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China will increase natural gas use; lower fuel oil demand

Boston, MA.

China is expected to increase its use of natural gas and lower its use of fuel oil over the next 5-10 years, ESAI reported in its March 9 China Watch publication. China will continue to reduce fuel oil production, while at the same time increasing its demand for natural gas. ESAI believes power plants and industrial end users will be encouraged to shift to natural gas as reserves are built and the necessary infrastructure becomes available. ESAI feels the switch to natural gas will increase domestic resource utilization, provide environmental benefits, and reduce the outflow of currency.

Natural gas will be available in Shanghai late this year, ESAI reports, when a new 4,100 kilometer pipeline from Xinjiang is commissioned. This will provide 12 billion cubic meters of gas per year which translates roughly to 50,000 bpd fuel oil equivalent. Sixty percent of this gas will be allocated to the power sector, reducing fuel oil needs by about 30,000 bpd.

ESAI also reports that other gas projects, including the potential for Russian gas to be piped to China, are projected to help meet target gas consumption of 80 billion cubic meters by 2010, up from 24 billion cubic meters in 2000. ESAI believes this increase in gas consumption will go along way to reducing import requirements if the greatest share is allocated to the power and industrial sectors.

For more information or a copy of the complete China Watch analysis, contact Patsy Norton at Tel: 781/245-2036; E-mail: pnorton@esaibos.com.

Editor௿½s Note: ESAI is an international energy research and analysis company headquartered in Boston, Massachusetts. ESAI provides market assessments and analysis of the oil, natural gas, and electricity markets to clients in over 40 countries, ESAI clients include BP Amoco, Exxon/Mobil, Chevron, Archer Daniels Midland, and Tosco.