Chinese gas and its conversations and benefits


1. China has one of the world's fastest growing industrial economies. Its GNPgrowth over the past decade has averaged 13% per year, and is expected to remain strong

(8-9% per year) for the rest of this decade. The country, the third largest producer of

energy in the world, depends heavily on the use of (domestic) coal in satisfying its ever

growing energy demand. In 1992, the total consumption of commercial energy in China

amounted to 1,090 NIMtcel; of this total, coal accounted for 75%, oil for 18%,

hydropower for 5%, and natural gas contributed for only 2%, equivalent with a gas

consumption of 16 billion cubic meters (bcm) in that year. The largest consumer of energy

is the industrial sector (70%), followed by households (14%), services (10%) and

agriculture (5%).

2. The country's rising coal consumption (from 435 NIMtce in 1980 to 8 16 MMtce in

1992) is a major source of environmental pollution, the atmospheric damage stemming

mainly from airborne particulate and emissions of sulfur dioxide (S02) and carbon dioxide

(C02). It is generally accepted that in the foreseeable future China will not have a realistic

alternative for its strong dependence on coal as its primary energy source. At the margin,

however, in order to meet the needs of a growing industrial economy, a rational use of the

available domestic natural gas reserves would provide a cleaner and more efficient fuel. The

nation's growth in energy demand has outstripped the growth in energy supply in recent

years, causing energy shortages in the country. Enhancing the supply of cleaner energy

resources and the efficiency of energy use is, therefore, the cornerstone of the country's

energy policy. Chinese National Petroleum Corporation (CNPC) expects to increase the

share of primary energy supplied by gas to 6-10% by 2010 from approximately 2% today.

3. Despite China's projected gas potential, until recently the gas exploration and

production activities have been relatively small scale operations. Financial constraints and

limited access to advanced technologies have impeded a thriving gas development. The

recent Bank loan for the Sichuan Gas Development and Conservation Project (primarily

focused on enhancing upstream developments) will certainly help in reversing this


1 1 MMtce= 1 billion kg coal of 7000 kcallkg

Energy Resources

4. Coal. China has large coal deposits, with recoverable reserves of about 900 billion

tons, of which 30% are proven. In 1992, the country produced 1.1 billion tons of raw

coal. China aims to produce 1.4 billion tons of coal yearly as from the year 2000. The best

quality coals are found in North China, where Shaanxi and Inner Mongolia provinces each

have reserves of 200 billion tons. Insufficient transport capacity, however, makes it

extremely difficult to move sufficient coal to the large consuming centers in Central and

East China.

5. Oil. China's ultimately recoverable reserves of crude oil are estimated at some 80

billion tons, of which 16% are proven. The country produced 142 million tons of crude oil

in 1992, and the target output for the year 2000 is 200 million tons. The refining capacity in

the country is the sixth largest in the world. China used to be a significant exporter of oil.

In recent years, however, its net exports of 17, 9 and 4 million tons in 199 1, 1992 and

1993, respectively, were an indication that the tide is turning and China is about to become

a net oil importer, probably in 1995. Most of the major oil producing fields are considered

mature and some have already experienced production decline. Various projects for

enhanced oil recovery of existing fields are, therefore, currently underway. The increase in

the projected domestic oil production will be wholly absorbed by the even higher increase

in domestic demand for oil and oil products.

6. Hydroelectric Potential. China is rich in water resources, and has a long

tradition of utilizing them for energy purposes. The country's hydro potential is estimated

at 1,900 TWh a year, but only a 9% of it has been developed. Most of the potential is

located in the Southwest, about 1,500 km. away from the main demand centers. The long

construction lead time for hydroelectric projects has also inhibited a rapid development and

utilization of the hydroelectric resources.

7. Natural Gas. China's natural gas resources are estimated at 33,000 bcm, of

which 3 - 5% are proven. In 1993, China produced 16.6 bcm, resulting in a

reserves/production ratio of just over 60 years. The main market for the gas is fertilizer and

chemical production, while only small volumes of natural gas are used in power generation

and in the residential sector. Production of non-associated gas in 114 fields is 9.6 bcm,

mostly in the Sichuan province. The remaining gas production is associated with onshore

crude oil production. Exploration is promoted with the objective of diversifying the supply

sources and increasing the non-associated portion of domestic gas supplies. By 2000,

production is expected to be around 25 bcm. Future gas production is expected from fields

in the Shaanxi and Tarim regions and offshore Shanghai.

8. Coal Bed Methane. Coal bed methane is increasingly recognized as a potential

important energy source. China is the largest producer of coal in the world, and some

Chinese estimates indicate that 20 to 25 cubic meters of methane is released for every ton of

coal mined. Only a small fraction of the estimated 25 billion cubic meters of methane

released is recovered. China's National Environmental Protection Agency has been

identifying ways to promote the use of coal bed methane.

9. Biomass. Non-commercial biomass energy use currently amounts to about one

quarter of total energy consumption in China. Fuel wood and agricultural waste (straw and

stalks) are consumed almost entirely by rural households. China is promoting a variety of

measures to achieve environmentally sustainable biomass supply and consumption levels,

including more efficient use of biomass, tree planting, and substitution of other fuels for

traditional biomass fuels.

Energy Sector Organization

10. Until 1988, the Ministry of Petroleum Industry (MOPI) was in charge of all the

upstream activities in the oil and gas subsector; the Ministry of Water Resources and Power

and the Ministry of Coal oversaw the respective subsectors of power and coal. As part of

the administrative reform in 1988, the responsibility for overseeing the entire energy sector

was consolidated under the Ministry of Energy (MOE). As a first step in its major

restructuring policy, the government transformed the former MOPI into a state-owned

enterprise, the China National Petroleum Corporation (CNPC), which has continued to

report directly to the State Council. In May 1993, the MOE was disbanded during a broad

government reorganization, and a new Ministry of Electric Power was established, along

with a Ministry of Coal. The newly established Economic and Trade Commission oversees

the overall national economic policy. The State Planning Commission, on behalf of the

State Council, has the responsibility for review and approval of the strategic plans,

investment programs, and pricing policy of the energy sector.

Proposed Study

11. It is evident that a more prominent position of natural gas in the overall energy

picture in China would alleviate some of the environmental problems that exist today. It

would also contribute to reduce China's future import requirements for oil, if the additional

quantities of natural gas substitute for corresponding quantities of domestic demand for oil.

It would finally imply a more balanced use of the hydrocarbon resources that are available

in the country. It is proposed to carry out a Gas Development Study in two phases.

Phase 1

The objectives of the initial phase are to:

(i) Recommend a strategy framework for the development of natural gas in China.

(ii) Evaluate the economics of increased use of gas.

(iii) Determine institutional barriers and financial options for gas investments in China.

12. The upstream development strategy would be based on an assessment of gas

reserves in different geographical areas and their producibility. Downstream, a

development strategy would include a review of gas transmission and distribution facilities

to estimate the capacity of the present network in certain regions and expansion

requirements to meet future demand. In addition, imports of LNG and gas by pipelines

will also be examined. The development strategy will be based on an evaluation of the

economic benefits of investing in gas infrastructure to supply existing and new markets

with gas. Moreover, the report will discuss and evaluate gas development strategies in

other countries and their relevance for China. To materialize the Gas Development Plan

potential barriers to expanding the gas market would be examined, including a review of

gas pricing and financing new projects.

Phase 2

It is proposed to use the results of the previous phase in this phase and examine in

much more detail the pre-feasibility of gas-related infrastructure projects in two highpriority gas consuming markets to be selected by our Chinese counterparts ( for example,

Beijing andor large cities in the south-east coastal region). Specifically, the main

objectives of the second phase of the study are to determine:

(i) detailed gas demand market survey for each of the selected markets;

(ii) optimum gas supply scenarios for those markets;

(iii) investment requirements for gas-related infrastructure;

(iv) financial options for realization of the projects; and

(v) potential roles of Chinese Government, the private sector, the World Bank and

other multi- and bilateral agencies as a catalyst for the development of gas-related

infrastructure projects in China.


13. It is proposed to conduct a study between ESMAPfWorld Bank and the Chinese

National Petroleum Company and potentially other parties to be named by the Chinese

Government. All parties will be actively involved in the design and management of the

project. In the World Bank, the study will be co-managed by EA2lE and IENOG, and

staffed by specialists from Oil and Gas Division. Local Chinese consultants will be

effectively utilized throughout.


14. The objective is to complete Phase 1 of the study in six months after reaching an

agreement with CNPC et a1 on its contents. Phase 2 is expected to last eight months from

when it is started.


15. As shown in Annex 1 the budget for Phase 1 will be approximately $4000,000 and

the total budget will be $1.3 million for both phases

Media click - content specialists team

lion Media lion productions , media publisher , magazitta staff

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