Three Oil Giants Sow Energy Alternatives

Sinopec Group launched a large alternative energy project in
Inner Mongolia in August 2006. One month later, CNOOC announced
that it will construct a bio-diesel refining base in Sichuan
province and the project may require an investment of over RMB2.0
billion. CNPC is not lagging behind. It has also recently
announced plans to establish a new energy division specialized
in the research and development in energy alternatives.
   Signs show that in the face of rising oil prices in the
international market and the severe oil/gas supply deficit in
the domestic market, petroleum companies in China have changed
their concepts. They are constantly developing alternative
energy sources and building themselves into comprehensive
energy companies.

Breakthroughs in coal-bed methane

It is an indisputable fact that China as a big energy consumer
has already launched a strategy for new energy options. "Brief
Introduction to the Development of Oil-Substitute Energies in
China " published by the National Development and Reform
Commission (NDRC) in August 2006 already includes alternatives
to petroleum as an energy source in the Eleventh Five-year
Program (2006-2010). "China will actively develop new energies
and renewable energies," said an NDRC deputy director at the
Seventh Sino-US Oil/Gas Industry Forum on September 11th,
"vigorously develop oil-substitute products, optimize the
energy production and the consumption structure and reduce
dependence on oil imports." These remarks once again draw a
picture of the diversified line taken by China in seeking energy
development.
   "The new energy strategy has already been launched," said the
recently appointed chief of the new energy division in CNPC. "We
will use existing advantages in the company, make breakthroughs
in coal-bed methane, and promote comprehensive development and
utilization of coal-bed methane."
   It is no accident at all that CNPC is involved in coal-bed
methane. As early as 1992, CNPC started evaluating coal-bed
methane resources in China. In 1994, it launched a coal-bed
methane exploration and development project. By the end of 2004,
CNPC had done a great deal of work in the development of the
coal-bed methane business and acquired a good understanding of
the present status of coal-bed methane resources in China.
   "The utilization of coal-bed methane can increase the
proportion of natural gas in the energy consumption structure
from less than 3% today to 10% in 2010," said the manager of the
coal-bed methane engineering office of the Undersurface Special
Operation Division of Sinopec Zhongyuan Oilfield. "It can also
narrow the energy supply shortage and ease energy supply
tensions."
   Through strenuous efforts for more than a decade, CNPC has
acquired outstanding advantages in technology, talent and
experience in the coal-bed methane sector. It has established
and improved the system for evaluation of coal-bed methane
resources and laid a solid resource foundation for commercial
development of coal-bed methane.
   The information released by CNPC Research Institute of
Exploration and Development proves that CNPC has made
breakthrough advances in the Qinshui Basin of Shanxi province,
which has rich coal resources. The proven coal-bed methane
reserves in the basin have reached 35.2 billion m3 and the
production stage is ready to start. More than 100 exploration
wells have been sunk in the area. According to experts from the
research institute, more than 200 gas wells can be put up at the
end of 2007. A 25km gas transmission pipeline will be constructed
in 2007 and connected to the west-east gas transmission pipeline.
Then, 2.0 billion - 3.0 billion m3 of gas can be provided to the
eastern region each year. In the east of the Erdos Basin, another
basin in Shanxi province, CNPC is undergoing considerable
exploration and evaluation. The controlled and proven reserves
of coal-bed methane in the area have reached 70.0 billion m3.
   Experts point out that the price of coal-bed methane is the
same as the price of natural gas today. Once the output reaches
a considerable scale, coal-bed methane can become an industrial
sector.   

Striving to be the first

While CNPC is making ambitious attempts at the expansion of
alternative energy sources, other state-owned oil giants are
also executing alternative energy projects. In August 2006,
Sinopec was the biggest shareholder in launching a large
coal-to-oil project in Erdos of Inner Mongolia in collaboration
with other 4 companies. Total investment in the project is
RMB21.0 billion. After the completion of the project, 4.2
million tons of methanol and 3.0 million tons of clean-energy
dimethyl ether (which can replace diesel) will be produced a
year.
   According to the Sinopec Economics & Development Research
Institute, Sinopec's current project is different from previous
coal-to-oil projects. It integrates coal recovery, chemical
production, power generation and transportation. Waste gases
and waste residues are recovered and fully used in the process.
The final utilization rate of energy is only around 40% in
traditional coal-to-oil projects but can reach around 90% in
this project.
   When oil product resources in China are in short supply and
the supply of diesel in some areas is even more intense, dimethyl
ether (DME) can be used as automobile fuel to replace diesel and
overcome the deficit of oil reserves in China. DME is produced
from methanol at a relatively low price. Methanol, in turn, can
be produced from coal and natural gas. China has already acquired
technologies for the large-scale production of methanol and DME.
Compared to diesel, DME has a higher yield from combustion and
a lower emission of toxic gases, and is therefore a clean energy
source worthy of the name. What is more important, with the
sustained high oil price, coal-to-oil projects have remarkable
profit margin and product competitive edge.
    Sinopec is executing coal-to-oil projects. CNOOC follows
closely behind in bio-energy operations. On September 12th, 2006
CNOOC Base Co., Ltd. signed a contract with the Panzhihua
Municipal Government of Sichuan province on the "jatropha curcas
bio-diesel development project in Panxi District " The
investment of the project is estimated to be as high as RMB2.347
billion. It is expected that CNOOC Base Co., Ltd. will construct
a 33 thousand hectare jatropha curcas planting base and a 100
thousand t/a bio-diesel refining base in Panzhihua in 2010.
   According to experts engaged in researching bio-diesel
technologies for many years, the traditional oil recovery
business spends huge amounts of capital in digging bio-energies
that were buried hundred million years ago from underground, but
such oil resources are already very limited today. Developing
renewable energies such as bio-diesel requires only a few years
and is therefore one of the most practical and reliable ways for
providing supplementary energies.
   The jatropha curcas planting area in Panxi District is only
15 883 hectares today. Due to the current small scale and
low-level management, the output is very low and almost no
utilization has been made. To fully employ the