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China Looks to Neighbors to Meet Growing Energy Demand - 2004-09-30

China's energy consumption is growing at a blistering rate and its fuel imports keep rising. Beijing wants to avoid growing too dependent on any one country or region for all its fuel and is looking to its immediate neighbors to diversify its energy imports.

By the year 2020, experts predict, China will be the world's leading oil importer - far surpassing the current number one, the United States. The Chinese economy is expected to need nearly 600 million tons of oil every year to keep running - more than double the current figure.

China already imports more than half its oil and that figure could go up to 70 percent in just a few years.

The problem for Beijing is that more than 50 percent of that oil comes from just one place: the Middle East. So now China is determined to seek out new partners closer to home and as far as possible from the political turbulence of the Middle East.

Energy expert Kang Wu at the independent East West Center in Hawaii says developing local partners is a key component of China's emerging energy plans.

"Nobody wants to be over dependent on one source, and of course China wants to diversify, they want to import from an many sources as possible," he said. "They want to prepare for any contingency."

Mr. Wu says China is pursuing a wide-ranging policy of energy diversification, looking to new regions for different types of fuels, and a variety of transportation options.

The need is great. China's economy has been growing at above seven percent a year for the past several years. The country's rapid modernization and its growing middle class are fueling demand for energy-guzzling electrical appliances and automobiles. China's regional energy strategy focuses on four sources: oil and gas pipelines from Russia and Kazakhstan, and natural gas shipped from Australia and Indonesia.

Unfortunately for China, Japan also is looking for fuel imports. The two competed aggressively this year to persuade Russia to build an oil pipeline to meet their needs.

Larry Chow, director of the Energy Studies Centre at Hong Kong's Baptist University, says that pipeline could provide China with 20 million tons of oil a year.

"Originally Russia promised to build the pipeline running from Siberia to northeastern China, but then the Japanese stepped in, and of course the Japanese would also like to diversify their source of oil supply," he said.

It looks as though Russia favors building the line closer to Japan, leaving China scrambling for alternatives.

These days Beijing is turning to oil-rich Kazakhstan for fuel. China plans to build a four thousand kilometer pipeline from the former Soviet Republic to western China. And in May a state-owned oil company bought a 60 percent stake in a leading Kazakh oil producer.

China is also taking a second look at natural gas deposits. China has rarely used natural gas and it currently accounts for only about three percent of total energy consumption.

But with oil prices soaring, Mr. Chow in Hong Kong says natural gas is a viable substitute and use could double by 2010.

"One major stumbling block that is hindering widespread use of natural gas in China is the lack of a pipeline network in order to transport gas to all parts of the country," he said.

So now China is trying to upgrade and expand its gas infrastructure. A new 4,000-kilometer pipeline will carry gas from western China to the industrialized east coast.

And a proposed pipeline project would run northward and tap into Russia's natural gas network.

China is also investing in offshore gas projects. Chinese companies are drilling locations throughout the East China Sea and two major gas fields have already been identified.

Another likely fuel source for China is liquefied natural gas - known as LNG - imported from Indonesia and Australia. LNG is produced by cooling gas until it forms a liquid, which can be transported by ship or rail.

Beijing still hopes that Russia ultimately will build a pipeline from Siberia to China. In the meantime, oil imports from the Middle East keep rising and the Chinese economy keeps growing.