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Three oil magnates' opinions on energy
Last Updated(Beijing Time):2005-06-01 09:43

By He Zhenhong

The situation of supply and demand of petroleum and natural gas in China, the biggest consumer of petroleum, from this year onwards will become the focus of the discussions on world energy for a relatively long period of time. Chen Geng, General Manager of China National Petroleum Corporation (CNPC) maintained that China's petroleum security will be in a grim situation at present and onwards. There are in the main five judgments.

Firstly, the gap between oil supply and demand is widening, emerging as one of the constraints to China's economic growth. It is estimated that by 2020, China's annual consumption of petroleum will have risen by about 3 percent on average, and petroleum import will be on the gradual increase on a year-on-year basis.

Secondly, it is estimated that the natural gas output of China will increase by nearly 10 percent, and the percentage of natural gas in energy consumption structure will increase by 10 percent, thus making the natural gas the third major energy next only to coal and petroleum.

Thirdly, the consumption of petroleum and petrochemicals will grow by a large margin, and their qualities and varieties are highly demanded. Shortage of supply does occasionally occur in some local markets.

Fourthly, China has a large room in petroleum-saving. At present, the technologies of some major energy dissipation equipments are yet to be improved. The overall efficiency of energy utilization in China is small than that of developed countries by ten in percentage point.

Fifthly, in general, the supply and demand of petroleum and natural gas will remain balanced for a comparatively long period of time, but the production and consumption are unevenly distributed. Petroleum are mostly produced in Mid-east, former Soviet Union and North America and are consumed mainly in North America, Europe and Asia-Pacific regions. The contradiction between supply and demand in Asia-Pacific regions is relatively conspicuous; the workable reserves of oil remained accounts for 3.7 percent of the world total. Its output of petroleum accounts for 10 percent or so of the world's total, whereas the consumption stands at around 30 percent.

Since 2002, US dollar has become weak and depreciated dramatically. As global oil trade is priced in US dollar, the depreciation of US dollar will inevitably lead to the gradual intensification of oil prices fluctuations in the world market. Chen Tonghai, General Manager of China Petroleum & Chemical Corporation (Sinopec) said that this was the major reason for oil price hike in the world market.

He said, OPEC priced oil between 22 to 28 US dollars per barrel in early 2000, and oil price in the world market has seldom deviated from the price span since then. But US dollar has begun weak position since 2002, at present US dollar has depreciated by 40 percent or so compared with other major currencies, OPEC decided in January, 2005 that the application of this target price span was temporarily halted. Leaving out other factors but the depreciation of US dollar, the reasonable price of crude oil in the international market should averages US$ 40 or so per barrel.

Analysts held that the depreciation of US dollar had dramatically weakened the actual purchasing power of major oil producers. In this case, had the crude oil priced in US dollar remained in the original price-span, the losses of oil producers would have been very large, thus boosting up their desires for price increase.

As one of the three major petroleum companies in China, Sinopec's commercial reserve of crude oil to be processed can sustain over 20 days and that of processed oil to be sold can sustain over 15 days, making the total surpass 30 days.

Commercial reserve is merely a component of China oil reserve. It is reported that China's oil reserve is composed of commercial reserve of enterprises and strategic reserve of the country. At present, China has set up oil strategic reserve plan and has chosen four costal areas to build storehouses.

We know that China National Offshore Oil Corporation is the vanguard in liquefied natural gas (LNG) industry. How large in scale then does the industry predict China's import of LNG?

Fu Chengyu, General Manager of China National Offshore Oil Corporation said its annual import of LNG in 2010 would reach 30 million tons. After gasification, 42 billion cubic meters of natural gas could be provided, equivalent to 37 million tons of oil. By 2020, its annual import of LNG would have come to 60 million tons, equivalent to about 74 million tons of oil.

He added that natural gas consumption in developed countries accounted for over 20 percent of the total energy consumption, whereas the figure in China was only 2.5 percent. Therefore, there is still a large room for China to develop natural gas industry and to replace crude oil with natural gas. LNG is widely and fully used in foreign developed countries and areas, such as US, Europe, Japan and South Korea.

LNG is a safe, stable, environment-friendly energy product low in cost, and China's vigorous development of the LNG industry is of great significance. Vigorous development and utilization of LNG, on the one hand, can reduce our excessive reliance on coal and crude oil, in particular on crude oil import, and is conducive to a diversified import pattern on the other.

With the growing demands of world economy for crude oil, oil prices may remain at a relatively high level, exposed to many destabilizing factors. LNG is usually imported on the condition that a 20-25 year long-term pay-and-nonnegotiable contract be signed. The prices then can be comparatively low.

China National Offshore Oil Corporation's advantaged strengths have raised the Corporation to the vanguard position in domestic LNG industry. Its biggest strengths are that it has both the domestic and the foreign sources of natural gas, which can ensure safe and stable energy supply. With the focus on costal areas, China National Offshore Oil Corporation can send the offshore gas to the destination in a short time by taking advantage of the exploration of offshore oil and natural gas. Meantime, it can make use of overseas resources advantages; the Corporation has extremely large rights and interest in Indonesia and Australia, which are rich in natural gas. In future, its rights and interests will be expanding. It is believed that this advantage will bolster China National Offshore Oil Corporation to remain in the leading position for a relatively long period of time. 
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