FUTURE CHINA: BOOM

A how-to for getting into China:

China's Energy Boom: Where Are the Opportunities?
Michael Keating, 05 December 2006 (ResourceInvestor.com)
- It’s no secret that China’s exploding economy has an energy needs component riding on its vapor trails. Between 1980 and 2000 China’s GDP quadrupled. The good news from a conservation and environmental perspective is that during that period actual energy consumption only doubled. Nevertheless, when you discuss anything regarding China the numbers instantly become huge and the energy sector is no different…

- Upstream, downstream, extraction, refining, construction, logistics and pollution control – all these sectors of the Chinese energy economy are poised for growth and each will present Western firms with an opportunity to create partnerships, to share technology and to invest in deals that will offer both exceptional financial value and opportunities to cement long-term relationships….
- There are basically two factors that are driving policy. The first is the fact that China cannot produce enough domestic oil, gas and uranium (as well as several other strategic minerals and energy sources)…
- The second concerns pollution. Right now sixteen of the twenty most polluted cities in the world are in China. By some accounts, over the next twenty-five years, China’s output of global-warming emissions will exceed that of all other industrialized countries combined…every week another coal fired power plant opens in China…
- China’s near absolute dependence on coal based electricity is an economic boon because of China’s vast reserves but it is also an environmental disaster that the Chinese government-- as well as the rest of the world -- are only now starting to get a handle on…

- the Chinese government, along with select state-owned and semi-private companies, have embarked on a world-wide hunt for oil, gas, copper and iron-ore that is particularly focused on Africa but also spills over to Southeast and Central Asia, the Middle East as well as Latin America. There have even been attempts to buy into the North American oil market…China has recently signed strict ‘non-military’ usage treaties with Australia in order to secure its supply of uranium and now Canadian producers are asking their government to engage in similar negotiations so they don’t get shut out of China’s aggressive nuclear energy program…
- the Chinese government is increasingly interested in attracting companies that will either provide new technological and managerial competence, access to markets, or access to new reserves…
- Coal…is king in China and will remain so throughout this century. The numbers tell the tale. Right now coal provides almost 67% of all China’s electrical power needs but an additional 550 Gigawatts of coal fired electricity will have to be brought on line over the next twenty years…hundreds of new power facilities and accompanying transmission and monitoring facilities…as energy efficient as possible…built to international standards…
- Anglo-American…is conducting a feasibility study regarding a joint venture coal project in Shaanxi province that might result in an overall investment of several billion dollars…The scope would include open pit mines, power facilities and chemical plants…a Chinese investor has bought an $800 million share of the Oppenheimer family’s own share of Anglo-American…a leading indicator of the power and interest of Chinese capital on the world stage…
- the Chinese have also expressed tremendous interest for foreign help in developing coal liquefaction and gasification technologies…coal is also an essential element in the continuing development of the Chinese steel industry which has recently become the largest in the world…

- Oil…demand…will double by 2025 reaching approximately 14.2 million barrels per day, of which 10.9 million barrels will be imported…China’s current domestic reserve could be depleted within 20 years…the prime reason China has moved so heavily into places like the Sudan, Angola and other global trouble spots…
- international pressure may move China more into a market approach…it will buy oil directly from suppliers rather than drilling and draining from its own wells…Chinese partners have witnessed an uptick of 50% in productivity which is a clear message to the Chinese that its time to open the doors to foreign players.

- Nuclear…will quadruple by 2020 with consumption rising from 16 Billion kilowatt hours in 2000 to 66 Billion kilowatt hours in 2015…32 new nuclear power plants at an estimated cost of $35 billion. Currently China uses facilities that have largely been imported from France, Canada and Russia but there is still a question of whether the Chinese National Nuclear Corporation will adopt ‘heavy-water’ or ‘pressurized water’ technologies for the extensive construction projects on the drawing boards.
- Natural Gas…domestic supplies will fall short of demand by 120 million cubic meters in 2010 and 200 billion cubic meters by 2020. The Chinese government has announced plans to develop 16 LNG receiving terminals, 10 of which might be operational by 2010 and will require extensive foreign inputs regarding materials, designs and technologies.
Tar Sands and Shale Oil…China’s unconventional reserves may be as much as 16 times greater than conventional ones…by 2015 some 1000 kilobarrels of crude will be coming from shale oil and 800 kilobarrels from tar sands…Canadian firm Enbridge is pushing ahead with a plan to build a $2.5 billion pipeline from the tar sand regions closest to Edmonton to British Columbia, with the majority of output headed for China…a Chinese company may take a substantial financial position in the facility…the exploitation of these unconventional reserves will require extensive use of foreign technologies and know-how that the Chinese seem willing to invest in.
- Renewables…The Chinese government has set a target for renewable energy to contribute to 10% of the overall energy mix by 2020, a huge increase from the current 1%…wind generated electricity will increase from 560 MW to 20,000 MW while Hydro will move from 8000 MW to 31,000 MW…China leads the world in terms of the total amount of energy being produced both from solar [and] hydro…but nevertheless these supply just a fraction of China’s needs. Due to the problems associated with coal and the uncertainty of a reliable oil supply, the development of advanced renewables is certainly a priority of strategic importance…
- How to Succeed in China…opportunities for foreign firms: Joint E&P ventures in minerals, coal, gas and oil…Gas pipeline construction…Refinery construction…Tar sand production…Nuclear power plant development…Renewable technologies…Coal gasification and liquefaction technologies…

- Over the course of the next decade [price controls on fuel supplies and limitations on foreign involvement] may persist in some parts of China, but in others there will be a huge opportunity to apply the leading technologies as well as substantial amounts of foreign capital to exploit these opportunities…get in early, find reliable partners, bring money and know-how to the table, be willing to part with control over technology, study the global situation from the Chinese perspective, and stay committed for the long-term…
- Chinese state-owned oil companies have undertaken over 130 joint ventures around the world…are clearly demonstrating a willingness to open up substantial opportunities for foreign investors.
- China’s national animal may be the cuddly Panda, but from the energy angle it looks much more like a raging bull.