. A government announcement made on Oct. 11, 2007 terminated preferential power rates for high energy consuming industries such as electrolytic aluminum, alloy and chloro-alkaline enterprises. Tightening management and upgrading technology also help reduce the energy consumption of suppliers as well as consumers. For example, thermal plants were required to adopt highly efficient new technologies for coal burning power generation.

By the end of 2010 China has set a target of cutting down energy consumption per 10,000 yuan (1,460 U.S. dollars) of GDP by 20 percent, from 1.22 tons of coal equivalent (TCE) in 2005 to 0.98 TCE. That means an annual average of 4 percent.

Performance in the first two years did not warrant optimism, but things were improving. Last year, while the overall reduction rate of 3.66 percent still fell short of expectations, more than two-thirds of the provinces met the annual goal. This was in sharp contrast to the first year when only Beijing managed to do so.

NDRC Energy Institute director Zhou Dadi said although the central government had shown a strong will and genuine commitment to the task, efforts by some local governments and companies were inadequate. "The high-rising oil prices may force domestic companies to a higher level of energy conservation."

In the 11th Five-year (2005-2010) Energy Development Plan (FYEDP) an annual average growth of 3.5 percent was targeted in primary energy production to reach 2.446 billion TCE by 2010.

Coal energy would be developed in an orderly manner, the plan said, with digging operations moderately increasing in western China – Shanxi, Shaanxi and Inner Mongolia. Coal mines in east China would be tapped in an optimal way.

Drilling would be accelerated in oil and gas fields in central and western regions and offshore areas. Onshore oil and gas resources would be tapped in an optimal way, the 11th FYEDP said.

To secure supply in emergency situations, China began to build up its strategic oil reserves in 2004. The first four bases, totaling 12 million tons of storage capacity, are located in the coastal regions. Construction of the Zhenhai facility in the eastern Zhejiang Province has been completed. The rest will be ready in 2010. The entire plan, including the second and third batches of projects to be completed before 2020, aimed at a combined capacity of 68 million tons.

The government has acknowledged the importance of clean and renewable energies. China has abundant resources in hydropower and wind, solar, biofuel, geothermal and tidal energies. Renewable energies and nuclear power accounted for 7.5 percent of total energy consumption last year. The State Renewable Energy Medium- and Long-term Planning (SREMLP) aimed at raising the renewable share to 10 percent in 2010 and 15 percent in 2020.

China's hydro potential ranks first in the world. The country has a long history and rich experience in exploitation. Installations of hydropower reached 145,000 mw through 2007. The target is 190,000 mw for 2010.

Wind and solar are two promising renewable sources. The nation's total wind installation reached nearly 6,000 mw in capacity through 2007. The government lifted the wind target for 2010 from 5,000 mw to 10,000 mw. "The new target is still conservative. Actual installation may reach 20,000 mw by the time," China Wind Energy Association Vice President Shi Pengfei said.

The latest statistics available show the country's nuclear power capacity totaled 9,100 mw, with 11 reactors in operation. By 2020, the State Nuclear Power Development Plan aims at a total installation of 40,000 mw, which would account for 4 percent of the nation's total power capacity. Compared with the world average of 14.8 percent and close to 80 percent in some leading countries, there was much room for China's nuclear development.

About a half of its oil supply now comes from abroad. Saudi Arabia is the biggest source. China diversifies its sources by purchasing from Angola, Iran, Oman, Venezuela, Sudan and Russia. The country has also started to develop oil drilling projects in other countries too.

As energy becomes a common, big problem worldwide, China joins other countries in seeking solutions. The country is part of a seven-party, 30-year international program aiming at exploiting nuclear energy via atomic fusions. It has reached bilateral agreements with governments of more than 30 countries for cooperation in new and clean energy development. In January it signed an accord with India for cooperation in civilian use of nuclear power.

The importance of energy had led to calls for reinstatement of the energy ministry. But the National People's Congress, the top legislature, in March endorsed a plan for reforming the existing Energy Bureau, which was given a bigger say on energy issues than the old bureau nestled in NDRC. The NDRC's Zhang Guobao was also appointed director general of the new institution.

In the case of the Sinopec gas station, government control of oil prices was another factor for the shortage. On June 19, the government announced an increase in petrol and diesel prices by 1,000 yuan per ton. The margins of the price hike were the biggest ever. As a result, retail price of No. zero diesel in Beijing went up to 6.23 yuan from 5.29 yuan a liter.

The line of waiting vehicles shortened at the gas station, where attendants were again busily refueling vehicles stopping by. Business was back to normal, at least for the time being.

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