China searches for answers to energy crunch

BEIJING - - Two of China's most powerful men have issued unprecedented back-to-back calls to end nationwide energy shortages that threaten to derail the country's world-leading economic growth.

In unusually strong language, economic czar Wen Jiabao and top economic planner Ma Kai laid out plans for this year to 3,000 delegates gathered in the capital for the annual meeting of the National People's Congress, or parliament.

But some of those grand goals would be tough to achieve, analysts say. The government aims to put its showpiece $20 billion West-to-East natural gas pipeline project into full commercial operation this year, months ahead of schedule.

It wants to build 40,000 MW of power generating capacity, enough to power roughly 40 million U.S. households for 12 months. And it hopes to tap large coal mines, improve electricity transmission and accelerate oil exploration, among other things.

"They've shown the world their objectives, the direction they want to take this year. It may not necessarily mean they will achieve them," said Russell Young at Nomura International. "But they're on the right path." "This is not only urgently needed to alleviate the current disparity between supply and demand, but is also a long-term strategy to alleviate pressure on resources," Wen told corporate chieftains, politicos, farmers and government officials packed into the Great Hall of the People. About time, says Gao Shixian at the Energy Research Institute of the National Development and Reform Commission.

"The country's demands for energy are vast and the government needs to develop the industry faster," Gao said.

EASING BOTTLENECKS Ma Kai, head of the State Development and Reform Commission, said China would speed up construction of a strategic oil reserve and put the West-East pipeline into full operation.

"We need to make efforts to ease bottlenecks on economic growth," Ma told delegates.

In 2003, China's economy expanded 9.1 percent and its voracious appetite for energy propelled it past Japan as the world's second-largest oil consumer. Imports of crude oil, the life blood of an economy, hit a record 91.1 million tonnes in 2003, up 31.2 percent from 2002.

For 2004, the International Energy Agency predicts China will account for almost a quarter of world oil demand growth, with consumption seen rising 330,000 barrels (44,880 tonnes) per day to 5.79 million bpd versus a global rise of 1.22 million bpd.

Well aware of the risk to its domestic industry, Beijing has been trying --with mixed success -- to secure external resources. The West-East pipeline was expected to boost the now-tiny proportion of nationwide gas usage. But it has been plagued with problems, from having few major buyers to a lack of final agreement with foreign investors such as Shell.

Chinese firms have been thwarted in efforts to buy foreign fields, most notably Kazakhstan's offshore Caspian Kashagan field last year. And then there's power.

Apart from lacking generating capacity, China will have to spend some $345 billion on improving transmission by 2030, almost a third more than the $261 billion forecast for the United States and Canada, the IEA estimates.

REMARKABLE IN ITSELF That energy issues were given so much attention marked a departure from past party congresses, which focused on economic and enterprise reform. One of Beijing's most successful initiatives has been getting the country's corporate oil triumvirate in on the action.

Shackled by supply constraints at home, the country's three biggest oil firms have been scrambling to secure supply and acquire overseas production. Overseas crude oil production for CNPC, parent of PetroChina Corp , is expected to jump 40 percent to 35 million tonnes in 2005 from 25 million tonnes at the end of 2003. It hopes a planned Russian oil pipeline from Japan from Siberia might be rerouted to China. "Our aim is to scour the world for oil. The location or country doesn't make a difference to us," Ma Fucai, president of top oil and gas producer China National Petroleum Corp (CNPC), told Reuters on the sidelines of parliament.