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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: stevedhu who wrote (62924)	3/25/2000 4:29:00 PM
From: Tomas	Read Replies (2) \| Respond to of 95453

China: Oil-hungry mainland frets over Opec outcome "China's key fields have peaked and are nearing the end of their productive life" South China Morning Post (Hong Kong), March 24 MARK O'NEILL Alarmed at a tripling of oil prices in the past 15 months, Beijing is looking at the establishment of strategic reserves to cushion it against a rising dependence on imports. "China currently has no reserves," said an official at the State Development Planning Commission's energy research institute. "Some companies have their own reserves but only to last two weeks. We are considering whether China should set up strategic reserves." The mainland became a net importer of crude oil in 1996 and, according to official forecasts, will have to import 40 per cent of its requirements by 2010 because domestic output is falling far behind demand. Crude prices peaked at US$34.13 a barrel on March 8, against $10 at the end of 1998, but have eased back below $30 this week. "We hope for a world price of $22-$25 a barrel," said the official. OPEC meets on Monday in Vienna to consider demands from importers for higher output which would lower prices. Few countries have more riding on the outcome of the meeting than the mainland, which has been badly hit by the surge in prices. Last year, it spent $4.61 billion to import 36.61 million tonnes of crude, a rise of 42 per cent over 1998's $3.27 billion on 27.32 million tonnes. Meanwhile, oil exports halved from 15.6 million in 1998 to 7.17 million tonnes last year. Higher prices should have helped domestic producers, whose costs are higher than the world average - but they did not. Domestic output last year fell to 160 million tonnes, down 0.1 per cent from 1998. The lack of growth was because the mainland's key fields in the north and northeast have peaked and are nearing the end of their productive life, while new fields in the west and offshore have high exploration, development and transport costs. The rising dependency on imports has caused alarm among Beijing's leaders. "In the years ahead, demand will rise rapidly and domestic output is far from being able to satisfy [it]," said the Economic Daily yesterday in a full-page story looking ahead to the Opec meeting. "Such a large reliance on imports does not suit our national character and will pose enormous danger for our economic growth," it said. "As the world's second-biggest consumer of energy, we must pay more attention to oil security and must set up strategic reserves as a matter of urgency. "As a net importer, we are subject to the fluctuations of the world market. So we must establish these reserves and, when prices are more reasonable, make substantial purchases, to guard against the unpredictable." The nightmare for the mainland is both economic and political. The Middle East supplies more than half of the mainland's imports, because of lower prices and cheap transportation. But Beijing considers the region to be under United States control, which could limit supplies if relations deteriorated sharply, for example, in the event of war with Taiwan. So Beijing is seeking to increase imports from Africa, Latin America, Southeast Asia and the countries of the former Soviet Union. Viktor Kalyuzhnyi, Russia's Minister of Energy and Fuel, said in Beijing on Wednesday that Russia planned to provide the mainland with crude oil and natural gas. He said that both countries had agreed to exploit oil fields in Irkutsk, Siberia and in the Sakhalin islands. But economists are sceptical of these plans because of the lack of money needed to finance the building of pipelines to carry the oil and gas. One thing the mainland can do on its own is improve its woeful efficiency record. To produce one tonne of steel or one kilowatt of electricity, the mainland consumes three times more energy than the world average, because of poor equipment and outdated technology. Four sectors are the worst offenders: power, non-ferrous metals, steel and the railways. In these industries, energy costs account for more than 25 per cent of the total, and which consume two-thirds of the energy used by industry. The government is encouraging companies to use more energy-efficient technology and reduce costs. If oil is not used more efficiently and the economy continues to grow by 7 per cent a year, the gap between domestic supply and demand by the year 2010 will reach 117 million-142 million tonnes, with imports having to meet 40 per cent of demand. This will hurt foreign-exchange reserves and Beijing's "independent" foreign policy. scmp.com