CEFC China Energy Journal August 2015 Issue 4 by China Energy Fund Committee

CONTENTS

AUGUST, 2015, The Third Issue

Solar PV

High-speed Railway

11 4

Editorial 编者的话 New 造ilk 速oad Will 速ealize China’s Dream o件 Peace件ul Exchan价e 新丝绸之路引领中国梦

Biomass

20 24

The 速oad Ahead 件or China’s 造olar Photovoltaic Industry

中国光伏产业漫漫前行路 The G20 Needs to 速eshape the Global Ener价y Governance 造ystem G20 须重塑国际能源治理体系

Zhan价jiakou Becomes China’s First 速enewable Ener价ies Demonstration Zone 张家口市成中国首个可再生能源示范区 ND速C: Acceleratin价 the Establishment o件 National Emission Tradin价造ystem (ET造)

国家发改委：加快建设碳排

交易体系

Plun价in价 Coal Prices Tri价价er a Wave o件 Corporate 速estructurin价低煤开启煤企重组潮 Local 速e件ineries 造u件件er Heavy Losses 件rom Plun价in价 Domestic Oil Price 国内油大幅下跌，炼油厂损失惨重

Dialogue 对话

Hi价hli价hts 件rom CNPC’s Overseas Oil and Gas Cooperation P.48 聚焦中石油海外油气合作

The 造olar Thermal Power Industry Needs Ur价ent Policy 造upport 中国太阳能光热发电急需策支持

策

Major Events 主要事 China’s UHV Technolo价y Facilitate Brazil’s “ Electricity 造uper Hi价hway景中国特高压技术打巴西“电力高公路景

Energy Security 能源安全 Developin价 a Comprehensive Ener价y 造ecurity 造trate价y 件or China 构筑中国综合能源安全战略

Technology 技术 White Paper O件件ers Insi价hts on the Future o件 China’s Lithium-Ion Battery Industry 中国锂离子电池产业发展白皮书展望产业未来

Planet 地球造ino-American Cooperation Paves the Way 件or Blue 造kies 中美合作支招中国雾霾治理

44 Business 商业

China’s “Belt and 速oad景 Initiative O件件ers Ener价y 造ecurity 件or Asia and Beyond 中国“一带一路景战略有利于保障亚洲乃至全球能源安全

Common Interests in 造ino-速ussian Ener价y Cooperation 共同利益进中能源合作

China 造ees Potential in Biomass Development 中国生物质能前广阔

16 Policy

Cover Story 封面文章

Plunging Coal Prices CEFC China Continues 速ankin价 amon价 Global 500 CEFC 蝉联世界 500 强

Figures 数字

Promotin价 Connection and Cooperation under the “Belt and 速oad景 Initiative 推动“一带一路景倡议下的互联互通与国际合作

Opinion 观点

Foresight 前瞻 Administrator o件 the U.造.EIA 造hares His Views on the Present and Future o件 Ener价y, in China and the World. 美国能源信息署署长解析中国及世界能源发展的现状及未来

58 Administrator of the U.S. EIA

Editorial

CEFC China Energy journal

New Silk Road Will Realize

CEFC China Energy journal

新丝绸之路引领

China’s Dream of Peaceful Exchange

Ho Chi Ping Patrick

何志平

Editorial

CEFC China Energy journal

In 2013, President Xi jinping expressed his strategic vision of a new model of connectivity among peoples known as the “Belt and Road” (Silk Road Economic Belt and 21st Century Maritime Silk Road) Initiative. Connectivity “should be a three-dimensional combination of infrastructure, institutions and people-to-people exchanges… measured in terms of policy communication, infrastructure connectivity, trade links, capital lows and understanding among peoples”. “People” is the central element of this new initiative for regional cooperation. It is not just a government-to-government platform but involves people-to-people exchanges. The materialization of this grand vision revolves around people, as it did when many ordinary people across the continent actually brought the East and West together through interaction, exchange and trade.

CEFC China Energy journal

“

C o n n e c t ivity

“should be a three-dimensional combination of infrastructure, institutions and people-to-people exchanges… measured in terms of policy communication, infrastructure connectivity, trade links, capital lows and understanding among peoples”.

It provides an overarching theme and umbrella under which all sorts of cooperation are possible. All partners will be free to enrich its content and explore additional facets of cooperation and shared beneits.

Mutual understanding is the most difficult challenge in international cooperation. Let us review how, century after century, the West has failed to understand what constitutes “China” and “Chinese-ness”.

Western media often term China’s recent rise a threat, but in the last 5,000 years China has recorded at least four periods of peaceful prosperity without colonization or threats. No battle was fought, no colony seized, and nobody was enslaved.

I conquered”; the Chinese said, “I came, I saw, I made friends, and I went home.” Motivated by good will, “connectivity” is China’s way of peacefully reaching out and offering friendship and peace so that peoples and countries along the Silk Roads can build a community of shared interests and common destiny. Though our pasts may differ, we face a common future.

The West’s julius Caesar said, “I came, I saw,

Indeed the “Belt and Road” Initiative is

Compared with the ancient Silk Roads, it is on the one hand more ambitious and farsighted, but on the other more flexible, accommodating and adaptable to new conditions and challenges.

It is neither about competing for spheres of influence nor striving for hegemony. It is about connecting countries and peoples, accommodating differences, embracing diversity, realizing potential, and achieving various goals and prospects.

The second characteristic of this new model of connectivity is “good will”. It is open to all countries and peoples interested in being connected for mutual development, whatever their forms of government, cultural and religious backgrounds, or geographic location. “Common development” bonded together different countries along the ancient Silk Roads, and “equal footage” is what made this possible. No matter the race or religion, Christians, Muslims and Buddhists benefited equally from trade and exchange.

expected to bring about shared economic,cultural and social prosperity. But unlike other regional cooperation projects with a ixed policy agenda and a set mechanism, Xi’s initiative is a grand vision. It provides ample and infinite room for creative solutions and possibilities.

The irst attempt by the West to open up China began in the Yuan Dynasty (1271-1368) with Marco Polo, followed in the late Ming Dynasty (13681644) with the visits of the jesuit priests Matteo Ricci and joachim Bouvet. The second “knock” came in 1840, when Britain invaded China and launched the First Opium War. China’s doors were pried ajar against her will. The third “knock” on China’s door came during the Cold War in 1972, when US president Richard

Nixon visited China, offering China an olive branch to integrate into the existing global economic system of the era and community of nations. More than 150 years after being brought to its knees at gunpoint by the West, China has awakened, realizing it must catch up with the West. When Deng Xiaoping ( 邓小平 ) launched China’seconomic open-door policy and accelerated its progress, the country quickly achieved moderate prosperity for a vast section of its population, at the same time lifting hundreds of millions out of poverty in under three decades — a truly unprecedented achievement in history. China first knocked on the West’s door in the Han Dynasty 2,000 years ago, when Zhang Qian( 张骞 ) travelled along the original Silk Road offering trade and peace; then in the 15th Century, Admiral Zheng He ( 郑和 ) championed the second Silk Road at sea. The two previous Silk Roads traded tea, silk, spices, exotic fruits, jewelry and gold. This 21st century Silk Roads will deal in creative ideas, views and perspectives, traditions, cultures and legacies. It will exchange values, offer kindness and promote peace. It will traverse neither land nor sea, but travel through the inner workings of the human mind, driven by a desire to join our neighbors to engage in peaceful competition to achieve the common good in a globalized world. It is a dream of peace under heaven, and the world as one. This dream belongs to all of us. It belongs to you, and me. (Editor’s note: This is a summary of the presentation made by Patrick Ho Chiping at a recent international conference in December 2014, in Istanbul, Turkey. The presentation was entitled “The New Silk Roads: Inspirations and Opportunities.”) 7

Opinion

CEFC China Energy journal

The Road Ahead for China’s Solar Photovoltaic Industry

The current system of subsidies is inadequate in two ways. First, renewable energy is not suficiently subsidized. The funds provided are simply not enough to realize the development of a healthy and competitive industry. Second, the application process is obscure, lengthy and complicated. As a result, the PV industry expects subsidy arrears to exceed 10 billion yuan.

▲ Zhang Guobao 张国宝

D i r e c t o r, C o m m i t t e e o f Experts, National Energy Commission

China’s renewable energy subsidies are not well implemented. The current subsidies scheme has become a hindrance to the development of the photovoltaic (PV) industry. Reform is necessary to ensure the healthy development of China’s PV industry. 8

Wang Bohua ( 王勃华 ), the Secretary of the China Photovoltaic Industry Association, has said that it is very dificult to receive a full subsidy in the PV industry. For example, in 2014, 70 billion yuan were supposed to be allocated for renewable energy subsidies. In reality, only 40 billion yuan actually went into the account. Of that 40 billion yuan, 32 billion yuan – or 80% of the money – went to renewable energies such as wind power. This caused a shortage of subsidies for the PV industry. The money allocated to the PV industry was itself dificult to come by. The application process for the subsidies is lengthy and disorganized. To obtain a subsidy, applicants irst need to complete an initial trial, which is conducted by local financial, pricing and energy authorities. Once

these trials are completed, applicants have to request approval from the Ministry of Finance, the National Development and Reform Commission and the National Energy Administration (NEA). After completing this step, applicants are placed on a waitlist. They receive their subsidies only after the central government allocates the money to the applicant’s local authorities. The entire process has sometimes taken more than a year and a half to complete. Today, some PV companies say that they have only just received their subsidies for 2013. Some companies have still not received their subsidies for 2014. Many companies have complained that the application process is not transparent. The Ministry of Finance has taken full control of allocating subsidies, without involving the NEA in its processes. When solar PV companies are unable to receive subsidies from the government, they are often unable to repay their debts to equipment suppliers. These suppliers, in turn, struggle to pay for the raw materials used to manufacture their products. The delay in procuring subsidies thus places the entire supply chain in jeopardy. China’s Current Subsidy Scheme Currently, China’s renewable energy subsidy is generated from a surcharge on renewable energy electricity prices. This surcharge began at 0.04 yuan per kWh, but later went up to 0.08 yuan per kWh, in order to help pay for the government’s budget deficit. In September of 2013, while the gap between collected funds and the demand for subsidies widened, the surcharge was raised to 0.15 yuan per kWh. The subsidy is calculated by subtracting the price of coal generated electricity from the price of renewables generated electricity (wind and solar).

Depending on local solar energy resources and generating plant construction costs, the rate for PV generated electricity is set at 0.9 yuan, 0.95 yuan or 1 yuan per kWh. Prices for coal vary across provinces, ranging from 0.30 to 0.55 yuan per kWh. The Chinese government is currently facing real iscal pressure from its subsidies scheme. According to statistics released by the NEA, in 2014 the government owed 14 billion yuan of subsidies for renewable energy. Furthermore, subsidies have not been keeping up the growth in PV generation. While the government is struggling to fund existing subsidies, the industry has doubled its output in recent years. In other words, subsidies are not keeping pace with growth in renewable energy capacity. During the period of the 12th Five-Year Plan, the installed capacity of PV plants grew to 35 GW –roughly a sixfold increase from capacity in 2010. According to the latest statistics from the China Electricity Council, in 2014, nationwide, grid-connected solar energy generation was 23.1 billion kWh– a 170.8% increase from 2013. Wind power generation reached 156.3 billion kWh– a 12.2% increase. However, for this same time period, subsidies for renewable energies only increased by 3.8%. Naturally, with this mismatch, the industry is voicing demand for more subsidies. Two years ago, I said that, if subsidies are unable to keep pace with the growth of renewable energy development, renewable energy development in China may begin to slow. I would reiterate the same point today. If our objective is to speed up the development renewable energy in China, we need reforms to improve the eficiency of both the subsidy scheme and the underlying technologies that will make renewable energy generation cost-competitive with traditional sources of energy. 9

Opinion

CEFC China Energy journal

An Alternate Approach: The U.S. Example Chinese investors and business leaders should consider the experiences of the United States’ PV industry. Without any inancial support, PV power generation in the U.S. is consistently delivering electricity for around $0.05 to $0.07 (USD) per kWh. While reforms to the subsidy scheme are necessary, China’s PV industry needs to be more visionary. It cannot expect to rely solely on government subsidies. From a public policy perspective, even if reforms are made to the subsidy scheme, in the long term they will not be suficient in encouraging companies to reduce the cost of PV power generation. Therefore, there may be some lessons to learn from the U.S. approach, which stresses competitiveness within the industry over pricing policy. Whether the policies at work in the United States can be successfully implemented in China is an open question – but it is a question we should consider.

CEFC China Energy journal

this goal by acquiring 600 MW of solar energy capacity, and accordingly set up a bidding process. The company received bids from 7,976 MW’s worth of solar projects, all competing to provide the requested capacity. Approximately 1, 295 MW of bids came in with a rate below $0.04, or 0.248 yuan, per kWh. Even if the U.S.’ Solar Investment Tax Credit (ITC) subsidy is taken into account, the bid rate would still come in well below $0.0571, or 0.35 yuan, per kWh.

Solar power policies in the U.S. are undergoing dramatic transformation. When the ITC subsidy expires at the end of 2016, the price of solar energy will inevitably rise. Despite that change, Austin Energy believes that the price will increase only for 18 months, and will then drop back down to today’s levels. Therefore, the ITC subsidy was only a minor factor in Austin Energy’s decision-making process. It did not rush its solar capacity expansion just to take advantage of the ITC.

The bid price of $0.05 that Austin Energy agreed to in 2014 seemed incredibly low at the time, but today the rate has already decreased by 20 percent. In june, Khalil Shalabi, Austin Energy’s Vice President of Resource Planning, told the Austin city council that as solar technology improves with time, prices will only continue to decrease. He predicted that the rate of solar generated electricity could come down to $0.02 per kWh, and possibly even lower.

In February of this year, I visited a solar energy experimental center in Arizona. I was told by their staff that they expect solar to compete with coal within 3 to 5 years, as long as technological improvement enabled the photovoltaic conversion rate to rise from 19% to 21%. The Future of China’s PV Industry The future of China’s PV industry lies in reform. China will either have to optimize the

existing pricing subsidy on renewable energies, or introduce competitive bidding. The good news is that the NEA is already working on a pilot project: a solar PV installation goal of 1 million KW in Datong City, Shanxi Province. Solar companies will be invited to bid for the right to develop the project, with the local government overseeing the bidding process. It’s also been suggested that the government can provide loans with preferential interest rates, tax preferences or technological aid as incentives for renewable energy development. The private sector can also do more to help to fund the development of renewable energy. We should not lose sight of the big picture: the development of solar PV is important for our own future. By addressing the shortcomings of the existing system, the road ahead for China’s PV industry will, hopefully, be a bright one.

In Austin, Texas, the bid prices for solar generated electricity have already reached unprecedented lows. In March of 2014, a local utility, Austin Energy, was inalizing a solar power purchase agreement with SunEdison. The reported rate was one of the lowest even seen:$0.05 per kWh. In May of that year, Austin Energy found an even better deal. It switched from SunEdison to Recurrent, who was offering a bid price slightly below $0.05. This was the lowest price for a largescale solar power contract ever seen in the area. By 2015, even this landmark bid price was deemed expensive. The rate has already dropped to nearly $0.04 per kWh. In April of this year, Austin Energy announced its goal to generate 55% of its total electricity from renewable energy sources. It planned to accomplish 10

Opinion

CEFC China Energy journal

The G20 Needs to Reshape the Global Energy Governance System Wang Wen ( 王文 )

The energy financing system in Central Asia, Russia and other Asia Paciic countries is, however, far from perfect, and lacks authority in currency settlements for oil and gas trading and energy pricing. Developing these financing aspects will require investment in energy resources, global energy pricing and internationalization of the RMB. The objective should be to establish a mature energy inancing system that caters to emerging economies, one which streamlines energy development and refinery processing, and which also creates a centralized market. The ultimate goals of an energy financing system are transparency, competitiveness, and effective monitoring and control of the global energy market, in order to maintain market stability.

The world energy situation has been undergoing significant transformation in recent years, and is reshaping the 21st century geopolitical landscape. This transformation, together with other opportunities for international collaboration, will drive the formation of a new global energy governance system. The 2016 G20 Summit will be an important milestone towards achieving global energy governance. The four key drivers to the reorganization of the existing global energy governance system are China’s “One Belt One Road” Initiative, the shale gas revolution in the US, the reform of the international financial system, and the changes in Russia caused by the Ukrainian crisis. The “One Belt, One Road” Initiative launched by the Chinese government in March 2015 aims to drive advancement in five areas: policy, infrastructure, trade, finance, and people. The ultimate goal of the initiative is to strengthen connectivity and cooperation among countries in Eurasia, as well as promote sustainable development 12

for China’s economy. The initiative will have major impacts on energy infrastructure and financing policy in Asia, and will contribute to the reshaping of the global energy landscape. Emerging economies in Asia, including China, are becoming the main source of growth in world energy consumption. In the US, the shale gas revolution continues to advance, lowering the country’s dependence on energy from the Middle East. In 2014, the US already turned into an energyexporting country, causing the Middle East to look for new buyers. This again intensified changes in the world energy supply, shifting the global energy market focus east, towards Asia. As the crisis in Ukraine continues to deepen, the United States and the EU are also sustaining inancial and energy sanctions against Russia, which have had signiicantly damaging impacts on Russia’s economy and energy production. Facing financial dificulty with its energy projects, Russia is gradually shifting its energy development towards Asia. Again, the trend is becoming increasingly evident as an eastward shift in focus for global energy.

This requires collaboration and sophisticated energy governance. In Europe, for example, the European Union’s 28 members, together with Turkey, have a relatively unified energy trading system. Whether it is oil or natural gas, there is a strong market-driven structure. This system provides a solution which, while not as successful as the US model, is still worth considering, given Europe’s high dependence on energy imports. On the other hand, unlike Europe, the energy market in Asia is highly fragmented. Neither the Northeast Asian countries, nor ASEAN, nor IndoChina have been able to form a uniied market.The tremendous demand for energy and disorganized market competition dynamics are the fundamental cause for higher energy prices in Asia, compared to other regions. Nevertheless, it is for this same reason that there is a need for cooperation between these countries. O f c o u r s e , t h e r e s t r u c t u r i n g o f A s i a ’s energy financing system cannot be completed unilaterally. It requires collaboration with nonAsian regions and other large nations, as well as support from international organizations such as the International Energy Agency and the International Energy Charter. Emerging nations need a platform to express their demands and needs, and developed countries need to secure their principle interests in the energy markets. All the while, the fundamental rules of free market competition need to be maintained. These complex requirements are what G20 leaders need to discuss. They are now presented also with an essential opportunity to reshape the global energy governance system. (The Author is Executive Dean of the Chongyang Institute for Financial Studies, Renmin University) 13

Opinion

CEFC China Energy journal

China Sees Potential

the biomass industry in the long term. Once incentives no longer create favorable conditions for biomass industry, it is important that the government withdraw

in Biomass Development China’s Population Distribution

Quan Liang( 全良 )

1,600,000 1,400,000 1,200,000 1,000,000 800,000

Economic development over the past decade has brought about significant changes in China, transforming the country into the second largest economy and the largest energy consumer in the world. This growth has brought both challenges and opportunities. In response to growing public concern over environmental issues, the Chinese government has exerted great effort in combating pollution. Industries with high levels of energy consumption and pollution are gradually being eliminated. More importantly, the government is responding by pushing forward a development agenda for renewable energy. Biomass is one of the renewable energy sources being embraced. There are several difficulties in developing biomass as an energy source. First, biomass resources are widely dispersed over farmlands and forests, leading to a high cost of exploration. Second, while hay is a promising biomass material, it also has value as livestock feed. The economics of this aspect of hay reveal a risk of increasing its price if it used for biomass. Third, while the widespread use of fertilizers enables farmers today to use animal waste for biomass, the cost of collecting, storing and transporting animal waste remains relatively high. In terms of costeffectiveness, animal wastes are therefore not likely to be an ideal choice as a biomass fuel. However, since China is accelerating its

urbanization rate, population in rural areas is decreasing, and consequently, more and more agricultural and forest lands will be transformed into urban areas.

For now, the biomass industry in China needs support from the government in the form of a direct price subsidy. However, as biomass production capacity increases, the government should fine-tune the subsidy to encourage innovation. The government should also consider establishing a system for integrating manufacturing, education and innovation, in order to drive biomass development. Education and training are crucial for encouraging the use of biomass and other renewable energies.

600,000 400,000 200,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

The table below shows the trend of China’s population in both urban and rural areas. Over the past decade, the rural population decreased by 1.87% per year, although the trend has slowed in recent years. Accordingly, to make up for this loss of labor, agricultural and forestry production in rural areas will inevitably need to be intensified by increasing inputs of capital and technology. This will lead to a transformation from a labor-led agricultural production system to a large scale, capital-led system. The latter favors biomass development, not only because more hay can be used as biomass material, but also because intensively managed agricultural lands enable focused production of biomass.

from the industry, to let market forces prevail.

Total Populaion thousand Urban Populaio thousand Rural Populaion thousand

Source: National Bureau of Statistics of the People’s Republic of China

In 2014, China’s total energy consumption amounted to 4.26 billion tons of standard coal equivalent, up 2.2% from 2013. However, thanks to continuous improvement in China’s economic structure, national energy consumption per 10,000 yuan worth of GDP went down by 4.8%.

(The Author is Associate Professor at the College of Economics and Management, Northeast Forestry University)

The biomass industry in China has a promising future, but the prerequisite for its development is that the government should spare no efforts in subsidizing, safeguarding and motivating the biomass industry. Currently, the industry is still facing shortfalls from the high cost of operation and production. A direct price subsidy should be given to biomass industry while it is still in its infancy. In the meantime, the government should also encourage technological innovation, which will be instrumental in developing 15

Policy

CEFC China Energy journal CFFC

CEFC China Energy journal

Tong Xiaobo Zhangjiakou, a city in Hebei Province, is known in China for holding the highest honor available for a city’s ecological environment: the title of “National Forest City”. Abroad, Zhangjiakou will soon be known for its cohosting of the 2022 Winter Olympic Games with Beijing:the City will host the biathlon, Nordic combined, ski jumping, snowboard, and freestyle skiing events. A more signiicant role awaits Zhangjiakou, however. In the coming years, it will emerge as a leader in the renewable energy market. The State Council recently approved the “Development Plan for a Renewable Energies Demonstration Zone in Zhangjiakou City”, which aims to accelerate the development of renewable energies in the area. According to the Plan, by 2020, 55% of the power consumption in this pilot zone will come from renewable energies, and 40% of the industrial companies in the pilot zone will achieve zero carbon emissions. Zhangjiakou is taking steps to reform its energy system, in order to smash through obstacles and find a path to renewable energies. Why Zhangjiakou Won the Bid for the Pilot

hangjiakou Becomes China’s First Renewable Energies Demonstration Zone 16

There are a few reasons why Zhangjiakou was chosen as the first renewable energies demonstration zone in China. Guo junfeng ( 郭俊峰 , Deputy Director of the Zhangjiakou Development and Reform Commission, said that Zhangjiakou has three favorable conditions for pilot. First, the city serves as a gateway, connecting the jingjinji Economic Zone ( 京津冀经济区 ) with Northwest and Northeast China. Second, it provides ecological conservation to balance jingjinji’s economic development. Finally, it has already established

itself as a comprehensive innovation base for both the production of renewable energies and electricity transmission. Zhangjiakou is about 200 kilometers northwest of Beijing, and has grown into a major center for wind and solar power generation. It is estimated that Zhangjiakou has an exploitable wind power capacity of at least 40 million kW, and a 30 million kilowatts capacityfor solar power. In addition, counties in Zhangjiakou, such as Chicheng and Huailai, have abundant geothermal energy resources, as well as various potential biomass energy sources. As an industrial base, Zhangjiakou has also established itself as a national wind power, PV storage and electricity transmission testing center. The city was the first approved wind power base in China, and by 2014, it had 6.6 million kilowatts of wind power installed capacity and 400 thousand kilowatts of photovoltaic (PV) installed capacity. Together, these add up to 15.1 billion kilowatts of completely renewable annual generation capacity. Zhangjiakou’s renewable energy industry is well developed. A number of manufacturing enterprises in Zhangjiakou are involved in blade production and assembly of wind power equipment. Other local renewable energy industries are involved in equipment manufacturing, operation and R&D. The jingjinji area, to which Zhangjiajou belongs, is one of China’s major electricity load centers and is actively involved in efforts to reduce pollution and reliance on coal. According to a study by the National Energy Administration (NEA), the total electricity consumed in the jingjinji area in 2014 was as high as 504.5 billion kilowatts, 3.9% of which was generated by renewable energies. The study predicted that electricity consumption will reach 699 billion kilowatts by 2020, 15% of which will come from renewable energies. This

context makes developing renewable energies in Zhangjiakou a sensible strategy. Pathinding the Development of Renewable Energies Despite its strong performance sat the forefront of renewable energies development, Zhangjiakou still faces many challenges. According to Qin Haiyan ( 秦海岩，Secretary General of the China Wind Energy Association, Zhangjiakou faces two main challenges: first, deficiencies in the design of the energy market system；second, the weak utilization of local capacity. China’s energy market system is still under development. The current energy pricing mechanism still fails to reflect the actual cost of electricity, its supply and demand, the scarcity of resources and environmental costs. All of these factors may restrain future expansion of the renewable energies market. Only a fraction of the installed renewable energy generation capacity in Zhangjiajou is actually utilized. While the renewable energy capacity in 2014 was roughly 7 million kilowatts, peak load demand was only 1.85 million kilowatts. External transmission capacity was less than 4 million kilowatts. The current policies do not provide any solutions to the problems that arise from renewable energy development. Instead, the market is in need of a breakthrough in government policies, which are needed to establish a system that coordinates the interests of stakeholders, encourages the development of renewable energies, promotes grid construction, and guarantees full utilization of generated power. People are hoping that Zhangjiakou’s pilot will not only help to resolve these problems, but will also constitute a deinite step forward in realizing a successful implementation of renewable energies in China. 17

Policy

CEFC China Energy journal

NDRC: Accelerating the Establishment of National Emission Trading System Su Nan

CEFC China Energy journal

Having completed its initial trials, China’s Emission Trading System (ETS) is set to expand nationally over the next few years. The National Development and Reform Commission (NDRC), tasked with developing the ETS, has already begun work on the expansion. According to Mei Dewen ( 梅德文 ), the President of the China Beijing Environment Exchange, the ETS will utilize market mechanisms to help China explore alternate pathways for energy conservation and emissions reduction. A national ETS will help China reform its energy system and address the threat of climate change. Efforts to expand the ETS began at the Third Plenary Session of the Eighteenth Central Committee, which took place in November, 2013. Since then, with its agreement with the United States on climate change and emissions reduction, China further pledged that it would peak its carbon emissions by 2030. In March of this year, Premier Li Keqiang ( 李克强 ) also proposed to enlarge the scale of the ETS in the “Report on the Work of the Government”. Zhang Xin ( 张昕 ), a research associate at the NDRC’s National Centre for Climate Change Strategy and International Cooperation (NCSC), explained that NDRC’s current work on the ETS will be implemented on three different levels. At the national level, departments engaged in carbon trading will make full use of funds provided by the World Bank to design the national ETS. Local governments, on the other hand, will optimize their local capacity for the development of the ETS, and will enact supporting laws and regulations. Private enterprises will also be required to enhance their own capacities, in order to comply with the establishment of the national ETS. Many challenges will have to be overcome for the expansion to be successful, particularly on

the time scale that is being sought. According to experts, more than 40% of China’s carbon emissions come from electricity production, of which over 70% is generated by coal-ired power plants. Even though the central and local governments have spared no efforts in supporting clean energy and reducing the use of coal, coal-fired energy is still the major source of energy for China, and cannot be replaced in the near term. In order to get a head start on overcoming these challenges, the NDRC announced on August 5th that it would be accelerating the establishment of the national ETS. In the near term, it plans to determine and set the total amount of emissions trading quantity, as well as complete the quota allocation scheme. The NDRC said it was also developing accounting and reporting standards for key industries and enterprises, and improving the ETS’ registration system. The NDRC also pledged to issue a general report later this year on possible strategies and long-term blueprints for national low carbon development. It plans to follow that report with one for cities, designed to offer guidance on how to cope with climate change. The NRDC also announced other near-term objectives. The Commission is hoping to accelerate the development of laws and regulatory structures that will tackle climate change, and also plans to assist government ministries and departments in meeting the 12th Five-Year Plan’s target of a 17% reduction in carbon emissions. Finally, the NDRC plans to determine whether the reduction target of 2014 has been achieved. It will release its analysis to the public once it has completed its evaluation. The NRDC said that a more efficient and complete ETS will probably be established by 2020. By that time, China will also attempt to cooperate with more mature ETSs of other countries. 19

Figures

CEFC China Energy journal

China Installs 7.73 GW of New PV Capacity in the First Half of 2015

China Expands Electricity Price Reform Trials to Seven Regions China is expanding trial reforms for the pricing of electricity to seven regions, as the country seeks to move towards a more market-driven pricing model. In a statement released on August 10, the National Development and Reform Commission (NDRC) said that five provinces – Anhui, Hubei, Yunnan, Guizhou, and the Ningxia Hui autonomous region – will be used to test reforms for electricity transmission and distribution tariffs. They will join Shenzhen and the Inner Mongolia autonomous region, where pilot reforms are already in place. According to the statement, the NDRC will 20

continue to develop electricity tariff reforms, as well as expand testing regions.

According to data released by the National Energy Administration on july 28, China added 7.73 GW of new solar power capacity in the irst half of 2015. 6.69 GW came from PV power stations and 1.04 GW from distributed PV. As of the end of june, the national installed PV power capacity reached 35.78 GW, of which 30.07 GW was generated from PV power plants and 5.71 GW from distributed PV.

in excess of 40% curtailment in the last year.

However, one PV expert explained that the “data shows that construction of PV generation capacity has been slow this year, with only 43% of the annual target achieved. At the current rate, it will be impossible to reach the 17.8 GW PV target for 2015.”

Meng Xiangan ( 孟宪淦 ), the Deputy Director of the China Renewable Society, explained that the reason behind the high solar curtailment rate is the control on electricity supply. Due to this control, the actual electricity delivered is only 30% of generation capacity. 70% of the electricity is effectively wasted. Curtailment also occurs when local demand and transmission are insufficient to handle the electricity generated.

Furthermore, although China is accelerating construction of its photovoltaic (PV) power g e n e r a t i o n c a p a c i t y, s o m e p r o v i n c e s w i t h abundant natural resources have experienced solar curtailment, a problem similar to that encountered with wind energy. Since last year, the national average solar curtailment rate has exceeded 14%, most of which occurred in the western China. Gansu province, in particular, has experienced curtailment

National PV power generation for the first six months of the year was 19 billion kWh. Roughly 10% of this power failed to be utilized, mainly in Gansu Province and the Xinjiang Uygur Autonomous Region, with 1.14 billion kilowatts and 541 million kilowatts being curtailed respectively.

According to Meng, there is a growing mismatch between generation and grid development, which increases the lead times of PV generation projects. This mismatch also causes serious solar curtailment in China, which in the last year has affected Gansu Province in particular.

The NDRC’s reform is expected to change the inancial model of China’s power grids. Currently, profits come from a guaranteed difference between on-grid and retail tariffs. According to industry insiders, the reforms will require power generation enterprises to apply for an electricity sales license and to bid openly for contracts. A power transaction market will be established for better resources allocation, where various entities can participate and compete to reduce power generation costs. 21

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CEFC China Energy journal

Coal Consumption Control Policy Will Generate 200 billion Yuan by 2020

China’s New Energy Vehicle Production Rising Rapidly Oficial data released on August 3 showed that Chinese automakers produced 20,400 new energy vehicles in july, 3.5 times as many as the same month last year. The increase is attributed to the government’s promotion of the sector. The industry produced 12,345 new energy passenger vehicles last month, a 159% year-on-year increase. Production of new energy commercial vehicles surged 677%, to 8,045 units, according to the Ministry of Industry and Information Technology (MIIT). july’s data indicated that the total output of new energy vehicles in the irst seven months of the year was about 98,900 units, up 300% from the same period last year. The Ministry of Commerce announced earlier this year that China will continue to build charging facilities in cities and will continue tax exemptions and subsidies on new energy vehicle purchases. In March, the Ministry of Transport set a target of having 300,000 new energy commercial vehicles on China’s roads by 2020. The target is for 200,000 new energy buses and 100,000 new energy taxis 22

China, the world’s largest producer and consumer of coal, has been working hard to overcome the environmental and economic difficulties it has experienced in recent years. Attempting to tackle these dificulties together, the government is carrying out a series of actions for controlling coal consumption and simultaneously promoting economic growth.

and delivery vehicles. Amid worsening air quality, the government has rolled out a variety of measures to promote new energy vehicles, such as tax redemptions, price subsidies and free number plates. However, the supporting infrastructure for new energy cars is still lacking, with high prices and a dearth of charging stations affecting growth. Last year, the central government speciied that 30% of all government vehicles should be green. Local governments, including Beijing, Changchun, Hangzhou and Guangzhou, have issued policies to encourage purchases of new energy vehicle. These policies include requesting local electricity and property management departments to install charging facilities. These measures stimulated the market for new energy vehicles, with a record high of 75,000 green cars sold last year. The “Made in China 2025” plan for Chinese manufacturing, released by China’s cabinet in May, stipulated that by 2020 there should be more than 1 million pure-electric cars and plug-in cars produced domestically.

A report recently published by Tsinghua University’s Institute of Energy, Environment and Economy, titled “Synergistic Effects of Reducing Coal Consumption”, concluded that declining coal consumption brings significant benefits to society. According to the report, coal consumption control policies result in a synergy of positive social effects, namely in terms of water consumption, environmental quality, public health, energy, and jobs. The results are expected to add up to 251.4 billion Yuan by 2020, 1.1462 trillion Yuan by 2030, and 2.1126 trillion Yuan by 2050. According to the report, reduction in coal use has dramatically decreased water consumption. Without coal consumption policies, water consumption would reach 104.8 billion cubic meters by 2030, a 61.7% increase from today’s levels. Under the current policies of controlling coal consumption, water consumed by coal production will be maintained below 86.9 billion cubic meters, equivalent to an increase of only 27.8% over today’s levels. With these policies, water consumption is expected to peak in 2020, and with advanced technologies and other water saving measures, it should eventually drop

back to 72 billion cubic meters. “Coal consumption control will help protect water resources and ecological systems, and will improve air quality”, said Lu Lunyan ( 卢伦燕 , a Project Director at the World Wildlife Fund. Ms. Lu also stated that policies to control coal consumption are expected to cut PM2.5 by 14% in the jingjinji area, and reduce national PM2.5 density by 2 μg to 25.11 μg per cubic meter. This improved air quality would decrease the prevalence rates of chronic obstructive lung disease, ischemic heart disease, stroke and lung cancer. By reducing coal consumption, renewable energies such as hydropower, solar power, nuclear power, and wind power are bound to increase, in order to fill in the gaps in energy supply. To encourage this transition, China will accelerate its development of renewable energy, including its work on technology, equipment, assembly, and maintenance of renewable energy projects. Yang Fuqiang ( 杨富强 ), a Senior Advisor on Energy, Environment and Climate Change at the Natural Resources Defense Council, believes that coal consumption control policies will produce important environmental and social beneits, as well as encourage medium and long term investment. In addition, accelerating the replacement of coal with cleaner energy sources will help China create more job opportunities. In sum, coal consumption control policies will become one of the key factors in the energy transition process. 23

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CEFC China Energy journal

he visited Indonesia to win the bid for the jakarta– Bandung high-speed railway project. In jakarta, Mr. Xu pledged that China would begin construction in September 2015, and would complete it no later than 2018. Mr. Xu’s announcement marks the development of the Belt and Road Initiative from idea to reality. It was, in fact, during a visit to Indonesia in 2013, that President Xi Jinping irst unveiled the strategic concept of “21st Century Maritime Silk Road”. Two years later, in March 2015, President Xi signed a comprehensive cooperation agreement with Indonesian President joko Widodo. President Xi pledged that China will use the Asian Infrastructure Investment Bank and the Silk Road Fund to facilitate Indonesia’s development of ports, highspeed railways, airports, shipbuilding and special economic zones in coastal areas.

Promoting Connection and Cooperation

Railroad connectivity is crucial to fostering closer economic ties, deepening cooperation and realizing the development potential of the Eurasian region. As such, if China wins the bid, construction of the jakarta–Bandung high-speed railway will be a big step forward for China in implementing the Belt and Road Initiative.

under the “Belt and Road” Initiative Wang Haixia and Kong Jueting

On March 28, 2015, the National Development and Reform Commission, the Ministry of Foreign Affairs, and the Ministry of Commerce jointly published “Vision and Proposed Actions for jointly Building the Silk Road Economic Belt and 21st Century Maritime Silk Road”. The paper details the strategic plan for the Belt and Road Initiative, which aims to enhance regional connectivity among the countries and peoples of Asia, Europe and Africa. The “Economic Belt” begins in Xi’an, in Northwest China, before stretching west through Urumqi to Central Asia. From there it reaches northern Iran, then continues west through Iraq, Syria, and Turkey. From Istanbul, it crosses the 24

Bosporus Strait and heads northwest through Europe, reaching Germany and the Netherlands. It then heads south to Venice, Italy. The other part of the plan is the “Maritime Road” that begins in Quanzhou, in Fujian Province, and heads south to the Malacca Strait. From Kuala Lumpur, it heads to India, and then crosses the rest of the Indian Ocean to Nairobi, Kenya. From Nairobi, the Maritime Silk Road goes north around the Horn of Africa and moves through the Red Sea into the Mediterranean. It meets the land-based Silk Road in Venice. The “Belt and Road” Initiative seeks to strengthen exchange between Chinese people and

4.4 billion people from more than 60 countries. Breathtaking in its scope, it will implement connection through projects such as roads, railways, ports, airports, pipelines, power grids, and fiberoptic communication. It is also expected to bring closer economic collaboration through trade and investment, including but not limited to currency settlement. Roads and Railways: Hardware for the Belt and Road Xu Shaoshi ( 徐绍史 ), Chairman of the National Development and Reform Commission (NDRC), is a special envoy of President Xi jinping ( 习近平 ) and China’s top economic planner. On August 13, 2015,

After years of technological innovation and experience, China’s high-speed railways have accumulated substantial expertise in construction and operation. Today, China is successfully operating 17,000 kilometers of high-speed railways, accounting for 55% of the world’s total high-speed railway network. This shows that China’s highspeed railway technology is mature. In addition to its domestic achievements, China is actively promoting its high-speed railway technology. On April 28, the Chinese government announced it was restarting the Pan-Asia Railway Network Agreement, which had been idle for about ten years. It will now comprise the South East Asian 25

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portion of the Silk Road Economic Belt. On May 8, China and Russia signed a number of energy, trade and finance deals, hoping to develop the Eurasian Economic Union with the Silk Road economic project. China pledged that it would invest $5.8 billion in the construction of a Eurasian high-speed railway connecting Beijing and Moscow. The export strategy of China’s high-speed railways reflects the booming development of Chinese infrastructure connectivity with countries along the Belt and Road. Guan Qingyou ( 管清友 ), Executive Dean of the Minsheng Securities Research Institute, believes that infrastructure connectivity is a priority for implementing the Belt and Road Initiative. According to public data, infrastructure investment for the Belt and Road Initiative has totaled as high as 1 trillion Yuan for the first year of implementation. The majority of this investment has gone towards railway, highway and airport construction projects. The funds are expected to be spent on projects in Southeast Asian regions such as Pakistan’s Gwadar port, Sri Lanka’s Hambantota port and other Indian Ocean ports. Local governments and transport enterprises are also seizing this opportunity for expansion. Wang Derong ( 王德荣 ), Executive Vice President of the China Communications and Transportation Association, revealed recently that the Ministry of Transport is working with local governments and enterprises to implement the Belt and Road Initiative. Remarkably, in May 2015, the China Railway Construction Corporation Limited started its irst railway projects in Tajikistan, exemplifying the goal of exporting Chinese enterprise. Pipelines: Lifelines for the Belt and Road Oil and gas pipelines serve as economic 26

CEFC China Energy journal

lifelines for national development, and have attracted considerable attention in the Belt and Road Initiative. The initiative has set out several goals related to pipelines, such as “promoting cooperation for the connectivity of energy infrastructure, ensuring the security of oil and gas pipelines and other transport routes, building cross-border power supply networks and power-transmission routes, and cooperating in regional power grid upgrading and transformation.” An example of the increased attention on energy cooperation is the rise of forums held under the banner of the Belt and Road Initiative. For example, on August 12, 2015, a forum held in the Xinjiang Uygur Autonomous Region discussed the possibility of cooperation on the China-Pakistan Economic Corridor (CPEC), itself a major project of the Belt and Road Initiative. The forum focused mainly on the topics of energy infrastructure, such as highways, railways and pipelines. Forums of this kind – related to the Belt and Road Initiative and energy cooperation –are becoming increasingly common in China. Some of these forums include signing ceremonies for cooperation agreements, and are intended to impress foreign governments. Some state leaders frequently attend these forums to witness the signings. Pipelines are also important for securing China’s energy supply. Xie Heping ( 谢和平 ), an academician from the Chinese Academy of Engineering, believed that despite China’s energy security and independence strategies, the Chinese government needs to develop comprehensive international energy cooperation. Fortunately, many countries with abundant energy resources are well covered by the Belt and Road Initiative. Accordingly, Huang Xiaoyong ( 黄晓勇 ), Director of the International Energy Security Research Center of the Chinese Academy of Social

Sciences, said that China will continue to deepen oil and gas sector cooperation with countries along the Belt and Road. China is determined to increase its inluence in the global oil and gas market through oil and gas pipeline construction. In turn, this will provide a more sustainable and stable oil and gas supply for China’s development. Currently, China has four major cross-border oil and gas pipelines: the China-Russia natural gas pipeline, the Central Asian natural gas pipeline, the China-Burma oil and gas pipelines, and the major offshore oil and gas strategic import channels. China is already developing energy cooperation with Central Asian countries. Currently, the four major gas pipelines extending from Central Asian countries into China are almost completed, and some already fully operational. Construction of the Chinese section of the China-Russia Natural Gas Pipeline (Eastern Route) kicked off in july 2015. Oil and gas trade with traditional energy suppliers in the Middle East also continues to experience steady growth. Hopefully, these developments underlie the construction of a more mutually beneficial relationship between China and countries along the Belt and Road in years to come. Power Grids: Highways for the Belt and Road Just like a highway moves trafic from one point to another point, power grids move power from where it is produced to where it is used. Ultra-highvoltage (UHV) transmission technology from China can help link major energy production centers to the surging energy demand in Central Asia. Global per capita energy consumption is expected to reach 2.9 tons of standard coal equivalents (TCE) by 2030. For members of OECD countries, per capita energy consumption will be 27

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CEFC China Energy journal

5.8 TCE, which is roughly twofold of that in nonOECD countries.

and the Middle East contribute most to meeting this demand.

and still enjoys cost advantages in labor and raw materials.

four transmission lines are designed to achieve the China’s UHV technology export strategy.

In recent years, the traditional energy production countries in the Middle East have witnessed rapid growth in per capita energy consumption, which is expected to surpass that of OECD countries. By comparison, while some countries in Central Asia also have abundant natural resources, such as hydropower and coal, they lack the necessary investment and technology for energy exploitation. They are thus unlikely to meet the surging domestic energy demand.

India, for example, has experienced annual growth of power consumption over 5.7%, the highest growth rate in the world. At the same time, the enormous blackout experienced in july of 2012 also indicates the weakness of power infrastructure in India.

The State Grid Corporation of China (SGCC), the country’s major power grid operator, has begun to expand overseas as it responds to meet overseas demands. It is serving as the model for other grid enterprises looking to export their services. In recent years, SGCC has won numerous bids in South America, Africa, and Europe. It has also been operating successfully in the Philippines, Brazil and Portugal.

Shu Yinbiao ( 舒印彪 ), the General Manager of the State Grid, said that, in accordance with the Belt and Road Initiative, SGCC intends to establish transmission corridors in major economic zones and realize grid connectivity between China and Central Asia through the use of advanced UHV technology. The implementation of the Initiative will help prevent energy shortages and environmental issues for both China and other countries along the Belt and Road.

Most countries in Central Asia and along the Belt and Road are developing countries with great market potential. The population of the region is 4.6 billion, and demand for power and power-related equipment is increasingly growing. China, India

The Belt and Road Initiative will spur increased investment to power grid and other energy-related infrastructure in the Central Asian region. China is in a good position to share its advancements with countries along the Belt and Road. After decades of rapid development, China leads the world in UHV technology, offering low-cost, high-quality solutions. China has also gathered considerable experience in long-distance power grid construction,

By the end of 2014, SGCC’s overseas assets reached 29.8 billion US dollars, 17 times higher than 2009. In February of 2014, SGCC won the bid to build and operate the first phase of the Belo Monte project, a 2,084-km transmission line connecting the Belo Monte hydropower station to the southern state of Minas Gerais. It was the irst time that China applied its UHV technology in an overseas market, and demonstrates China’s leading role in global UHV transmission line construction. In july of 2015, SGCC won the bid to build the second phase of the project, a 2,250km transmission line linking the Belo Monte hydropower plant to the town of Nova Iguacu. With a total investment of 4.7 billion US dollars, the two transmission projects in Brazil are expected to be operating by 2020, with a 14% return on investment. SGCC is also preparing for the operation of four ultra-high-voltage direct current (UHV DC) transmission lines, which stretch from neighboring countries into China. Projects include the Kazakhstan Ekibastuz-China Nanyang ±1100 KV UHV DC line, the Russia Yerkovtsy-Hebei Bazhou ±800 KV UHV DC line, the Mongolian SiboTianjin ±600 KV UHV DC line, and the Mongolian Sibo-Xinjiang Yili ±600 KV UHV DC line. With a total investment of over 450 billion US dollars, the

Fiber-optic Communications: The Information Superhighway for the Belt and Road The objective of the Belt and Road Initiative is to increase connectivity for both transportation and communications. This requires the construction and development of both kinds of infrastructure. In accordance with the initiative, the Chinese government will emphasize constructing crossborder optical cables and other communications trunk line networks. It hopes to improve international communications connectivity and create an “Information Silk Road”. Other projects the government hopes to develop are transcontinental submarine optical cables, increasing the construction speed of bilateral crossborder optical cable networks, and improving satellite-based information passageways. The goal, again, is to expand information exchange and cooperation. Submarine optical cables are currently the major channel for international communication, and account for 90% of international business communications. For Chinese optical cable enterprises seeking to export their services, submarine optical cables have become a new focus 29

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for growth. On May 28, 2015, China Telecom and its international partners launched the construction of the New Cross Paciic Submarine Cable Network (NCP). The project is worth over $500 million, and is expected to be ready for service in the fourth quarter of 2017. The project will facilitate information collection and exchange in China, and is expected to further promote information channels between China and the countries along the Belt and Road. The NCP utilizes a new generation, highcapacity fiber-optic submarine cable system. It promises the largest delivery capacity and the shortest delay time of any submarine cable network between Asia and North America. According to China Telecom, the NCP has a length of over 13,000 kilometers, and a transmission capacity of more than 80 Tbps (Tera bytes per second). In coordination with the TPE (Trans-Pacific Express, another telecommunications cable linking Asia and the US) and the CUCN (China-US Cable Network, the irst submarine cable system with direct cable routes linking the U.S. and China), the NCP will offer higher reliability for the submarine optical cable system, and greatly improve international network security for the Asia Paciic region. On October 28, 2014, China Hengtong Group, one of the top three global optical cable operators, successfully delivered an 83-km submarine optical cable to Petronas in Malaysia. This submarine optical cable is characterized by its long distance and minimal loss, and represents a breakthrough against the monopoly of foreign technologies. As the world’s largest communication service market, the popularity of the 4G network in China has boomed significantly. However, some communication equipment, such as optical ibers and cables which were built during the 3G era, are now struggling to meet user demand. Furthermore, the low popularity of China’s mobile 30

CEFC China Energy journal

communication in countries along the Belt and Road demonstrates that China needs to upgrade its communications technology and infrastructure. The Chinese communication equipment industry was a forerunner of China’s export strategy, and laid the foundation for the communication cooperation sought by the Belt and Road Initiative. Today, two of the five largest global sellers of telecommunications equipment are Chinese enterprises, Huawei and ZTE. According to the Huawei’s annual report in 2014, its sales revenue has exceeded that of Ericsson and other international telecommunication giants. 70% of Huawei’s revenue originates overseas, ranking first among telecommunications equipment makers in the world. Chinese optical fiber and cable manufacturers

Belt-and-Road’s land routes include: 1. Euro-Asian Railway: In 2014, China and Russia agreed to jointly build a $242 billion high-speed rail link between Beijing and Moscow, cutting the time for the 7,000-kilometer journey from ive to two days. The high-speed railroad will go through Kazakhstan, with which China signed agreements worth $23.6 billion in March. The route will eventually be extended to Germany and Northern Europe as well. Unsurprisingly, every country in Central and Eastern Europe is scrambling to be the first stop on China’s new Silk Road, rushing to reach related agreements with Beijing. 2. Central Asian Railway: This high-speed

are also facilitating China’s export strategy. Yangtze Optical Fiber and Cable joint Stock Limited Company (YOFC) have joint ventures in Myanmar and Indonesia. Hengtong Group has developed sophisticated optical fibers to reduce China’s reliance on foreign advanced optical fibers used in submarine optical cable. Zhongtian Technology Group, with 42 offices around the world, has developed an international sales network and is planning to set up three to ive production bases in its major overseas markets. Building information superhighways not only enhances the international influence of Chinese optical fiber communication brands, but also beneits all countries along the Belt and Road. China’s two strategies, the “Silk Road

railway will connect Central Asian countries and nations to their west, inally reaching Mediterranean countries and beyond. Turkey, the logical link in the chain, has been interested in the Belt and Road Initiative since the outset, hoping to attract more investment from China. China also favors a normalized Iran, while a troubled Greece is likely to grow more dependent on Chinese funding. In addition, the China Railway Construction Corporation intends to invest about $78 billion in the UK’s second high-speed rail. 3. Trans-Asian Railway: This high-speed railway will reach Southeast and South Asia, and will include the Bangladesh-China-India-Myanmar Corridor. 4. East African Railway: Leveraging on its excellent African connections, China plans to build a railroad from Nairobi, Kenya’s capital, to Mombasa, a port on the Indian Ocean, to connect

Economic Belt” and the “21st Century Maritime Silk Road” encompass most of China’s neighboring countries, which are filled with vigor and vitality. With joint efforts and collaboration, the Belt and Road Initiative provides China with a precious opportunity to promote energy cooperation with its neighboring countries. The Initiative will not be solely led by China but will, as described by President Xi, consist of a real chorus, comprising all countries along the Belt and Road. It is hoped that in the process of implementing the initiative, the participants will communicate and cooperate extensively, and will thus develop a community and a common destiny. Although its scale is unprecedented and it may take decades to complete, the Belt and Road Initiative will surely bring the countries along the Belt and Road to a brighter future.

with Maritime Road’s sea routes. 5. China-Russia-Canada-America Railway: An ambitious high-speed rail projected to reach the US. China will join other bidders on high-speed rail construction in California.

Belt-and-Road’s sea routes include: 1. The western route, from Fujian to the Indian Ocean, then Europe and Africa. 2. The eastern route from Fujian to the South Paciic. 31

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China’s “Belt and Road”Initiative Offers Energy Security for Asia and Beyond Liu Qiang ( 刘强 ) Dr. Liu Qiang is Secretary-General of the Global Forum for Energy Security and Director of the Energy Economics Division at the Chinese Academy of Social Sciences

CEFC China Energy journal

China’s fast economic growth in the past 30 years has dramatically transformed the global landscape. This transformation will only continue under the “Belt and Road” Initiative set out by President Xi jinping ( 习近平 ). The proposed initiative will propel China and the region towards a more dynamic economic system. At home, the “Belt and Road” will connect the inland areas, furthering their development to the levels seen in cities such as Beijing, Shanghai, Shenzhen and Guangzhou. Beyond China, the initiative will create stronger links for energy, transport and information along the historical Silk Road that once connected Europe to the Middle East and Asia. Similar developments will be seen along the Maritime Silk Road that encompasses Southeast Asia, Oceania and East Africa. These connections will integrate markets into a dynamic economic system and offer the chance to improve the regional security situation. They will also transform the regional energy landscape. Currently, Asia faces several energy needs. Its growing countries are demanding more energy as well as more energy-intensive products such as iron, steel, cement, electric appliances and automobiles. They are also increasingly looking to adopt clean energy. This fast-growing energy demand requires more reliable and eficient infrastructure and markets. To meet the rapidly rising demand that comes with the region’s economic development, Asia’s investment in oil, gas and power sectors could, according to the International Energy Agency, be as high as US$10 trillion over the next 20 years. Through the “Belt and Road” Initiative, China will help to offset some of these major challenges. It will invest in a variety of energy projects, ranging from oil and gas pipelines, to liqueied natural gas terminals, high-voltage power lines, and nuclear

power and renewable energy. It will create a more eficient and better integrated energy network. In terms of energy project investment, the natural gas sector is already feeling the impact of the “Belt and Road” Initiative. As demand increases across Asia for natural gas as a cleaner substitute for coal and oil, it is driving Qatar, Iran, Indonesia and Australia to raise their output. China and Russia have already signed a long-term natural gas contract and there is the possibility that North America will sell natural gas to East Asia in the future. As such, a hub and a proper pricing system is necessary to facilitate the fast-growing market for natural gas in the region. Some of China’s harbor cities such as Shanghai and Tangshan have put forward the idea of developing a natural gas hub. Given the rising demand, participation by other East Asian economies can turn this vision into reality. In terms of a more integrated energy network, the design of the “Belt and Road” Initiative offers all Asian countries better energy connectivity, more economic opportunities for local communities and stronger communication among different nations and peoples. The initiative will also help mitigate the risks currently inherent in the transport of fuel and other goods through unstable, insecure or unfriendly channels. The result will be strengthened energy and geopolitical security, as well as a more stable regional energy market. The “Belt and Road” Initiative will constitute a win-win outcome for China and the nations along the inland and maritime links. China has the ability to invest in these countries and offer an enormous market for their products. Critics may say the initiative is just an attempt by China to sell its surplus industrial output and improve its own energy supplies. The truth is that the benefits of stronger ties among economies and a bigger, more integrated Euro-Asia market will be there for all to enjoy. 33

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Dialogue CEFC China Energy journal

CEFC China Energy journal

Common Interests in Sino-Russian

importance as part of the entirety of Sino-Russian bilateral relations.

Energy Cooperation

Q: The leaders of both China and Russia see energy cooperation as the centerpiece of the SinoRussian strategic partnership. What are your thoughts on the energy cooperation between the two countries? Do you think they will be able to expand the breadth and depth of this cooperation? A: The supply of energy is the primary basis of the cooperation. China is one of the fastest growing countries in the world. It needs a huge amount of energy for its economic development –and, in particular, it needs natural gas. Russia has abundant natural gas resources, and we are willing to provide China with access to those resources. Currently, the two countries have also started to cooperate on power transmission. I also believe that they will soon also begin to collaborate in other areas, such as natural gas technology, the petro-chemical industry and more. The strategic partnership enables Russia and China to carry out a variety of cooperative projects, including oil exploration, exploitation, and transport and processing. Most of these projects are being carried out at the national level. The recent agreement on the China-Russia Eastern Route natural gas pipeline should be a model for our future energy cooperation.

Xie Shujiang Energy cooperation has been one of the most successful aspects of the Sino-Russian strategic partnership, which began in 1996. The most recent achievement of the partnership is the Eastern Route natural gas pipeline, whose construction began at the end of june. At 3,968 kilometers long, the pipeline will help consolidate the connection between Russian energy supply and Chinese demand. 34

China and Russia concluded their gas supply agreement in May of last year. It was not a coincidence that the conclusion of the agreement immediately followed the appointment of Mr. Pavel N. Zavalny as Chairman of the Russian Federation’s Duma Committee on Energy.

Q: The oil and natural gas supply agreement has been among the most important energy cooperation developments in the Sino-Russian strategic partnership. Do you think that the turbulent political and economic atmosphere around the world today will affect the future of the agreement?

Mr. Xie Shujiang 解树江 , Chief Editor of CEFC China Energy journal, recently had the opportunity to interview Mr. Zavalny about his views on Sino-Russian energy cooperation and its

A: I don’t think there will be any changes to the agreement. First, the agreement still reflects the two countries’ needs and situations. In order to secure its financial stability, Russia needs to

diversify its energy export market. One way it can do this is by exploring new trading opportunities. Similarly, China needs a secure and stable energy supply for its economic development. Therefore, the agreement is a perfect it for the two countries’ objectives. Second, the agreement already provides for a long-term, sustainable perspective for the two countries. Both countries spent a long time drafting, reviewing and negotiating the agreement. We both understand the impact the agreement can have on our livelihoods. I ind it dificult to foresee any possibility of change to the agreement. I am confident that the strategic partnership will work solidly. Q: You are a veteran of Russia’s energy sector and a senior leader of Russia’s natural gas projects. From your perspective, what does the natural gas industry mean to Russia? What role does natural gas play in Russia’s foreign policy? A: The natural gas industry is a main source of local and federal revenue, and a major contributor to the national GDP. It also creates many job opportunities. For these reasons, it occupies an important position in Russia. Natural gas affects almost every aspect of our daily lives. In Russia, 49 percent of power generating capacity and 70 percent of the heating supply are derived from natural gas. Natural gas brings us warmth and light. In addition, natural gas provides our cooking fuel, and is also used to produce nitrogen fertilizers, which are commonly used in our agriculture. Some countries have accused Russia of using natural gas supplies as a political tool. In my opinion, this is entirely speculative, without any factual basis. I believe the accusations underlie an attempt to suppress Russia in the global energy market. They are basically attempts to take customers from us. Regardless of any political circumstances, Russia will continue to supply natural gas to its partners as long as all contractual parties fulill their obligations. 35

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Dialogue CEFC China Energy journal

CEFC China Energy journal

The Solar Thermal Power Industry Needs Urgent Policy Support

Fang Xiaoju With more than 100 power stations around the world and a global capacity exceeding 5 million kW, solar thermal power technology has finally reached maturity. In China, however, the technology still has a long way to go. Despite having a solar thermal power generation target of 1000 MW under the current Five-Year Plan, the only commercial power station currently in operation is the 10 MW project in Qinghai. How can China close the gap between domestic and international achievements in solar thermal power capacity, as well as reduce the discrepancy between its current and target capacity? With these questions in mind, we interviewed Sun Yue ( 孙悦 ), Deputy Director of the Electric Power Planning and Engineering Institute. Mr. Sun shared his views on the development of the solar thermal power industry in China. Q:What resources are needed for developing solar thermal power? Does China have any advantages in the resources required for solar thermal power development? A:The irst requirement is direct solar radiation. The Direct Normal Irradiance (DNI) has a significant impact on the production cost of solar thermal energy. According to a study conducted by 36

the International Renewable Energy Agency, each incremental 100 kWh/SQM reduces production cost by 4.5%. In China, there is an abundance of solar radiation resources in Inner Mongolia, Qinghai, Gansu, Xinjiang and Tibet. The second resource is land. The annual electricity production capacity on a 100,000 sq.km solar thermal power project is about 54000×108kWh, which is equivalent to China’s power generation for the entire year of 2014. With a thermal energy storage system of 4,000 hours per unit, the installed capacity would be 1.35 billion kW. In Qinghai and western Inner Mongolia alone, there are over 200,000 sq. km of land available for solar thermal power development. The third resource is water. Solar thermal power stations use 50% less water than coal energy stations. Qinghai and Tibet both have extensive water sources. In western Inner Mongolia, reservoirs could be built to collect water from rivers, such as the Yellow River, during high flow periods. Q:In recent years, some companies have started to focus on the development of solar thermal related technology. Does China have the capability for industrialization? A:China has many solar thermal technology

companies with intellectual property rights and patented products; at the same time, technology companies abroad are also seeking to collaborate. The production chain for solar thermal power generation in China is already in place. Over 90% of the equipment and materials needed for these projects can be manufactured domestically, at a level that is comparable to international standard, and with the ability to fully cater to individual project requirements. The only component lacking is quality testing under long-term, extensive operation. While the scale and technology standards of the solar thermal power industry continue to advance, its production cost has also been declining progressively. Today, the cost of production in global tenders has fallen to USD 0.15 per kWh, and is expected to further reduce to USD 0.06 per kWh by 2020, under the US Department of Energy’s Sun Shot Program. Q:What guidance would you offer policymakers for the successful development of the solar thermal industry? What is needed to drive development in this area? A:The most important priority is a tariff policy on electricity. Currently, local governments have approved many projects, but are unable to launch these projects without an oficial tariff policy. The lack of certainty in return on investment often hinders investors’ decision; at the same time, banks are also unable to approve financial loans in the absence of a tariff policy. This situation severely impacts project funding, and thereby restricts the development of solar thermal power projects. It is urgently recommended that state authorities issue a tariff policy on solar thermal power generation, or at least determine the principles for such a tariff. Q:From an administrative perspective, having a tariff policy alone will deinitely not be suficient. What other forms of support are needed?

A:Low-interest financing should be offered to solar thermal power generation projects. As the unit cost for these projects is as high as 20,000 to 30,000 yuan per kWh, the cost of financing has a significant impact on power generation costs. In order to lower financing costs, some projects had to go to Asian Development Bank (ADB) for loans, subjecting them to the ADB’s regulations on equipment procurement. Due to a lack of application performance record in the newly developed domestic equipment and materials, many domestic producers are excluded from the scope of procurement. Q:There are various different technology roadmaps for solar thermal power generation. Does this imply that there should be a demonstration project for each technology roadmap? A:This is a very important question. There are, indeed, many technology roadmaps for solar thermal power generation. I believe the first batch of demonstration projects should focus on the technology roadmaps that are more mature at the global level. For instance, the slot-type parabolic solar collection system, which uses conduction oil for the decalescence medium and molten salt for the thermal storage system, is the most widely used technology in the world. The tower-type technology has developed significantly in recent years. With the use of molten salt as the decalescence medium, it offers many advantages: simplicity, low thermal stress, and the ability to use on-the-ground evaporators, super heaters and reheaters. It is these advantages that contribute to its recent acclaim on international markets. Other technology roadmaps that are still in an experimental phase. Some are inherently unstable, or are unsuitable for demonstration. Failure in these projects would not only result in inancial loss, but also jeopardize society’s conidence in the industry as a whole. 37

Major Events CEFC China Energy journal

China’s UHV Technology Facilitates Brazil’s “Electricity Super Highway” Kong Jueting

Major Events

Major Events CEFC China Energy journal

Across the ocean, the State Grid Corporation of China (SGCC), China’s largest power operator, is building an “Electricity Super Highway” in Brazil. On july 17, SGCC won the bid for Brazil’s power transmission project, the Belo Monte Hydropower UHV Transmission Project. It beat out the Brazilian power company, Eletrobras, and the Spanish firm, Abengoa. The new transmission line will stretch from the Belo Monte Dam, located in the northern state of Pará, to the country’s southern economic centers. It will become the irst “Electricity Super Highway” in both Brazil and Latin America. With a designated length of over 2,000 kilometers, construction of the new ±800kV ultra-high-voltage (UHV) direct current (DC) transmission line was launched by SGCC in May. The cooperation agreement provided an investment of 2.2 billion US dollars, and an expected completion date in 2020. State Grid Brazil will maintain the line for 30 years. The project is of major significance for both Brazil and China. Chinese President Xi jinping ( 习近平 ) attended the signing ceremony of the cooperation agreement in july 2014, while Chinese Premier Li Keqiang ( 李克强 ) and Brazilian President Dilma Rousseff witnessed the launch of the project in May. It is hoped that the line will serve as a model of bilateral production capacity cooperation. The new transmission project will also help SGCC accelerate its service export strategy, which SGCC has been developing for many years. In 2010, SGCC established State Grid Brazil Holding S.A. as its initial step for entering Br azil’s gr id ma rket. SGC C then set u p a platform for investing in Latin America’s energy 40

CEFC China Energy journal

market. State Grid Brazil Holding S.A. is already operating 6,000 km of 500 KV transmission lines, which transmit electricity to the most developed areas in Brazil, including Brasilia, Sao Paulo, and Rio de janeiro. The recent bid is not the irst time for SGCC’s has exported its services in UHV technology. In February 2014, a consortium formed by State Grid Brazil Holding S.A. and two Brazilian companies won the bid to build and operate a 2,084 km transmission line. Considered the irst phase of the Brazil Belo Monte Project, the line connects the Belo Monte hydropower station to the southern state of Minas Gerais. The second phase of the project – which was up for bid more recently – was for a 2,250 km line. It aims to connect the Belo Monte hydropower plant to the town of Nova Iguacu. Why Did Brazil Choose China’s UHV Technology? In recent years, Brazil has experienced rapid economic growth. Up to 80% of the electricity supporting this growth is provided by hydropower stations. To meet its increasing demand for energy, Brazil is accelerating the construction of its hydropower projects. The Belo Monte hydroelectric dam, which was designed for a capacity of 11,233 megawatts, will become the third largest dam in the world when it is completed in january of 2019. By that date, only the Three Gorges Dam in China and the Paraguayan Itaipu Dam in Brazil will be larger. The electricity generated by Brazil’s major hydropower stations, however, still needs to be transmitted across thousands of kilometers, to high demand areas located on the opposite side of the country –such as Sao Paulo and Rio de janeiro.

Like China, Brazil is a country with a vast territory, where power generation centers are often located far from major consumption centers. In 2013, the Brazilian government decided to use UHV technology for its transmission lines, since UHV can transmit large amounts of electricity over long distances, with minimal loss. Because of China’s experience with UHV, it became the natural choice for implementing the technology in Brazil. China’s UHV technology has surpassed the U.S.’s and japan’s. It has become the world standard, thanks largely to China’s rapid development of renewable energies in recent years. As China’s largest power distributor, SGCC has mastered key UHV technology, and has amassed intellectual property rights over the years. It has become the sole company qualified to invest, construct, and operate UHV transmission projects around the world. “China’s UHV technology is a huge opportunity for the development of Brazil’s electric industry”, said jose Da Costa Carvalho Neto, the Chief Executive of Electrobras, Brazil’s state-owned electricity operator. According to Mr. Da Costa, “building UHV lines will secure Brazil’s leading position in both the southern hemisphere and the world”. Bilateral Cooperation Will Yield Win-Win Results China and Brazil are members of the BRICS and are acknowledged to be two of the most important emerging economies in the world. Experts say that the massive investments between China and Brazil will produce remarkable beneits for both countries, and even for the world.

According to Zhang jianping ( 张建平 , an expert at the Academy of Macroeconomic Research of China’s National Development and Reform Commission, “introducing UHV DC technology to Brazil will ultimately bring revolutionary changes to long-distance power transmission projects. The power transmission projects will yield great beneits for both countries.” For Brazil, the two transmission projects, which account for a total investment of 4.7 billion US dollars, are expected to create around 34,800 jobs. The transmission projects will also boost Brazil’s economy in other ways. Brazil is currently suffering from an economic slowdown, and is battling the global economic recession. The two transmission projects are expected to create a huge demand for electrical equipment, steel, and other related commodities. The projects will thus both update Brazil’s power infrastructure and beneit its economy as a whole. For China, the two transmission lines are breakthroughs for the overseas development of China’s UHV technologies and equipment. The projects also advertise China’s production capabilities and advanced technology to the world. According to Mr. Zhang, these can be led to new sources of foreign trade for China. Facing domestic overcapacity at home and weak demand overseas, the power transmission projects may bring more opportunities for China, and will help ease some of the pressure on its domestic economy. In sum, Zhang believes that the success of SGCC’s bidding in the power transmission project will be beneficial for Brazil, China, and the international community. He foresees that, in addition to high-speed rail and nuclear power plants, UHV transmission technology is likely to become a third lagship, high-tech product for China. 41

Major Events

Major Events CEFC China Energy journal

CEFC China Energy journal

CEFC China Continues Ranking among Global 500

The latest Fortune Global 500 list was released by Fortune magazine at its website on the evening of july 22, 2015. CEFC China Energy Company Limited was ranked 342th with its revenue of USD 34.699 billion, climbing seven places after joining the list for the irst time in 2014. It is also the only private enterprise in Shanghai that entered the list this year.

its staff members based on the accomplishment of each member entity. Its headquarters is dedicated to strategic and inancial control while its subsidiaries operate with partnership. Its rigid market-oriented operation drives increased focus on core businesses, employee’s professionalism, assets securitization and delicacy management.

CEFC China Energy Company Limited is a private collective enterprise with energy and financial services as its core business. Founded by Ye jianming in 2002, the company seeks to serve the national industrial interest by building a modernized “economic community” to compete as a multinational enterprise with the strategy to expand cooperation in the international energy economy and achieve inluence in the energy industry. CEFC China Board of Directors, established in 2006, leads the company through a “three-tier meeting” system with an operational structure also consisting of three-tiers. The company has three group companies, eight tier-1 subsidiaries and an A-share listed company, and has acquired shares of several foreign public companies, totaling a workforce exceeding 20,000 people.

Pursuing its business philosophy of “Arising with Strength and Achieving with Goodness”, CEFC China fully sponsors China Energy Fund Committee, a non-governmental organization in Special Consultative Status with the UN ECOSOC, to conduct energy and public diplomacy and international energy research. It has joined hands with the United Nations to launch UN-CEFC Grant on Energy for Sustainable Development. The company is also committed to promoting philanthropy through CEFC Shanghai Charity Fund and to advancing Chinese culture with China Academy of Culture, ensuring sustainable development for the company and the community, with an aim to become an enterprise of the people, of the community, and of the nation.

Through an innovative business model, CEFC China integrates “entrepreneurship, Confucianism and military-style regimentation” into its business operations and forms an organized and peopleoriented “economic community”. Complying with the principle of “one company, two systems”, it deploys unique internal control and performance evaluation mechanism, rewarding and incentivizing 42

Fortune Global 500, published annually by Fortune magazine, is the most prestigious ranking of the top 500 corporations worldwide as measured by revenue. This year, the threshold of entering the list was raised by USD 500 million, standing at USD 23.72 billion. The total revenue reached USD 31.2 trillion, up by 0.49% compared to last year. (Source: CEFC China Energy Co., Ltd.) 43

Business

Business CEFC China Energy journal

CEFC China Energy journal

Plunging Coal Prices Trigger a Wave of Corporate Restructuring

Kong Jueting Coal prices in China have dropped to their lowest point in a decade, causing the profits of many coal enterprises to decline. Some enterprises in Inner Mongolia – one of the largest coal mining areas in China – are seeing an opportunity for revival. The Coal Sector Is Starting to Restructure The collapse of coal prices put many small and medium-sized coal companies under pressure, and left such enterprises desperately in need of restructuring. On july 21, the Inner Mongolia Mining Group (IMMG) signed a merger agreement with the Huomei Group.1 After the agreement was signed, IMMG will grant absolute operational control to Huomei. This is the irst merger and restructuring of state-owned coal enterprises in China. Guo Yinquan ( 郭银泉 )，Deputy Director of the Inner Mongolia Coal Industry Bureau, explained that shrinking demand, severe competition with imported coal, and excessive production capacity in China’s coal market are the three main reasons behind the current trend of mergers and acquisitions. Additionally, the coal industry was already struggling with weaker demand due to a 44

softening economy and government measures to reduce pollution. The Restructuring Trend Looks Unstoppable Consolidation is also occurring in coal mining industries in other provinces. This restructuring is aimed at reducing dependence on coal in China. According to the National Bureau of Statistics, China’s coal production in the irst half of 2015 fell to 1.72 billion tons, a 7.4 percent reduction, yearon-year. China’s coal sales, meanwhile, plunged by 8.06 percent, to 1.62 billion tons. Although data shows that coal production has decreased, shrinking demand still led to high inventories, further pushing down prices. At the same time, the proit margins of China’s coal enterprises have declined monthly since the beginning of this year. The average profit was 4.07 billion Yuan per month in the first quarter of this year, followed by 3.21 billion Yuan in April and 1.44 billion Yuan in May, according to data released by the China National Coal Association (CNCA). While CNCA found that some listed coal enterprises which enjoyed competitive advantages were better off, it found that most coal enterprises were suffering notable losses.

Coal giant shave also suffered large losses. According to the China Shenhua Group, the world’s largest coal producer, its net proit for the irst half of 2015 dropped by 50% year-on-year. Another coal mining company, Kailun Group, one of the world’s top 500 enterprises, also estimated a 150200 million yuan loss for the same period. It is predicted that if the coal output continues to grow and more coal mines are built, coal prices may plunge further which spur more and more mergers and acquisitions to take place within the coal sector. The coal market research report in China also found that most of the small-sized coal enterprises in Northern Shaanxi, Shanxi and Inner Mongolia in China were unproitable, meaning that most of them may face bankruptcy if coal prices continue to fall. Opportunities and Challenges Lie Ahead The market follows the principle of “survival of the fittest”. Weak enterprises are being forced to make the decision of either closing down their businesses or merging with others. Restructuring of

the coal sector appears to be an unstoppable trend. This will create new opportunities and challenges for the coal sector. Wang Xianzheng ( 王显政 ), President of CNCA, spoke about coal’s future at the opening ceremony of the China Coal Trade Fair, which was held in Shaanxi on july 23. He stated that China’s strategic shift to pursuing slower, healthier economic growth, together with the coming revolution in energy sources, to ensure that China’s coal industry will have to embrace a period of restructuring and upgrading. In order to survive, coal enterprises will have to transform their business strategies, focusing on technological innovation, quality control and strategic thinking. For Mr. Wang, the earlier they start this transformation, the easier it will be for the companies to retain their competitiveness.

. Huomei is a state-owned coal mining enterprise headquartered in Tongliao City, Inner Mongolia. It is backed by the Chinese government. 45

Business

Business CEFC China Energy journal

CEFC China Energy journal

The constant fall of oil prices is undoubtedly good news for vehicle drivers, but not for oil refineries. Some domestic oil refineries have suffered huge losses – as high as 489.06 yuan per tonne. Large oil refineries have not been spared from falling proits. The latest news is that Sinopec, Asia’s largest oil reiner, plans to cut production in the fourth quarter of this year, as well as reduce its monthly oil processing capacity by 100 tons. International Oil Prices Continue to Drop as Worries about Oversupply Spread Recent highs for the U.S.dollar enabled the U.S. to increase their stockpile of crude oil. At the same time, the number of U.S. oil drilling platforms in operation has been growing for two weeks. However, oil demand is still weak. During this period of low oil-prices, unfavorable market factors have led to a downward trend of oil futures in the U.S. and Europe. On August 3, the price of Brent oil futures fell below 50 dollars for the irst time in six months, to 49.52 dollars a barrel. Worse still, it dropped further to 49.22 dollars a barrel on August 13. Meanwhile, the closing price of the West Texas Intermediate (WTI) cracked 42.23 dollars a barrel, the lowest since March 20.

Local Reineries Suffer Heavy Losses from Plunging Domestic Oil Prices Wu Li

As international oil prices continue to fall, China’s maximum retail price for domestic oil has been cut again. China’s retail oil price, which is set by the central government, experienced five consecutive reductions for the irst time in 2015. 46

As reported by Reuters, U.S. crude oil futures dropped by 21% in july, the worst monthly drop since the 2008 inancial crises. Additionally, Brent oil futures dived 5% on August 3 – a steep fall for ive weeks. Domestic Oil Prices Experienced the Fifth Consecutive Decline for the First Time This Year, a Trend Likely to Continue On August 19, China’s domestic retail prices of gasoline and diesel were cut again. Gasoline fell

by 210 yuan per tonne and diesel by 205 yuan per tonne. Domestic oil prices experienced their fifth consecutive reduction since june, and the eighth reduction this year. Because international crude oil futures collapsed on August 3, and dropped even further in the following ten days. Under current conditions, domestic oil prices have experienced its ifth reduction since this year. China’s refined oil price is adjusted every ten working days.The latest adjustment was announced at midnight on August 18th. Analysts said that, in the short term, the oversupply of crude oil in the market – driven in part by OPEC’s decision to maintain high production quotas – will continue to pressure crude oil prices. Consequently, reined oil prices are also expected to stay high. Oil and Gas Enterprises May Suffer Further Losses Oil and gas enterprises are being squeezed by plunging oil prices and a weakened domestic refined oil market. Some analysts said that local refineries in Shandong Province are currently bearing huge losses. The reineries in Shandong use Shengli Oil for their crude oil, and by August 4th, the profit of oil refining declined by 489.06 yuan/ per tonne.This is a 52 yuan drop in proits from the last price adjustment. It is possible that reineries in Shandong may cease operating in order to prevent further losses. On the other hand, low oil prices offer some beneits for China, such as offering an opportunity to upgrade domestic oil quality. Previously, upgrades made to improve oil products quality were only made slowly, since in the past upgrades had raised oil prices and overall demand for high quality oil was low. Today, since oil prices remain at low levels, the government may seize the opportunity to eliminate obstacles to an upgrade of oil product quality. 47

Business

Business CEFC China Energy journal

CEFC China Energy journal

Highlights from CNPC’s Overseas Oil and Gas Cooperation

Li Chunhui Despite difficult market conditions, China National Petroleum Corporation (CNPC) has made signiicant achievements in its overseas oil and gas cooperation during the irst half of this year. The following are some examples of CNPC’s achievements during this time frame: * 10 of the 30 engineering, procurement and construction contracts for the third phase of the Iraq Halfaya oil project have completed their public bid process. * Construction is progressing smoothly for the Bazaj gas compressor station, which is located in the southern Kazakh section of Central Asia-China natural gas pipeline. * All sub-stations of the China-Myanmar gas pipeline have been put into full operation. * The 300,000-ton crude oil channel of the Sino-Myanmar Crude Oil Pipeline Project located on Maday Island was completed ahead of schedule and began its operational trials. * As of the end of june 2015, newly discovered proven oil reserves accounted for 58.9% of CNPC’s 2015 target. The equity oil and gas output reached 37.353 million tons of oil equivalent - 55.3% of the 48

2015 target, and an improvement of 18.6% from 2014. Key projects are also progressing as expected: * The capacity expansion of the Amu Darya River Gas Company power plant was completed on schedule. * The Venezuelan MPE3 project’s dehydration desalination plant, which has a capacity of 40.000 barrels per day, has begun operating.

expenditures, control costs, improve efficiency, augment reformative measures and promote better management. The company is striving to increase sales, particularly in projects with the Nile Company, the Andes Project, the Oman Project and in Chad. In particular, though, CNPC has been dedicating itself to cost reduction, by re-negotiating business contracts, dismissing staff, and carrying out assessments of production eficiency. Over the first half of 2015, the unit operation cost, unit total cost and unit cash cost of CNPC’s overseas oil and gas business decreased by 22.9%, 31.2% and 36.6% respectively, due to low prices of oil. Nevertheless, CNPC’s overseas affiliates and divisions, including Petro-Kazakhstan, CNPC America Ltd., CNPC Iraq Branch, and the Amu Darya River Gas Company in Turkmenistan are all also committing iercely to cost control.

Contract re-negotiation has taken place in 24 projects, including the Yamal LNG Project, Block 37 of the South Sudan Project, the Mozambique Project, and the United Arab Emirates Land and Sea Project. Putting cost reduction and operational efficiency at the heart of business enables CNPC and its overseas affiliates to benefit from rehabilitating old oilfields, enhancing oil recovery factors and increasing production efficiency. The next round of reform sat the company will be targeted towards discovering oil and gas reserves with high exploitation efficiency. When planning its investments, the company will take into consideration practical circumstances such as project workload, risk levels and lead time. These are the foundations on which CNPC expects to fulfill its annual overseas oil and gas exploitation and production target.

* The Sufian oilfield in Block 6 of Sudan has started exporting oil. * The North Iran Azad Gan project is undergoing the last phase of testing. * Over half of the obstacle-removal project has been completed in Block 37 of South Sudan. Although the company is facing the severe decline in international oil prices and a downward trend in equity investment, it still achieved steady growth in oil and gas output, and met other targets. This can be attributed to the company’s proactive response to the dificulties in the market. CNPC has been employing a variety of methods in response to market conditions. It is seeking to broaden its sources of income, reduce 49

Energy Security

CEFC China Energy journal

Developing a Comprehensive Energy Security Strategy for China Zhu Xuerui

In April and june of this year, China was the world’s top net importer of crude oil. This status demonstrates the extent of China’s growing dependence on imported crude oil, which is becoming both a security concern and an environmental problem for the country. Experts are urging the government to adopt a long-term strategy to secure China’s energy supply and its environmental health. China’s energy experts say that the country’s energy imports will continue to remain high in the near term. This can be attributed mainly to domestic energy consumption patterns which are high and cannot be easily changed. Furthermore, new energy technologies – which could help lower the need for imports, and which offer strategic and environmental advantages – have still not achieved competitive prices. Unfortunately, these factors make it difficult for China to develop its strategic oil reserve, which experts still deem inadequate. The current situation also makes addressing environmental issues more challenging. Nevertheless, experts believe that there are steps that China can take to develop a more comprehensive energy strategy. Statistics for the irst six months of 2015, released by the National Energy Administration (NEA), evidence the trend of increasing import of energy resources. By the end of june, total imported crude oil reached 160 million tons – a 7.5% increase from the 50

same period of the preceding year. Natural gas imports increased by 5.5%, to 30.4 billion cubic meters. Looking at the main macroeconomic and energy indicators, Liu Qi ( 刘琦 ), the Deputy Director of the NEA, predicted that energy demand in the second half of this year will continue to rise. Annual energy consumption is also expected to maintain a medium-to-low rate of growth. China’s overall dependency on imports to meet its energy needs is also expected to grow slightly. In its annual report on the state of the oil and gas industry, the Economics and Technology Research Institute– an afiliate of the China National Petroleum Corporation (CNPC) – stated that China will import approximately 60% of the oil it needs to meet demand in 2015. Demand was calculated to reach as high as 534 million tons by the end of the year. Currently, China accounts for about 23% of the world’s total energy consumption, ranking as first in the world. Because of this, Wang Zhen 王震 , Deputy Director of the CNPC Policy Research Ofice, said that China’s policy on crude oil imports will begin to draw more international attention. Accordingly, China can be expected to have growing inluence in the global oil market. The world’s decreasing appetite for crude oil has motivated oil exporting nations such as Saudi Arabia and Iran to shift their exports to China. This is

another reason behind the recent increases in China’s crude oil imports. More importantly, experts have advised China to take advantage of this situation. Given the current, ample supply of crude oil in the global market, China, as the largest oil buyer, is in a position to improve its bargaining power in crude oil trading. Experts have also suggested that China diversify its oil imports, in order to guarantee stable and manageable crude oil sources. One way China can accomplish this is through the “Belt and Road” Initiative. China is already planning to establish and expand more secure oil import channels with its neighbors and the Middle East. The “Belt and Road” Initiative can thus help realize a diversiied, secure, and sustainable energy supply for China. With the exception of April and june, when it was surpassed by China, the United States has typically been the world’s top net importer of crude oil. According to Niu Li 牛犁 , Director of the Macroeconomic Research Section of the National Information Center, the high volume of U.S. crude oil reserves helps to limit its need to import oil. He said this was one reason why he did not find surprising that China’s imports have begun to occasionally surpass those of the U.S. The ability to limit imports is one important function of a strategic reserve. Niu Li explained another important reason for a well-developed strategic reserve: “Crude oil is a necessity for human life. It must be purchased regardless of its price.” He and others experts have advised that China should stockpile as much oil as possible now that oil prices are low. International crude oil prices declined by 60% between june 2014 and january 2015. Yang Guang 杨光 , a research associate at the Chinese Academy of Social Science, also believes that China should take advantage of the collapse in oil prices. He believes that the current

situation can help China meet its goal of holding 100 days’ worth of consumption capacity in its oil reserves. The environmental consequences of oil consumption and oil imports must also be addressed. Heavy smog, caused in part by the burning of fossil fuels, has led to growing environmental problems in China. These environmental problems also pose security risks. Because technology can help to prevent and overcome environmental problems, it is imperative to accelerate the pace of technological innovation. China must prioritize the development of new, low-cost energy technologies, as well as improved energy eficiency. For example, China still lacks advanced domestic shale oil technology. Acquiring this technology can help China’s domestic shale industry develop; in turn, this will promote China’s energy independence. Accordingly, the government should encourage more public and private investment in energy innovation. Other problems will require not only technological innovation but also the implementation of energy conscious public policy. One example is the growing popularity of SUVs. Last year, more than 23 million vehicles were sold in China and 4.1 million were SUVs, which are notorious for their high fuel consumption, and thus directly contribute to the need for oil imports. Appropriate taxes or incentives could be used to curtail the use of SUVs. Energy experts are in agreement in the urgent need for a more comprehensive, forward thinking, and coherent energy security strategy. China’s strategy should prioritize the development of the strategic oil reserve, take into account market circumstances, promote technological development, and make use of public policy to help meet the nation’s objectives. 51

Technology

Technology CEFC China Energy journal

CEFC China Energy journal

Lithium-ion batteries (LIB) are the heart of the electric vehicle. As such, the development of battery technology is crucial in making electric vehicles accessible and feasible in everyday life. As demand for electric vehicles in China soars, the need to develop a roadmap for LIB technology has become apparent. On july 29, CCID Consulting, a Chinese consulting irm working under the Ministry of Industry and Information Technology, released a white paper on China’s LIB separator industry. The paper includes in-depth research on the market scale and competitive landscape of both China’s and the world’s LIB membrane industry. It also evaluates the competitiveness of China’s LIB membrane enterprises by comparing various indexes. Finally, it examines the future development of China’s LIB membrane industry. The paper is based on extensive research conducted by CCID on the whole electric vehicles industry chain. The paper predicts that, in the coming years, China will become the world’s largest producer and consumer of LIBs. The paper also claims that, in terms of vehicle LIB techniques, wet membrane products will play a key role in future competition within the membrane industry.

White Paper Offers Insights on the Future of China’s Lithium-Ion Battery Industry Liu Yanlin

The paper also predicts that the future focus of the membrane industry will be on the development of thin and light weight membrane products, coating technologies and matrix materials. The paper explains why these will be the industry’s areas of focus: thinner membranes allow more electrode material to it within a designated space, while coating technologies allows membranes to maintain their integrity after repeated charging and discharging cycles. The latter can also

improve the temperature resistance of the membrane, and helps to ensure its safety. The development and application of new materials helps to resolve concerns over the safety of high-power batteries. A dry membrane is thicker than a wet membrane, but the yield of a dry membrane is higher (60%70%) than that of a wet membrane (50%). Dry membranes account for 90% of the gross production of membranes in China, and 80% of world production. About 30% of electric vehicle manufacturing enterprises in China are using domestically produced membranes in their batteries. According to the paper, the coming years will see wider use of domestically produced LIBs in electric vehicles. Due to the incredible growth in the electric vehicle market, the demand for LIBs is expected to double. The paper estimates that, by 2018, world production of medium and large LIBs will break 400 GWh to 425.5 GWh. The key to seizing the battery market for new energy vehicles is to improve the performance and reduce the manufacturing costs of batteries. Enterprises with cuttingedge technologies and a strategic industry layout will enjoy a large reduction in manufacturing cost. This reduction may surpass the amount of subsidy they will receive. More importantly, membranes have high gross margin in the battery industry. The greater the efforts China exerts to develop the battery industry, the greater the capital attracted by the market. This will lead to intense competition in the industry, which will drive innovation in battery technology. 53

Planet

Planet CEFC China Energy journal

CEFC China Energy journal

▲ Sha Zukang

▲ Al Gore

the former UnderSecretary-General of the U.N. Department for Economic and Social Affairs

the 45th Vice President of the United States

▲ Hu Deping the President of the China Biodiversity Conservation and Green Development Foundation

Sino-American Cooperation Paves the Way for Blue Skies Wang Haixia and Kong Jueting

degrees.

Smog is not a problem unique to China. Many developed countries have been struggling with the problem for decades. Despite those decades of effort, some have yet to conclusively eradicate the problem. Others have obtained success to varying

The United States, for example, has struggled with smog since the 1950’s. The city of Los Angeles is a recognizable and illustrative case. While decades of war against smog have resulted in noticeable improvements in air quality, the city still

▲ Cui Yi Associate Professor at Stanford University’s Department of Materials Science and Engineering

▲ He Kebin Director of the School of Environment at Tsinghua University

compares poorly to other urban areas. Fighting smog is a global problem and a common experience for governments around the world. Seeking to share and learn from each other’s experiences in that fight, politicians, experts, and entrepreneurs from China and the U.S. recently met at the China-U.S. Clean Air Conference, which took place on july 24-25, in Beijing. From “Red Engine” to “Green Engine” At the conference, Hu Deping ( 胡德平 ), the

▲ James M. Lents the former Executive Officer of the South Coast Air Quality Management District

President of the China Biodiversity Conservation and Green Development Foundation, spoke of a transition from a “red engine” to a “green engine”. He explained that, over the past three decades, China has been a locomotive of highspeed economic development–a “red engine”. While the gains this engine has produced have been enormous, the engine itself has not been very efficient, producing significant externalities in the form of high pollution, carbon emissions, and energy consumption. But, Mr. Hu said, China has begun to transition to a “green engine”, and is now striving for economic growth through the use of low carbon strategies. 55

Planet

Planet CEFC China Energy journal

Following Mr. Hu’s remarks, Sha Zukang ( 沙祖康 ), the former Under-Secretary-General of the U.N. Department for Economic and Social Affairs, spoke of the difficulty of adopting a preventative strategy for pollution. Mr. Sha discussed the mistakes made by developed countries, which adopted a “pollution irst, treatment later” mentality. Ultimately, he argued, this approach proved to be short-sighted and difficult to correct. China was fortunate enough to recognize, in advance, the risks associated with the “pollution irst” approach. But despite its efforts to avoid those risks, it still fell into the same trap that had already ensnared the developed countries. In order to transform its development model to a green-growth model, the Chinese government has begun to enact its green development strategy. For example, China has developed and begun to enforce environmental protection laws, described by some as the toughest environmental laws in the world. Thanks to these efforts by the Chinese government, the fight against smog has already produced some results. According to a report published by the Ministry of Environmental Protection, in 2014, total emissions fell by 2.47 percent compared to the prior year. Ammonia nitrogen emissions declined by 2.9 percent yearon-year, while emissions of sulfur dioxide and nitrogen oxide dropped even further, 3.4% and 6.7% respectively. Emissions in Shanghai, Beijing and Hebei dropped dramatically last year. The average PM2.5 density in the Beijing-TianjinHebei region dropped by 22.1 percent in the irst half of 2015, compared to the same period of the preceding year. He Kebin ( 贺克斌 ), Director of the School of Environment at Tsinghua University, pointed out that “despite the tangible achievements we have made since China implemented Air Pollution Control 56

CEFC China Energy journal

Action Plan in 2013, we should also be aware of the daunting task that remains ahead. If China wants a future of blue skies, it has to overcome huge challenges in its economic and energy structure. This will require both transformation and optimization.” The U.S. Experience of Combating Smog In 1970s, the U.S. experienced the problems similar to the ones China is facing today. As the world’s most developed economy, the U.S. suffered from fatal air pollution caused by both industrial discharge and vehicle exhaust. Thanks to the Clean Air Act, which was enacted in 1963, air pollution in the U.S. has improved considerably. According to the latest reports, U.S. air pollution has been reduced by 70% over the past 40 years. Signiicantly, during this same period, the economy still doubled in size. Al Gore, the 45th Vice President of the United States, attended the conference and delivered a lively speech. Mr. Gore said that fossil fuels consumption, which increased sharply after World War II, has led to serious consequences for climate and the environment. Mr. Gore said that the world needs to undergo a major shift in energy consumption patterns, and use more clean energy. The problem of smog, he concluded, needs to be eradicated at the source. james M. Lents, the former Executive Officer of the South Coast Air Quality Management District, said that although air quality in Los Angeles is better than in Beijing, there is still room for improvement. He suggested that technology and innovation will help to further reduce smog in Los Angeles. On the other hand, he said that the willingness of the government and the public to undergo further change remains uncertain.

With regards to cutting smog in China, Mr. Lents said that the country “can draw from plenty of lessons learned in other countries.” The list of solutions discovered thus far includes application of sophisticated air cleaning technology, implementation and execution of environmental laws, and regional clean air cooperation. Mr. Lents believed that the solutions adopted in the U.S. and other developed countries can be applied just as effectively in China. He Kebin, however, expressed some pessimism about Mr. Lents’s conclusions. Mr. He thought that China’s unique characteristics may hinder the country’s ability to imitate Western methods of curing smog. He gave three principal reasons for this view. First, Mr. He explained, China still has a large economic gap between its eastern and western regions. This reduces the incentive to minimize industrial activities and their related emissions. Second, unlike the U.S., China still has an uneven distribution of terminal energy consumption. Industrial activities dominate two-third of China’s total energy demand, and there is no indication that industries will commit to cutting their emissions. Third, although the Chinese government has put forward a target for air pollution control and lowcarbon development, the country does not yet have a clear pathway to achieving that target. Mr. He concluded that environmental problems are significant for us all, and this challenge should be tackled not only by advanced technologies, but also by efforts from all mankind. The War on Air Pollution Calls for Innovative Technology Because the world’s pollution only continues to grow, the need for new energy sources is urgent. Therefore, replacing fossil fuels with alternative energy sources, such as solar, wind, hydro and nuclear power, is essential to secure our future. Innovative technologies are crucial in making a

transition to alternative energy sources possible. Cui Yi ( 崔屹 ), Associate Professor at Stanford University’s Department of Materials Science and Engineering, and one of the world’s most highly cited scientists, shared his views on air filtration technology. Mr. Cui said that his current research focuses on the deployment of nanomaterials for energy storage, photovoltaics, insulators, and biological and environmental services. His group has developed a new nanomaterial filtration fiber, which can effectively capture PM2.5 under a variety of conditions. The material has a breadth of potential applications, ranging from industrial and automotive exhaust to hospital and indoor air filtration. He compared the process of tackling air pollution to the journey of discovery for alternative energy sources. Accurate and reliable air quality data is an essential prerequisite to formulating informed strategies and decisions to reduce air pollution. Sun Kai ( 孙凯 ), Chief Scientist of Hesai Photonics Technology Co., Ltd, demonstrated his ultrasensitive absorption sensors, which use enhanced techniques for ambient air quality monitoring. According to Mr. Sun, the system can be tailored to work with a variety of air pollution sources. A Future of Blue Skies China is not alone in dealing with smog. It is a problem around the world, and one that can be tackled more effectively through conversation and collaboration. The attendees of the conference agreed that advancements in technology, together with increased public awareness, legislation and scientific governance, will be key in resolving air pollution problems. Ultimately, they closed the conference with the belief that these solutions, applied together, will make a permanently blue sky possible. 57

Foresight

Foresight CEFC China Energy journal

CEFC China Energy journal

During his visit to China in early August, Adam Sieminski, the Administrator of the United States’ Energy Information Administration (EIA), discussed his views on a variety of global energy topics. This article presents his views on oil price projections, oil and gas development, and the future of energy in China and around the world.

Projection on Oil Price

When we speak of oil prices, it is important to remember that we refer mainly to the indicators in the New York and London future exchanges. These are the world’s preeminent markets for trading futures. After decades of development, many models have been adopted to predict oil prices. The EIA uses the Black-Scholes model – a model designed to estimate the values of options – to predict the volatility of oil prices. According to that model, international oil prices will fluctuate between $30 and $100 (USD) per barrel.

Administrator of the U.S. EIA Shares His Views

On the Present and Future of Energy, in China and the World Wang Haixia 58

How could the price of oil possibly rise to $100 per barrel again? The answer is that, in the short term, surplus oil production capacity is actually very low. Most of this capacity lies in the Middle East, where it is used to stabilize oil prices in Saudi Arabia. On the other hand, how could oil prices drop to $30 per barrel? There are many possibilities. First, the level of inventory around the world may still be very high. Second, oil prices may be affected by changes in the world economic situation. For example, both China and the United States are currently experiencing an economic slowdown.

Third, oil production will be increasing in OPEC countries such as Iran. Under the new sanctions, Iran could produce an additional half-million to possibly a million barrels per day. It is unclear whether such level of demand exists in the world market, but oil prices would definitely fall in the event of an over-supply. In any case, world markets are seeking to rebalance oil supply and demand, so oil prices are expected to begin to recover by the end of 2016.

Oil and Gas Development in the United States

The United States, the world’s largest oil and gas producer, has recently begun to reduce its oil production. Since 2012, energy demand in the U.S. has increased only slightly, mainly due to slow growth in the economy and the population. For primary energy consumption, we can see substantial growth in renewable energy and natural gas, while coal consumption has been relatively stagnant. In response to plummeting oil prices, the U.S. government has adopted a series of measures, such as the “Clean Power Plan” proposed by the Environmental Protection Agency. After the plan was put in place, coal consumption fell by about 12% in 2014, while renewable energy and natural gas consumption increased. Under this plan, the U.S will strive to develop cleaner energy, catering to an increasing demand in renewable energy and natural gas. In recent years, amidst the technological advancements in drilling and extracting shale gas, shale gas production in the U.S. has increased significantly. With this additional supply, exports to neighboring countries, such as Canada and 59

Foresight CEFC China Energy journal

Mexico, will continue to grow. By 2017, the U.S. may no longer import any oil at all, which would affect the world market dramatically. In fact, the U.S. may begin exporting LNG to China, Europe or other countries around the world, and become a net exporter of natural gas in one and a half years.

International Outlook in World Energy Consumption

In light of economic transformation and the ight against climate change, world energy consumption trends are changing. The EIA has projected that oil will continue to be the world’s predominant fuel up to 2040, while natural gas consumption will continue to grow. Coal consumption will also increase, mainly due to high demand in China and India. According to a recent report released by the Chinese government, coal consumption will reach its peak of 4.7 billion tonnes in 2030; thereafter, it will begin its decline. Unsurprisingly, with the transition to sustainable development, the newer energy are expected to dominate the world market. Renewable energy such as solar, wind and hydro power will continue to play a key role across the world. Nuclear power will also increasingly become a part of the energy infrastructure in countries with energy shortages, such as China and japan. Currently, the world’s largest oil producers are the U.S., Canada, Russia, and China. China is producing almost ive million barrels of oil per day, making it a world-class oil producer. Nevertheless, as the largest developing country with the second largest economy, oil consumption still exceeds production in China, thus requiring it to import. According to EIA’s projections, oil consumption in China will double that of the U.S. by 2040, 60

and China will become the world’s largest net oil importer. The dominant producers of natural gas are the U.S. and Russia. Comparatively, China is on a much smaller scale, since shale gas exploration is only just beginning. However, despite having proven that China has, possibly, the world’s largest shale gas reserve, the country’s geological structure and other technological complexities make it difficult to extract. Nevertheless, with improved technology, development of shale gas in China will deinitely be a possibility in the future. Currently, China is the world’s leading coal producer, followed by the U.S., India and Australia. However, with its intention to transform from an industrial economy to a service economy, China is actually limiting its high dependence on coal consumption. As a result, coal production will begin to decline in China as alternative forms of energy are used. In the nuclear energy market, United States is currently the largest producer, followed by France. Looking ahead to twenty five years from now, however, China may become the world’s largest nuclear power producer, exceeding the U.S.. There is already a lot of bilateral cooperation between China and the U.S. on nuclear issues today. There is no question that China plays and will continue to play an important role in the energy market. China is entering a new stage of energy development, by transforming its energy infrastructure and improving energy efficiency. This requires collaboration with other international energy nations – not only with the U.S., but also with other countries in the world. Overall, the trend towards sustainable development will dominate the market. In the long term, the price of oil, regardless of its volatility, is expected to have little effect in this evolving global energy market.