CEFC China Energy Journal March 2016 Issue 11 by China Energy Fund Committee

CONTENTS

March 2016, Issue 11

Energy Situation in 2016

8 4

48 58

43 Editorial 编者的话

Figures 数字 China to Cap Energy Consumption in 2016-2020 Period 中国规划 2016—2020 年能消费总量

Editorial 编者的话 China’s Energy Enterprises “Going Out” Again, Refreshed 中国能企业“走出去”再出发

CNPC Technological Innovation

Employees Resettle?

Opinion 观点

China’s Energy Intensity Falling Fast 中国能强度下降较快

Opinions on Energy Situation in 2016 张国宝：我对 2016 年能形势的几点看法

China Sets Targets for Local Renewable Energy Use 中国出台地方可再生能使用目标

Clear Obstacles and Strive for CBM Development 为加快煤层气发展加油清障

China Plans 30 Overseas Nuclear Power Units by 2030 到 2030 年中国计划出口 30 台核电机组

Policy 政策

China’s Energy Internet Roadmap Unveiled 中国能互联网顶层规划出台 Railways Freight Charge on Coal to be Significantly Lowered 煤炭铁路运价下降趋势形成

Major Events 主要事件 Two National-level Power Exchange Centers Established 两大国家级电力交易中心成立

Business 商业

Chinese Local Refineries Brace for New Opportunities 中国地方炼厂迎来发展新机遇

“Going Out” Again

Cover Story 封面文章 “One Belt, One Road” Initiatives Pave Way for China’s Energy Firms “Going Overseas” “一带一路” 铺路中国能企业“走出去”

Dialogue 对话

NEA Head Nur Bekri Discusses Hot Energy Topics 努尔·白克力纵论能热点议题

Hydropower Development How 1.3 Mln Employees in Coal Sector Resettled amid Overcapacity Cut Drive? 煤炭行业去产能 130 万员工如何安置成焦点

Energy Security 能

安全

China’s Annual Energy Consumption Forecast down to 1.4 Percent in Next 15 yrs 中国能需求增长放缓未来 15 年平均增速 1.4%

Technology 科技 CNPC Stays Strong in International Stage through Technological Innovation 中石油凭借技术创新闪耀国际台

Planet 地球 Shanxi Refreshes Image via New Understanding of Coal 重新认识山西需要重新认识煤炭

Foresight 前瞻 Bright Prospects Expected for Hydropower Development in the World 全球水电发展仍大有可为

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CEFC China Energy Journal

visibility of Chinese brands. 3. Expanding financial channels for domestic markets and overcoming international barriers to trade. 4. Acquiring resources and raw materials, including for the purpose improving China’s energy security. 5. Securing China’s political and diplomatic objectives, including promoting global stability and peace.

China’s Energy Enterprises “Going Out” Again, Refreshed By Dr. Patrick C. P. HO China’s Going Out policy seeks to promote the overseas expansion of Chinese firms. The policy’s objectives are primarily economic, with an eye to securing China’s long term growth. The policy has, however, also been seen as a means to secure political, diplomatic, and national security objectives. An analysis of the policy’s history reveals that it has achieved significant economic success, but failed to realize non-economic targets. Going forward, the focus of the policy should thus be dedicated to both realizing overseas commercial success and establishing a network of partners and friends in foreign countries.

leadership recognized that its growing foreign exchange reserves presented an opportunity to promote the overseas expansion of Chinese firms. The leadership recognized that overseas growth of Chinese firms would serve as a foundation for China’s future economic growth. At the same time, leaders also recognized that reaching out overseas could help realize a more comprehensive set of objectives. 1 Thus, the original scope of the Going Out policy was broad. Among the policy’s original objectives were: 1. Creating new markets for Chinese products, which would help to distribute excess production capacity.

A Brief History of Going Out The Going Out policy began to take shape around the turn of the millennium. Chinese 4

2. Acquiring technology, expertise, and branding, which would serve to improve the level and quality of products, as well as increase the

6. Diversifying risk and maximizing return for investment of foreign exchange reserves. 2 In seeking to realize these objectives, the policy expanded rapidly over the course of the last ifteen years. In 1991, years before the policy was announced, China’s foreign direct investment (FDI) amounted to only USD $3 billion. By 2003, this igured had grown to $35 billion; a decade later, it reached $85 billion. 3 Given all this investment, how has the policy fared so far? Since it was first announced some fifteen years ago, Going Out has achieved significant successes and suffered humiliating disappointments. An analysis of the policy’s history reveals an important lesson: the most successful aspect of the policy has been its pursuit of commercial success. On the other hand, efforts to translate overseas achievements into national energy security have been largely frustrated. A Closer Look at Energy Security China’s government has expressed concern over its dependence on foreign oil – in particular for the consequences for China’s economy and national security in the instance of global instability or military intervention. 4

In response, China has looked to Going Out to help assure some of these insecurities. Chinese firms, it was seen, could use Going Out to pursue commercial success while also establishing some measure of energy security. In the case of instability, for example, China could direct its energy companies to ship oil directly back to China, rather than letting it enter global markets.5 Unfortunately, this dual focus for Going Out has meant a failure to successfully realize both objectives. In 2005, CNOOC, China’s third largest national oil company, sought to acquire UNOCAL, then the ninth largest oil company in the United States. The deal collapsed amidst a great deal of negative publicity, much to China’s disappointment. In response, China began to look elsewhere to invest, establishing operations in 42 countries, half of which were in Africa and the Middle East. 6 The events of recent years have cast doubt on these investments. Instability has plagued many of the countries where Chinese energy companies have attempted to “go out”. Civil war, terrorism, epidemics, and sanctions have meant that Chinese irms have not been able to produce either much oil or proit. 7 These experiences of Going Out contrast greatly with those made primarily with an eye to inancial soundness and commercial success. 8 Lenovo’s acquisition of IBM’s laptop business is one of many examples of a prosperous Going Out. 9 Chinese

Paul Nash, China’s “Going Out” Strategy, http://www.diplomaticourier.com/2012/05/10/china-s-going-out-strategy/. 1 Joel Backaler, 5 Reasons Why Chinese Companies Go Global, http://www.forbes.com/sites/joelbackaler/2014/05/06/5-reasons-why-chinese-companies-go-global/#78dc16ab67bf; Zhao Hongtu, The Myth of China’s Overseas Energy Investment, http://www.eastasiaforum.org/2015/03/04/the-myth-of-chinas-overseas-energy-investment/. 5

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expansion in the U.S. energy markets – which make more financial, than national security, sense – have also been successful ventures. CNOOC’s acquisition of Chesapeake Energy Corp.’s oil shale ields, or Sinopec’s acquisition of Devon are noticeable examples. 10 Going Out has thus had little direct impact on China’s energy security. In fact, according to the IEA, China’s energy companies’ current overseas production is now managed purely on commercial considerations. The Chinese government has not required its oil companies to ship overseas production back to China, with overseas production simply entering the global market. 11 Focus on Proits and the Rest Will Follow China should take heed of lessons learnt through decades of experience. First and foremost, it will be best for Chinese irms engaged in Going Out to focus primarily on commercial success – in other words, making investments primarily because they are proitable. Unlike raw materials or resources, which face logistical and security challenges, profits can easily be shipped back to China. These profits, in turn, can be reinvested both domestically and abroad again. Therefore, a Chinese energy company operating overseas, after acquiring interests in foreign oil and gas plays, instead of insisting on shipping the oil and gas back to faraway China, should consider if it would be more profitable to have the oil shipped to nearby reineries to be processed, and the inal products sold in nearby markets yielding profits which could then be easily wired home. This approach is not only better for the irms, but also for China and the global economy. Focusing on proits rather than resources might not directly contribute to China’s energy security, but there is an indirect impact. By increasing China’s presence on and its share of international 6

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energy markets, China earns a seat at the energy bargaining table. Furthermore, the expertise that China is developing in energy cooperation also contributes to its energy security. 12 There are other benefits to focusing on a commercial strategy with Going Out. Focusing on profits means improving competitiveness (technology, expertise, branding), finding new markets, and using resources efficiently. Chinese irms should also commit to upholding international norms, particularly those related to transparency and accountability. By meeting international standards, Chinese firms will earn a positive reputation, thereby becoming more competitive on international markets. In time, they will be respected and recognized as truly international enterprise and not merely as Chinese enterprises operating overseas. International Cooperation Guarantees Success Commerce is ultimately about win-win outcomes. By engaging in trade, two parties are left off better than they were before. As a result, commercial cooperation is a foundation for both development and global stability. For Chinese energy enterprises investing overseas to fully develop their potential, they must seek cooperation with other state enterprises, foreign companies, as well as other private enterprises. Competition is certainly important in market economy, but cooperation, especially international and inter-sectorial cooperation (such as that between government and businesses) is a successful theme for all seasons. Chinese enterprises going out must seek cooperation with others to build an ever bigger platform for their operation. Partnership with resourceful local stakeholders and authorities is particularly conducive to smooth and sustained business operations. Seeking out those with similar values to partner on joint

ventures, abiding with laws and local traditions, respecting third parties, and putting the interests of the country and its people irst and foremost – over short-term proit – are the necessary ingredients for success for Chinese energy enterprises investing in foreign countries. These principles are exactly those that underlie China’s One Belt, One Road Initiative, another component of China’s long term economic strategy, which espouses energy cooperation and joint ventures. The wisdom of the initiative is that it recognizes that mutual exchange ultimately helps countries involved develop economically; economic development, in turn, promotes stability and security. 13 An All-Win Situation Puts People First Finally, Chinese irms should temper their focus on commerce with a view towards long term growth and expansion. This means running sustainable business and, in particular being conscientious of

Center for Strategic and International Studies, Issue in Focus: China’s “Going Out” Investment Policy, http://csis.org/iles/publication/080527_freeman_brieing.pdf. 4 Taylor Land, China’s Energy Security: “Going Out” and Securing Foreign Oil Resources, https://expattmagazine.wordpress. com/2015/12/18/chinas-energy-security-going-out-and-securing-foreign-oil-resources/; Ellennor Francisco, Petroleum Politics: China and Its National Oil Companies, http://www.sciencespo.fr/ceri/fr/content/dossiersduceri/petroleum-politics-china-and-its-national-oil-companies. 5 IEA, Update on Overseas Investments by China’s National Oil Companies, http://www.iea.org/publications/freepublications/ publication/PartnerCountrySeriesUpdateonOverseasInvestmentsbyChinasNationalOilCompanies.pdf. 6 Gal Luft, Strategic Implications of Chinese Energy Policy, http:// www.the-american-interest.com/2015/02/03/strategic-implications-of-chinese-energy-policy/. 7 Id. 8 Joel Backaler, 10 Chinese Companies Going Global in 2015, http://www.forbes.com/sites/joelbackaler/2015/01/14/10-chi-

the local needs of overseas markets. Chines energy companies going out must bear in mind that resources belong to the local country and the country belongs to its people. A Chinese company investing in a foreign country must keep in mind and emphasize the value it can bring to that country and its people. For the Chinese company to win, so must the country, and the local people. Firms should respect the local people, culture, and environment in their overseas operations, and in general seek to earn the support and trust of local peoples by being mindful of their welfare and their points of view. In turn, a reputation will be built and gained in the local community, in which the Chinese company will be recognized and respected. This helps China win partners and friends, and thus further its soft power (political and diplomatic objectives). Profit, which comes in many forms and colors, is key to realizing the comprehensive set of objectives contained within the Going Out policy.

nese-companies-going-global-in-2015/#62d077f51a29. 9 Tim Bajarin, 10 Years Later, Looking Back at the IBM-Lenovo PC Deal, http://www.pcmag.com/article2/0,2817,2483557,00. asp. 10 Bloomberg, Sinopec Group to Buy Stakes in Devon Energy Oil Projects, http://www.bloomberg.com/news/articles/2012-01-03/ sinopec-agrees-to-pay-900-million-for-stakes-in-five-devonshale-projects. 11 IEA, Chinese National Oil Companies’ Investments: Going Global for Energy, http://www.iea.org/ieaenergy/issue7/chinese-national-oil-companies-investments-going-global-for-energy.html. 12 Xunming Qian, The “One Belt, One Road” Strategy and China’s Energy Policy in the Middle East, http://www.mei.edu/ content/map/%E2%80%9Cone-belt-one-road%E2%80%9Dstrategy-and-china%E2%80%99s-energy-policy-middle-east. 13 Ben Yunmo Wang, China ‘Going Out’ 2.0: Dawn of a New Era for Chinese Investment Abroad, http://www.hufingtonpost.com/ china-hands/china-going-out-20-dawn-o_b_7046790.html. 7

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Opinions on Energy Situation in 2016 By Zhang Guobao (张国宝)-- former director of the National Energy Administration and chairman of Expert Committee of National Energy Commission. If I were asked to use one word to describe the energy situation in 2016, I would pick the word of “surplus”, i.e.: energy products, such as coal and electricity, would remain in the situation seen in 2015. Oversupply and sluggish prices especially overcapacity of power would be more outstanding. The economic development has been in boom since the founding of People’s Republic China in 1949, especially since the reform and open-up policies announced in 1978. For most of the time, there was shortage of energy supply. As such, the priority of energy work is to increase the supply to fulill the growing needs. We are accustomed to this work style and thought pattern. However, the situation has changed recently, after years of continuous building and development. The total amount of energy output is already quite sizable. Due to the economic slowdown and weak demand, the situation of overcapacity in coal and electricity sectors emerged. Coal prices went down sharply, and the utilization hours of power generation equipment dropped year by year. The utilization hours of thermal power units reduced to 4,329 hours in 2015, which was a reduction of 410 hours as compared to that in 2014. It was also 1,200 hours lower than designed yearly utilization of 5,500 hours, which indicated a very low utilization rate. Based on this data, we are able to fulfill the 8

needs by improving equipment utilization rate without increasing installed capacity. Power consumption grew by only 0.5 percent in 2015, while the installed capacity of power equipment reached 1.506 billion kilowatt, an increase of 10.4 percent as compared to that in previous year. This brings the potential for further decline of utilization hours of power units in 2016. At a meeting by the National Energy Commission in early 2015, when I suggested being cautious about the oversupply of electricity, the leaders who were present said that some provincial officials even mentioned the possibility of power shortage and were trying to get approval for building new power plants. The trend seen in 2015 is very likely to extend to this year, that is, demand growth remains low. As the output for high-energy consumption products such as iron and steel is estimated to drop, there will be a negative growth in power consumption of the secondary industry. There will be growth in power consumption in the tertiary industry and residential electricity, but with only a maximum growth rate of 8 percent. Power consumption with the primary industry is likely to maintain at the same or be at a lower level, but it has a smaller proportion as compared to other industries. As such, we may see a negative growth in power consumption by the primary industry. However, the capacity of power

projects under construction remains high, and the newly-installed capacity would likely reach 100 million kilowatt in 2016, with a growth rate of 6.5 percent to 7 percent. This will lead to a further decline of equipment utilization hours, and the thermal power generating hours are expected to fall below 4,000 hours. Both equipment utilization rate and the rate for return on investment will drop. In this scenario, power plants will scramble to generate electricity. In order to cater for the survival of some newly-built power plants or already under operation, the utilization of wind, solar, hydroelectric and nuclear power may be affected. Without powerful scheduling, it is likely to see abandonment of wind, solar, hydro and even nuclear power, which in turn brings negative impact on clean energy. When predicting the power demand in the 13th Five-Year Plan period (2016-2020), some industrial associations still used the outdated elasticity coeficient process and assumed a high coeficient. As such, the forecast for power consumption growth may be high. Coal production capacity and output have accumulated to a high level. Considering the fact of underreporting and concealed declaration, the actual capacity can be higher than the oficial data held by the statistics bureau. It is estimated that actual production capacity of coal can be as high as 4 billion tonnes per year. As such, the oversupply situation was significant in the coal industry in 2015. Price at Qinhuangdao Port for 5500-Kcal coal fell below 400 yuan per tonne. Most coal enterprises had dificulties in operation, but implementation of de-capacity measures is not easy. Many enterprises were waiting for improvement of economic situation, which would bring a rise to demand. Very limited enterprises adopted measures to cut down production capacity. However, it has been a trend to cut the use of

coal, when the international community focuses on carbon emission and introduces measures for low-carbon development in economy and energy. The share of coal in overall energy production or consumption is unlikely to return to the previous level. Industrial associations should have an objective and clear understanding on this situation, and avoid giving false hope by saying that there is likely to be a marginal increase and a high coal demand in 2016. Facts will prove that this forecast will bring negative consequences on the restructuring of coal enterprises. There will be a downward trend with major coal consuming sectors in 2016. For example, total power output with the thermal power industry, which accounts more than half of the total coal consumption, will not increase despite rise in installed capacities. The generating hours of thermal power plants will drop, which will lead to a drop in coal consumption. In view of the slow process of de-capacity, it is dificult for the coal prices to rise in 2016. The coal prices are expected to remain low at about 300 yuan per tonne. The weak prices will expedite the progress of restructuring. Industrial associations should focus on restructuring measures. Firm control of production will be a solution to the coal industry. Due to the rigid demand of coal in transportation-related industries and no large-scale replacement of electric vehicles, the demand for crude oil will slightly increase in 2016. As there are limited storage facilities, it is unlikely to see huge amount of crude oil imports. The growth rate with crude oil imports is expected to slow down with annual imports at around 330 million tonnes. The rise in domestic crude oil production in 2015 brought significant losses to oil fields with high production costs. Domestic output of crude oil is expected to be below 200 million tonnes in 2016. The oversupply of international crude oil remains. While the prices of crude oil are low, countries with storage capacity have filled up their storage. De9

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stocking will remain in place for some time. Oil prices will be low at least before the third quarter of 2016. Though speculators might push up the prices due to geopolitics or international affairs, the international oil prices are unlikely to be higher than 40 US dollars per barrel before the third quarter, or even in the whole year. There is abundant supply of product oil in Chinese market. However, there is unlikely to be one more price cut with product oil. The government will control further decline of product oil prices below the “floor price”. The prices of natural gas are still higher than conventional energy, which is a barrier for massive consumption of natural gas. Due to its cleanliness and convenience, the market of natural gas gradually expands into small cities and villages. The total consumption of natural gas will increase. As the use of natural gas helps to reduce haze and improve air quality, some cities would continue to further promote replacement of coal with natural gas though nature gas prices are even higher than that of coal in some cities. As such, the total demand of natural gas will see higher growth than that with other types of energy products. An annual growth of 8 percent in natural gas demand is expected. In general, there is abundant supply of natural gas in global market. Spot prices are lower than before. As there is no support for price rise of oil and natural gas, the supply will not become a major issue. At the end of 2015, there were 26 nuclear power units under construction in China. Another nine nuclear power units will be put into operation in 2016. This brings a capacity increase of 10.93 million kilowatt, including the third-generation Taishan nuclear power units. What I worry most is that nuclear power capacity cannot be fully utilized, as a response to the weak power market. This will lead to the abandonment of nuclear power, just like Hongyanhe units in Dalian. Due to poor adjustment ability of nuclear power, this scenario is completely 10

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possible.

Clear Obstacles and

Wind and solar energy, as two types of clean energy, are likely to grow significantly in 2016. However, the abandonment of wind and solar power and laggard subsidies, are dificult to avoid. As for energy, efforts should be made not only on quantitative growth, but also on cost savings, reduction of subsidies and improvement of competitiveness against conventional energy. In view of the above situation, efforts on the development of energy sector in 2016 will no longer be made on increasing supply, but on restructuring, elimination of outdated capacity, technological innovation and international partnership on energy. Many of the recent measures taken by the National Energy Administration on strengthening the management on supply side, such as the control on examination and approval of thermal power and coal mining projects, are helpful for the industrial restructuring. Capacity control can be very challenging, due to the massive size of ongoing projects. If I were asked to offer a specific recommendation, I would suggest that coal-burning units with combined supply of heating and power in big cities to be gradually eliminated, while transforming to cogeneration power units with gas turbine combined-cycle. This will improve both air quality and promote the development of gas turbines. In addition, small-loaded units in self-generation power plants should be also eliminated in the process of eliminating outdated power plants. To push forward the energy reform, key efforts should be made on the reforms of energy price mechanism. For example, the pace of market-oriented reform of product oil pricing should be enhanced and the price of product oil should be decided by the market. The markets for crude oil imports, product oil exports, natural gas imports should be further opened up and the market access should become easier. For sure, reform measures must be taken step by step.

Strive for CBM Development By Sun Maoyuan (孙茂远 ), member of Expert Committee of National Energy Commission ▲ Sun Maoyuan 孙茂远

The 12 th Five-Year Plan period (2011-2015) passed quickly and coalbed methane (CBM) industry has stepped into the 13th Five-Year Plan period (2016-2020). How is the progress of CBM industry in the past five years? Where are the bottlenecks? How to get prepared for the 13 th Five-Year Plan? A series of questions need to be answered. This article attempts to illustrate the author’s observations and serves as a starting point for discussion of related issues. Quoted data in this article is based on the author’s source and estimation and serves as a reference only. The author takes sole responsibility for his views. Please refer to oficial publication in the future for accurate igures. Mixed results with 12th Five-Year Plan targets If comparing the planned and actual performance on the development and utilization of

CBM during the 12th Five-Year Plan period, there are mixed results of surprise and disappointment. According the 12 th Five-Year Plan for CBM development, by the end of the 2015, CBM output should reach 30 billion cubic metres, where 16 billion cubic metres from surface drainage of coal mines and 14 billion cubic metres from underground drainage. And the utilization rate of CBM from surface drainage should be 100 percent and that from underground drainage at least 60 percent. However, the annual CBM output reached 17.1 billion cubic metres in 2015, only accounting for 57 percent of original output target. CBM output from surface drainage was 4.425 billion cubic metres, only representing 28 percent of original target and that from underground drainage totaled 12.674 billion cubic metres, meeting 90 percent of original target. During the 12th Five-Year Plan period, the utilization rate of CBM from surface drainage stood 11

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at more 85 percent and that from underground drainage at 32.6 percent on average. These igures varied in the past ive years, but without signiicant differences. According to the development plan, Qinshui Basin and East Erdos Basin, the two main production bases of CBM, should have CBM production capacity of 13 billion cubic metres and output target at 10.4 billion cubic metres, and capacity of 6.5 billion cubic metres and output target at 5 billion cubic metres, respectively. However, the actual production capacity and output in Qinshui Basin were only 6.5 billion cubic metres and 3.07 billion cubic metres, respectively, representing 50 percent and 30 percent of original targets, respectively. And the actual production capacity and output in East Erdos Basin were only 2.5 billion cubic metres and 990 million cubic

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metres, respectively, representing 49 percent and 19 percent of original targets, respectively As planned, the newly-proven geological reserves of CBM should increase by 1 trillion cubic metres in the period. However, China only added 420 billion cubic metres of proven geological reserves of CBM. According to the development plan, 13 main CBM pipelines should be built nationwide, with a total length of 2,054 km and the annual designed transmission capacity of 12 billion cubic metres. A good result is that the country built 4,300-km CBM pipelines and the actual transmission capacity reaching 18 billion cubic metres. For Shanxi, an important province for CBM development, a pipeline network for CBM (natural gas) has been built across the whole province. The length of CBM

and natural gas pipelines in Shanxi has reached more than 8,000 km. However, more efforts should be done to connect all these pipelines.

interactive effects of both external and internal factors brought the upstream of CBM industry into a dificult situation.

The development plan indicates that installed power capacity from CBM should reach 2.85 million kilowatts. The number of residential users of CBM should reach 3.2 million. The actual installed capacity reached 3.12 million kilowatts and the actual number of residential users is 4.3 million, both higher than planned. There are also more than CBM-fuelled 80,000 vehicles in service. During the 12th Five-Year Plan period, China consumed a total of 30.5 billion cubic metres of CBM, equal to save 37 million tonnes of standard coal and reduce CO2 emission by 458 million tonnes.

Compared to other countries, there are great differences in endowment of CBM resources in China. More than 75 percent of CBM resources are dificult for exploration in China, as they have high pressures, ultra-low permeability, belong to tectonic coal, or are located in deep coal beds. It is not possible to explore them through conventional technologies. As a result, there are fewer favorable CBM blocks and production activities are usually done in certain areas. Shanxi province is the largest CBM producer and CBM output from surface drainage in Qinshui Basin and eastern boundary of Erdos Basin accounts for more than 90 percent of national total CBM output.

As plan required, the number of coalmine explosion accidents and death toll should be reduced by at least 40 percent each as compared to that in 2010. The number of coalmine explosion accidents and death toll in the country reduced by 67.6 percent and 57.3 percent in 2014 compared with that in 2010, respectively. D u r i n g t h e 1 2 t h F i v e - Ye a r P l a n p e r i o d , the country met the targets in the aspects of CBMtransmission and utilization. A big industrial chain of CBM in China has been formed, laying a foundation for sound and continuous development of CBM in the future. The CBM industry has also presented its social benefits with the reduced number of coalmine explosion accidents. However, the gap between the actual CBM output and target yawns large, and particularly CBM output from surface drainage. As such, more efforts should be made during the 13th Five-Year Plan period on strengthening the CBM upstream, while further improving the whole industrial chain. Upstream lags by multiple factors D u r i n g t h e 1 2 t h F i v e - Ye a r P l a n p e r i o d ,

Chinese government has paid high attention to the development and utilization of CBM. However, there still lacks of incentive policies. Currently, the financial subsidy, 0.2 yuan for producing and using one cubic metre of CBM, is relatively low, and it is difficult for enterprises to get local tax drawback from the refund of value-added tax. Thus, the current policies are unable to fully promote the industrial development. Most CBM producers suffer losses and have less enthusiasm for further investment. The weak global economic growth and big price drop of natural gas have further weakened the effect of tax reduction and iscal subsidies. The market mechanism in the CBM midstream and downstream is relatively lexible and is helpful to attract investment from social capital. But the market mechanism is still far from enough for more social capital to make investment in the CMB upstream sector. Only a small number of state-owned enterprises are involved in the CBM E&P, leading to capital shortage for CBM E&P. In 13

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addition, the procedure for governmental approval is complicated, which also seriously restricts the progress of CBM E&P. Conventional oil and gas blocks take up a lot of CBM resources, narrowing CBM mining rights. Technological bottlenecks and difficulties in field operation are key internal reasons for the weak development of CBM E&P. In previous year, the implementation of China’s “863” program, “973” program as well as key national science and technology programs has brought a series of technological breakthroughs to solve some technical dificulties in exploration, development, production and utilization of CBM. However, there are still no fundamental breakthroughs either from theoretical or technological prospective. This leads to low average output for each CBM well, high production cost and low eficiency. During the initial period of the 12th Five-Year Plan period, due to the policy support, the number of CBM wells under operation rose significantly. However, many CBM producers ignored the required E&P procedure for quick success. As a result, more than 3,000 wells were drilled along the tectonic coal belts, more than 2,000 wells drilled along the intensified coal belts, hundreds of wells drilled adjacent to external water bank in fault zones, and another hundreds of wells drilled in coal belts with a large dip angle. As many as 75 percent operating CBM wells achieved less than 600 cubic metres on average for each well. Some CBM developers excessively cut costs and led to shortage of professional employees and qualiied equipment, which seriously affected the quality of CBM wells. All in all, the CBM upstream operations did not witness a good economic performance. CBM producers reduced their technological investment and drilling activities then also became less. The annual number of new CBM wells dropped signiicantly from more than 4,000 at the beginning 14

CEFC China Energy Journal

of the 12th Five-Year Plan period to several hundred in 2015. Strategies for clearing barriers and speeding up In the supply-side reform driven by energy consumption in China, CBM industry, as a lifesaving, environmental protection and new energy project, has attracted great attention. The government shall give more policies. Firstly, in reference to experiences of foreign countries and the actual conditions in China, the government should increase fiscal subsidies, roughly about half of the gas price, to encourage social capitals to invest in CBM. Secondly, protective pricing policies on CBM shall be made to ensure that iscal subsidies will not be offset due to the price reduction of natural gas. Thirdly, policies shall be introduced to facilitate investment in upstream from social capital. For example, three state-owned oil enterprises, who are the main mining right holders of CBM, could be encouraged to make mixed ownership reform. Efforts should be made to resolve the overlapping of conventional oil and gas blocks with CBM blocks to expand CBM mining right. In reference to the practices in foreign countries, the country should clearly state that CBM mining right holders are entitled to exploit hydrocarbon gases within their entitled areas. And the country should simplify procedures on government assessment and approval on CBM projects. Scientific and technological progress is the core of development in CBM industry. We should depend on key national science and technology programs, combine the efforts from industry players, universities and research institutes, focus on all types of demonstration projects on CBM development, drive forward the fundamental

theoretical and equipment research, and ultimately build up a series of technologies and processes for CBM E&P that can be widely applied in various resource conditions. At the same time, technological innovation must be integrated with the existing advanced technologies. We should make use of existing technologies to enhance E&P of natural resources. We should upgrade CBM well with low output through technological innovation and improve the output of CBM wells under operation. E&P and engineering must strictly follow scientific procedures of geological research first, elaborate design and gradual progress. Engineering teams should be well qualified and professional. Multi-tier subcontracting and improper low prices for bidding shall be eliminated. Supervision over CBM well construction shall be enhanced. During the 13 th Five-Year Plan period, we should strive to clear barriers for the development of CBM industry through creating a favorable external environment, strengthening government support, as well as making use of advanced technology. Targets for 2016-2020 During the 13th Five-Year Plan period (20162020), CBM E&P should be reinforced in central, western and southwestern China and combined CBM drainage both from surface and underground should be done. Efforts should be continued to develop CBM resources in central China mainly including Qinshui Basin and eastern rim of Erdos Basin. While increasing reserves and output, efforts should be made to realize more capacity into output. The two basins are targeted to bring their CBM output to 9-10 billion cubic metres and become CBM bases with complete industrial chains in the 13th Five-Year Plan

period. New CBM production bases shall be built in the western region of Xinjiang and Shaanxi. In eastern Yunan province and western Guizhou province from southwest China, a group of demonstration CBM projects for E&P and utilization should be constructed. Technological breakthroughs should be achieved in exploiting CBM under complicated conditions, such as low coal rank, tectonic coal and deep burying. We shall also promote experiences of Huainan mining area and Shanxi’s vision of conducting CBM surface drainage in the whole province. It is expected to have an annual CBM output from surface drainage of more than 500 million cubic metres. While setting CBM output target for the 13th Five-Year Plan period, we shall be practical and realistic, and adopt an active and prudent principle. United States took less than 10 years to raise CBM output from 3 billion cubic metres per year to 60 billion cubic metres per year. However, in view of CBM resources and technological conditions, it is difficult for China to achieve an extra fast growth over the development of CBM industry. Thus, we shall make steady progresses. It is reasonable to set an annual growth rate of 10 percent for CBM output in the 13th Five-Year Plan period, targeting at a total CBM output of 2730 billion cubic metres. The growth of CBM output from underground drainage is expected to decline, with total output estimated at 14-16 billion cubic metres and utilization to reach 45 percent to 50 percent. The growth of CBM output from surface drainage shall reach around 24 percent. During the 13th Five-Year Plan period, the CBM industry will become a mature one and provide a solid foundation for the further development of the industry in the 14th Five-Year Plan period (2021-2025). 15

Policy

CEFC China Energy Journal

The roadmap of the development of China’s energy internet over the next 10 years was proposed by the recently-released Guidelines on Further Development of “Internet Plus” Smart Energy (Hereinafter called the Guidelines). The Guidelines were jointly issued the National Development and Reform Commission (NDRC), the National Energy Administration (NEA) and the Ministry of Industry and Information Technology (MIIT). Energy internet is defined as a new pattern for energy industry development, which deeply integrates the internet with energy production, delivery, storage, consumption, and energy market. Its main features include smart equipment, comprehensive coordination, symmetric information, dispersed supply and demand, flat system and open transaction. Under the wave of internet plus, NRDC, NEA and MIIT have placed high expectations on energy internet, considering it as main strategic support for China’s energy revolution. It is of great signiicance to improve the proportion of renewable energy consumption, improve clean and efficient use of fossil fuels, promote opening of energy market and industrial upgrading, and push forward international cooperation as well.

China’s energy internet roadmap unveiled Zhong Yinyan

Supply Co., Ltd, who ever participated in drawing the Guidelines. However, it is worth noting, the Guidelines mainly covered the macro perspectives and more details are expected to be hammered out. Hu expected more detailed policies to come out soon. Pilot policy expected for issue Two-phase target for the development of energy internet in the next 10 years was proposed by the Guidelines. The First phase is from 2016 to 2018. The government will be endeavored to promote the pilot implementation of energy internet and a batch of pilot projects with different types and scales will be built. Through breakthroughs on key technology and equipment, energy internet technology in China is expected to achieve an international advanced level. China hopes to initially establish a market mechanism and technical standard system for energy internet. Consequently, some new business patterns like energy finance and the third-party comprehensive energy services will emerge, and new market participants will grow up. A batch of development methods of being sustainable and easy for popularization are expected to be formed, while more experiences are to be accumulated.

The release of the Guidelines is much earlier than expected, said Ding Wenlei ( 丁文磊)， Executive President of Hangyu Solar Technology Co., Ltd, one of Chinese leading distributed solar companies. Energy internet has experienced a rapid burst from the concept proposed early last year to a national policy right now within only one year, Ding said.

“This means energy internet will step forward from the concept to the implementation of pilot projects. The first step is extremely important for structure design and business model for energy interest to emerge for the test of the market”, said Ding.

The Guidelines offers constructive opinions not only to the energy producing and consuming enterprises, but also to the energy-related service providers, said Hu Bin ( 胡兵 ), Deputy General Manager of Power Division of Sungrow Power

To develop energy production and consumption model and new business pattern will be involved in pilot efforts. NEA will draw up special policies on the number of pilot projects and how to operate these pilot projects, said Gao Feng (高峰), Vice President of Energy Internet Research Institute of 17

Policy

CEFC China Energy Journal

Tsinghua University.

from Smart Grid 2.0.

The second step extends from 2019 to 2025. The government will spare efforts to initially establish energy internet industrial system by pushing forward the diversification and scale development of energy internet, with the aim of cultivating the sector as an economic growth point. During this period, a relatively mature market mechanism and system, and a relatively complete technical and standard system for energy internet are expected to be established. Then China will become a leader in the sector of energy internet in the world.

Gao echoed this opinion, believing that in the energy internet electricity will act as the main source while the primary energy as the supplement.

“From 2019, energy internet will embrace large-scale development, said Ding. “The roadmap with two steps is quite clear to ensure the smooth development of energy internet in China”, But it will likely take a long time to play as the spur to push forward the reform of China’s energy sector through the development of energy internet. Only after obstacles of hampering market competition are removed can new technologies like the internet and artiicial intelligence become parts of the energy internet sector. Energy internet is more than Smart Grid 2.0 According to the Guidelines, the ENERGY of energy internet refers not only to the electricity but also to the primary energy sources such as coal, oil and natural gas. To build a smart gird is indeed a good choice as electricity has a relatively good physical basis for interconnection, said Hu. But there are only two key market participants, the State Grid and the South China Power Grid, in building smart gird in China. So it is not an open energy system. By comparison, energy internet should be open, inclusive and diversified, which is quite different 18

Thus, the Guidelines pointed that efforts should be made to push forward smart energy production and consumption not only for renewable energy but also fossil fuels. More specifically, the Guidelines encourage smart renovation of the whole chain of exploitation, processing and consumption of fossil fuels such as coal, oil and natural gas for clean and eficient use. The Guidelines also encourage the construction of electric heating and thermal storage facilities, and natural gas-based distributed energy as well for the aim of enhancing the flexibility and efficiency of fossil fuel consumption.

Railways Freight Charge on Coal to be Signiicantly Lowered

If railways freight charge on coal is chopped by 0.01 yuan per ton/kilometer coal enterprises can annually save about 10 billion yuan.

According to the Guidelines, China will speed up the network upgrading of the system for fossil energy production monitoring, management and scheduling, build up a market-oriented production planning and decision-making platform and a smart information management system, improve the pollutant emission monitoring system. With the internet, China will promote the balance of fossil energy supply and demand in an eficient and intensive way. Energy internet is used not only to upgrade the informatization of production and management system, but also the e-commerce platform for coal, oil and natural gas. For this end, the Guidelines encourage to promote business model innovation for energy internet in order to enhance information sharing and business exchange. New business models such as energy cloud services and virtual energy currency are also encouraged. 19

Policy

CEFC China Energy Journal

Bie Fan After continuous rise for nine years, railways freight charge on coal in China is finally to be lowered. China Railway Corporation recently announced to reduce the base price for full-loaded coal wagon by 0.01 yuan per ton/kilometer, effective from February 4, 2016, in order to implement the guiding principles of Central Economic Work Conference and support the reform and development of coal enterprises. Speciically, the base price for ine coal transportation is reduced from 0.103 yuan per ton/kilometre to 0.093 yuan; the base price for raw coal transportation and others down from 0.098 yuan per ton/kilometre to 0.088 yuan. The downward adjustment is available for all railway-operating lines. This is the irst time to reduce railways freight charge on coal since 2007. It’s estimated that it will help coal enterprises to save about 10 billion yuan of logistic cost a year. The downward adjustment means a cost cut for coal enterprises, but it also indicates that coal price will further go down. Downstream coal users will inally beneit from the freight cut. A drop of transportation cost for coal enterprises High coal transportation cost has been criticized for a long time in China. When it was in sellers’ market, the country was short of transportation capacity of both railways and ports and coal irms always battled for more railway transportation capacity at annual coal production and transportation matching conference so as to expand their own market shares and ensure smooth marketing, said Wang Yun ( 王云 ), an expert in the coal industry. Due to limited transportation capacity, 20

CEFC China Energy Journal

the freight charge of Daqin (Datong-Qinhuangdao) railway kept rising and was even higher than the coal price at mine mouths. Taking coal produced in Inner Mongolia as an example, before the adjustment, the cost at northern ports was about 375 yuan per tonne, including 125 yuan for mine mouth, 30 yuan for port surcharge and the remaining 220 yuan for freight charges. Freight accounted for 58.6 percent of the total cost. According to the price adjustment, the transportation fee charged by Daqin railway and Shuohuang (Shenchi of Shanxi-Huanghua of Hebei) railway will reduce by six to seven yuan per tonne after the price cut. The coal freight charge from Shanxi to Hebei will drop by three to four yuan per tonne. The charge from Shanxi to Shandong will slide by six to seven yuan per tonne. Taking the current price of thermal coal (5500 calories) at Qinhuangdao Port as an example, the cost is estimated to reduce by 1.8 percent. Industry experts believed that on current buyers’ market, the coal price will face more pressure with the freight decline. Downstream users will likely become the biggest beneficiaries of the saving of 10 billion yuan from logistic cost instead of coal enterprises. China Shenhua, which owns an integrated

industrial chain of coal, electricity, land, port and airline, will encounter more pressure for proits. A report from China International Capital Corporation Limited (CICC) said that though Shenhua is strong in confronting risks due to its comprehensive industrial chain, its profitability would also be in question amid slump in coal price, electricity price and freight charges. About 90 percent of Shenhua’s railways are reserved for its own use and Shenhua is forecast to suffer a decline of profits by one billion yuan if freight charges and coal price further decline. Freight far from being market-oriented As China’s economy enters “new normal”, coal market remains weak and railway transportation capacity keeps improving, the situation that coal enterprises scramble for transportation capacity has changed. Statistics showed that coal transportation volume by railway was 2.27 billion tonnes, 2.262 billion tonnes, 2.322 billion tonnes and 2.29 billion tonnes from 2011 to 2014, respectively, and the year-on-year growth rate was 13.5 percent, -0.4 percent, 2.7 percent and -1.3 percent respectively. With the operation of Zhangtang (ZhangjiakouTangshan) Railway and Mengji Railway (Ordos of Inner Mongolia-Caofeidian of Hebei) in 2015, China’s coal transportation capacity by railway reached three billion tonnes. However, now the actual demand for coal transportation was only two billion tonnes, with a surplus of one billion tonnes. Such surplus situation will continue in 2016. As a major railway for coal transportation, Daqin Railway registered a cargo volume of 31.17 million tonnes in January 2016, down by 18.38 percent year on year, according to its release made on February 15. In addition to a weak demand for coal transportation, railways were also threatened by

other transportation methods such as highways. In recent years, some provinces have begun to consume coal locally through developing coal chemical industry and coal-electricity integration. Coal transportation by highway has taken up some market shares of coal transportation thanks to its flexibility and downward adjustment of highway transportation cost. As a result, railway bureaus in different regions even have to compete for coal transportation. In front of such situation, China Railway Corporation launched pilots for freight reduction in railway bureaus in Hohhot, Beijing and Jinan. After Hohhot Railway Bureau lowered the transportation price for the coal from Inner Mongolia to the port, the total transportation cost for the coal from Inner Mongolia was 14 yuan per tonne lower than its counterpart transported through Daqin railway, which weighed on the coal from Shanxi. In order to cut transportation cost, many coal enterprises in Shanxi preferred Hohhot Railway Bureau rather than the local one, which triggered disputes among different railway bureaus. Thus, it is quite urgent for a coordinated price adjustment. As a state-owned monopoly giant, China Railway Corporation still has a long way to be a market-oriented player, even though it is devoted itself to the market-oriented reform since the beginning of the establishment. Though the freight charge cut would slash transportation cost for coal enterprises, the proportion of freight still remained high in the total coal price, said a manger from a coal irm. Coal has already become a commodity with price decided by the market in China. Efforts should be made to speed up the market-oriented reform of coal freight charges when the coal industry suffers from oversupply and price decline. “There is still room for further drop in coal freight charge via railways”, said the manager. 21

Cover story

Cover story CEFC China Energy Journal

“ ne Belt, One Road” Initiatives Pave Way for China’s Energy Firms “Going Overseas” Wang haixia

CEFC China Energy Journal

China’s commercial capital with a keen sensitivity to the market has deeply devoted to the investment and cooperation in Czech. China CEFC Energy Company Limited (CEFC), whose main businesses are energy, trade and inancial services, has put its market sensitivity into action and become the largest Chinese investor in Czech after years of penetration. CEFC announced its total investment in Czech will reach 38 billion Krone (over 10 billion RMB) due to a further expansion after the firstphase investment of 20 billion Krone. In a sense, CEFC has emerged as the leap-frogging pioneer of Chinese energy enterprises riding the wave of “One Belt, One Road” initiatives. I n t h e v i e w o f Ye J i a n m i n g ( 叶简明 ) , chairman of CEFC, Europe is an important area along the “One Belt, One Road”, for most European countries have participated in the “One Belt, One Road” projects. Within the framework, the Chinese government gave strong support to oversea investment. Therefore, now is a perfect timing for Chinese enterprises to access to European market. Ye noted that with further development of business, CEFC has decided to establish its second headquarters in Czech to strengthen and integrate the business layout in European market. Basing in Czech, the center of Europe, is to devise its long-term development. Ye also revealed that the strategic focus of CEFC is to build the downstream of oil and gas industry in Europe and the upstream link in Central Asia, Middle East and Africa and then radiate the areas including Middle East, Central Asia and Russia through the European market. Today, CEFC has established oil and gas subsidiaries in many European countries. For energy corporations which require great

investment, “going overseas” needs the help of advantageous conditions and policies. Ye Jianming believed that CEFC’ s investment in Europe is in line with the development strategy of China and the trend of Sino-Europe cooperation. In recent years, the strongest support for the “going overseas” of Chinese enterprises is the comprehensive implementation of “One Belt, One Road” initiatives. The initiatives set up a new stage for Chinese enterprises to “go overseas”. As supporting projects, the Asian Infrastructure Investment Bank (AIIB) and Silk Road Fund offer financing support to “One Belt, One Road” countries for infrastructure construction, resource exploration and industrial & financial cooperation projects. Strengthening energy cooperation has been written into the 13th Five-Year Plan. As the plan stipulated, the focus of Chinese energy development is to implement the “One Belt, One Road” initiatives, deepen the energy cooperation with the surrounding and alongside countries, promote important energy projects and propel China’s energy industry such as nuclear power, hydropower, thermal power and ultra high voltage power transmission to “go overseas”. International cooperation on energy has been an important routine to maintain energy supply and assure energy security. The Chinese government pointed out that efforts would be made to comprehensively strengthen international cooperation and guarantee energy security under the condition of open market, and under the precondition of being grounded on the domestic market to enhance international cooperation in every aspect of energy production and consumption and effectively make use of global resources. The “One Belt, One Road” initiatives will strongly stimulate the revolution of energy supply and bring about a new situation for China to conduct international 23

Cover story

Cover story CEFC China Energy Journal

energy cooperation with other countries along “One Belt, One Road” and participate into the global energy management. In fact, energy corporations are always at the

CEFC China Energy Journal

forefront of the internationalization among Chinese enterprises. Long before the proposition of “Going Overseas” strategy in 2001, state-owned petroleum companies have listed the international business as one of their main directions. According to Huang

Xiaoyong (黄晓勇), Dean of Graduate School and International Energy Research Center of Chinese Academy of Social Sciences, nowadays, Chinese energy companies have made great progress in every aspect in “going overseas”.

Huang said that one of the key points of “One Belt, One Road” is to unblock the energy delivery channel. That is, while building energy production bases and stock bases at home, China will continue to improve emerge infrastructure and network construction; to push forward the connection of Sino-Russia eastern and western oil & gas pipelines and the construction of the pipelines of importing oil & gas from Central Asia to China; to build LNG receiving terminals, smart grid and energy transmission network; thus to establish a multi-dimensional transmission system (railway, highway, pipeline and seaborne). Meanwhile, the country will push forward the connection of power grid between China and surrounding countries through the construction of transnational power grid and regional grid upgrade. This will effectively improve the security level of energy in both China and other countries along “One Belt, One Road”. Energy companies are featured with large density of investment, long industrial chain and wide coverage of industry. Their “going overseas” is of great significance for China’s production capacity and capitals to “go overseas”. As the globalization deepens, there are more fields for energy companies to invest. Ye Jianming said that CEFC focuses on energy and finance in Czech and now also expands to other industries such as aviation logistics and media. Its investment there is not only for economic interest, but also for the promotion of the two countries’ friendship under the “One Belt, One Road” initiatives. The “going overseas” ships with Chinese energy corporations are becoming larger, the waters for them to explore are wider and the sailing skills are stronger, but the voyages are not always smooth. Chinese energy corporations are still sailing ahead into the ocean of global business, with the wind of “One Belt, One Road”, trading for more opportunities for both themselves and the rest of the world.

Figures

CEFC China Energy Journal

China to Cap Energy Consumption in 2016-2020 Period

China’s Energy Intensity Falling Fast

China will put a cap on annual energy consumption between 2016 and 2020 to promote energy saving, a draft outline of the country’s iveyear development plan said on March 5.

revolution in industries, construction, transportation and public institutions in the ive-year period, and actively promote energy-saving technologies, the draft said.

China’s energy consumption will stay below 5 billion tonnes of standard coal, according to the draft outline of the 13 th Five-Year Plan on national economy and social development, which is presented to the National People’s Congress annual session for review.

Given a continued economic downturn, the country is seeking to make its economy grow in a cleaner and more eficient manner. China aims to lower its energy consumption per unit of GDP by 15 percent by 2020, the draft said.

In 2015, China’s energy intensity declined 5.6 percent from the previous year, following the 4.8-percent and 3.7-percent falls seen in 2014 and 2013, according to the National Bureau of Statistics (NBS).

The country consumed 4.3 billion tonnes of standard coal of energy last year, oficial data showed.

The country is also promoting the use of clean energy, including wind, solar and nuclear power, to restructure energy consumption currently dominated by coal.

Coal consumption accounted for 64 percent of the primary energy use last year, down 4.5 percentage points from the share in 2012, as the government pushes for cleaner and greener growth

China will push forward an energy consumption 26

China’s energy intensity, the amount of energy consumed per unit of GDP, has been decreasing at an accelerating pace in the past few years, oficial data showed on March 4.

despite the slowing economy. “The data showed China’s energy structure is becoming more diversiied and optimized,” said the NBS. China has specified that it aims to bring the share of non-fossil energy to 15 percent by 2020 and 20 percent by 2030. In addition, coal consumption will be limited to 62 percent of energy use by 2020. The government has pledged that it will strictly control new capacity in the coal industry and that it won’t approve any new coal mines before 2019. 27

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CEFC China Energy Journal

China Sets Targets for Local Renewable Energy Use C h i n a h a s s e t s p e c i f i c t a rg e t s o n n o n hydroelectric renewable energy consumption for local governments in a bid to improve its energy structure, according to a guideline released by the National Energy Administration (NEA) on March 3. By 2020, non-hydroelectric renewable energy should account for between 5 percent and 13 percent of total electricity consumption for provinces, municipalities and autonomous regions, according to the guideline. 28

China Plans 30 Overseas Nuclear Power Units by 2030

Local energy authorities are also encouraged to set higher targets and offer incentives for local enterprises to produce renewable energy.

China aims to build 30 nuclear power units in countries involved with the Belt and Road Initiative by 2030, Sun Qin, president of China National Nuclear Corp. (CNNC), said March 1.

Power companies, with the exception of some non-fossil energy companies, should produce at least 9 percent of total electricity from nonhydroelectric renewable energy by 2020.

The CNNC has reached bilateral agreements on nuclear energy cooperation with countries including Argentina, Brazil, Egypt, Britain, France and Jordan, Sun said.

China has vowed to increase non-fossil fuel sources for primary energy consumption to 15 percent by 2020 and 20 percent by 2030.

More than 70 countries are now planning or are already developing their own nuclear power projects, and it is estimated 130 more nuclear power

units will have been built by 2020, Sun said. The CNNC is willing to cooperate with countries throughout the whole nuclear power industry chain. It will actively promote localization of the technology and strive to establish an integrated industrial system for countries involved with the Belt and Road Initiative, Sun said. Currently China has 30 nuclear power generating units with a capacity of 28 million gw and another 24 units are under construction, all of which are on land. 29

Dialogue

Dialogue CEFC China Energy Journal

CEFC China Energy Journal

Cheng Sisi

NEA Head Nur Bekri Discusses Hot Energy Topics

2016 is the first year of the 13 th Five-Year Plan period with the Chinese economy reaching a new normal, and the energy industry facing a series of new changes and circumstances. In such an environment, how to understand and tackle the ailments and new questions arising from the development of the energy industry is a subject especially worth considering. Our reporter sought out an interview with Nur Bekri ( 努尔•白克力), Director of the National Energy Administration (NEA), to solicit his thoughts on some important topics facing the industry, including the pace of electricity development, the absorption of new energies to the grid, energy restructuring, and the thinking behind future energy jobs. CEFC China Energy Journal (Q): As this year is the beginning of the 13th Five-Year Plan period, compared with the recently concluded 12th FiveYear Plan period, what new changes have appeared with China’s energy industry? Nur Bekri (A): Under the new normal, the energy sector now is undergoing some new changes, which can be prominently expressed in three aspects. First, energy consumption growth has slowed down, with only 0.9 percent growth last year, the lowest growth since 1998. This slowdown in growth corresponds with the pattern of the new normal. Second, the drivers of growth have changed. In the past, we mainly relied on steel, cement, and chemical industries for the consumption of energy, speciically electricity. However, tertiary industries like the service sector as well as residential energy consumption are progressively increasing their proportions of energy usage, a positive change for the drivers of energy development. Third, energy structure is under optimization. In 2014, coal still made up 66 percent of total energy

consumption, but its share fell to 64.6 percent last year. This explains that the proportion of coal consumption is decreasing, while the proportion of renewable energy and clean energy consumption is on the rise. In addition, Chinese installed hydroelectric power capacity, wind power and solar power topped 320 GW, 120 GW and 43 GW in 2015, respectively, all ranking the irst in the world. Q: Under the significant backdrop of such changes, what is the thinking behind future energy jobs? A: As the economy reaches a new normal, the energy sector, also including some sub-sectors, was caught into dilemmas of development because of severe overcapacity. Under such circumstances, in order to take a further step towards realizing “structural optimization” of China’s energy, we’ve put forth the idea of “clean use of fossil fuels; largescale development of non-fossil fuels.” Regarding the clean use of fossil fuels, e v e r y o n e i s f a m i l i a r w i t h C h i n a ’s u n i q u e conditions: the dominance of “big brother coal” has been unshakeable for a considerable time, and coal is also one of China’s most important natural resources. Whether or not we can achieve the clean and efficient use of coal not only requires us to adopt a proactive mindset, but also serves as a test of our capabilities. In the last few years, we’ve already expanded the clean use of coal, especially regarding the ultra low emissions of coal-burning units, and since last year we have begun deploying a comprehensive plan for the clean use of fossil fuels. Indeed, one aspect that needs to be considered is China’s actual national conditions. If China were to totally abandon coal, it would be impossible to 31

Dialogue

Dialogue CEFC China Energy Journal

guarantee the country’s energy security. Thus, it is necessary to reinforce efforts for the clean use of fossil fuels. Furthermore, while in the past the primary thorn in the energy industry was safeguarding of supply, this problem has been greatly relieved. Now, energy supply and demand is balanced and with relaxed energy supply. We need to take advantage of the golden opportunity for the expansion of the use of clean and renewable energy sources. The installed capacity of China’s wind and solar PV power generation units have also been increasing annually over the last several years, with rising proportions within the energy structure steadily. Of course, this process cannot be completed with a single step, but through sustained efforts. China’s energy structure can definitely achieve positive changes. We propose that non-fossil fuels including nuclear energy shall take around 15 percent and 20 percent shares in overall energy consumption mix by 2020 and 2030, respectively. In order to achieve these goals, nuclear, solar, wind, and hydropower all need greater development. Q : P r e s e n t l y, s u p p l y a n d d e m a n d w i t h China’s electricity industry have been relaxed. What adjustments does the National Energy Administration (NEA) plan to make regarding the scale and pace of constructing power network? A: Supply and demand for the electricity industry is now relatively relaxed. Electricity usage by the whole society saw an increase of only 0.5 percent year-on-year at 5,550 TWh in 2015. The tepid growth rate indicates a great relaxation compared with 5 percent and 10 percent growth rates over the last few years and has also resulted in a latent production surplus for thermal power plants, especially coal-fired units. Currently, if one were to say that coal and steel have a manifest production surplus, then coal power plants have a 32

CEFC China Energy Journal

latent surplus in production. The State Council is paying great attention to such circumstances, and has deployed a specialized plan requiring the NEA to earnestly research and adopt appropriate policies, take preventative measures, and resolve the threat of a latent production surplus in coal power. In light of this, the NEA has mainly adopted two relevant measures. First is the establishment of a country-wide early warning system for coal power, whereby according to current constructed workloads for power sources in each province as well as predicted electricity growth for the next three years, each province can determine its ultimate peak value in electricity consumption. This three-year peak value is calculated based on both coal-fired power units and ultra-high-voltage (UHV) transmission into the province. If a province’s own power sources and imported electricity together exceed its peak consumption value, the NEA will issue an orange or red warning, at which point the NEA will strictly constrain development of coal power, not even allowing for an additional 1 kW of capacity for that province. Second is our proposed “three groups” policy in light of current relaxed energy use and fears of overcapacity of coal power. At the end of 2015, China’s installed capacity for coal power was approximately 900 GW, with many additional projects either under construction or planned. Therefore, the “three groups” solution will mean to cancel one group of projects, cease construction of another, and postpone construction of the third group. To b e h o n e s t , i f w e w e r e t o c o n t i n u e construction with the momentum of recent years, China would deinitely have a surplus in coal power within the next two or three years. Therefore, we must take precautions and eliminate this risk before it grows by adopting irm measures and examining the national situation closely.

Q: China in recent years has achieved worldclass success in the development of new energy, yet the renewable energy industry continues to be hampered by the problem of electricity acceptance to the grid, as illustrated by wind and solar. What do you believe is the reason for inhibited acceptance of new energy? What measures will the NEA adopt to relieve and eliminate this ailment that has plagued the industry for so long? A: Chinese society has already formed a universal consensus on the large-scale development of clean energy, but in the process of practical application, it is true that several prominent problems have emerged requiring our urgent attention, such as wasted electricity generated from wind and solar power sources and with that the inhibited acceptance of renewable energy to the grid. There are some objective reasons for these problems, such as the fact that our country’s energy resources and the markets for power are distributed in reverse. Generally speaking, those areas rich in natural resources tend to have relatively low economic development, populations, and energy demands, while the eastern coastal region and similarly developed areas have high energy demands along with a relative lack in natural resources. This reverse distribution between resources and demand indicates the need for us to strengthen efforts in the construction of cross-regional electricity and energy channels. In the process of such efforts, however, recent years have seen rapid development of renewable energy rather than transmission channels of power from renewable energy, resulting in some bottlenecks in transiting power from clean energy and thermal power. It is worth noting that in China’s northern regions, another important reason for abandoned wind and solar power is the use of heating units in the winter that prevent such sources from shaving the

peak load. If power plants were to stop generating, the heat supply could not be guaranteed and the possibility of residents’ freezing could have terrible consequences. Under these circumstances, some power generated from wind and PV sources must be abandoned to guarantee a constant supply of electricity, and with that a constant supply of heat. Nevertheless, due to these issues, especially the above-mentioned one in China’s northern regions, the National Development and Reform Commission and the NEA have together conducted multiple studies and drafted a series of programs in response to requests from the central leadership. For example, in northeast China where the problem of abandoned electricity is the most severe, we have adopted a three-step solution: transmit electricity from northeastern to north China, transmit power from northeast China to Hebei province, and build an 800 kilovolt UHV transmission line from the northeast to Qingzhou in Shandong province. Through such transmission methods we can relieve the issue of wasted wind and solar power. In addition, we have adopted methods to substitute in electrical energy as a means to lessen the problem of electricity acceptance. For example, electricity generated in the northeast could be accepted locally to the greatest possible extent. Everybody remembers the extreme high PM 2.5 levels in Shenyang last year, and while smog has various contributing factors, the burning of coal is one of the most important. Therefore, if we could convert coal-fired boilers used for heating in the winter to electrical boilers, we could then achieve positive effects for both the acceptance of electricity and the management of smog. In order to further the assimilation of new energy, our next step must be to continue to step up our efforts to find a sound pace, ensure the development of renewable energy and its local acceptance, and construct long-distance transmission lines. 33

Major Events

Major Events CEFC China Energy Journal

CEFC China Energy Journal

Two National-level Power Exchange Centers Established

Grid Corporation. The Centre is also independent in accounts and assumes its own responsibility for profits and losses. The Center provides trading services according to regulations and market rules set by government, which meets the requirements set by the reform of power system, helps to promote the market-oriented reform of power market, and effectively releases the bonus of reform. It will also provide fair and efficient quality service, relatively low transaction cost, improve market eficiency, and fulill the growing needs of power trading. The energy structure and development pattern in China, which are heavily dependent on coal, have brought a series of problems, such as haze, carbon emission and wastage of resources. Thus, the task of optimizing energy structure and increasing the use of clean energy is quite urgent. Energy resources are mainly located in southwest China, north China, northeast China and northwest China, where there are limited energy consumption, especially for clean energy. The best solution is to conduct emerge optimization through building up inter-connected power grids and big trading markets. Following market-oriented principle and approach, Beijing Power Exchange Centre will guide a rational

Wang Xuhui Two national-level power exchange centers were established in Beijing and Guangzhou on March 1, 2016, respectively. Unveiling of the two exchanges prior to the “two sessions” or annual meeting of China People’s Congress and Chinese people’s political consultative conference demonstrated the great determination and efforts from the central government in promoting power reform and also indicated a major step forward in the marketization of China’s power industry. 34

flow of energy and optimized allocation, promote massive exploration and efficient utilization of energy (especially clean energy), and drive the process of transform energy development into a green and low-carbon pattern. Yinchuan-Jiaodong cross-regional direct trading is the first cross-provincial market-orientated trading executed at Beijing Power Exchange Centre. Thirty power consuming clients from Shandong province conducted direct trading at the Centre with 824 power companies from Shaanxi province, Gansu province, Qinghai province and Ningxia Hui Autonomous Region. Within a relatively short time, their trading volume reached 9 billion kWh. This demonstrated the advantages of transparent, orderly and efficient trading through the platform. It was also the irst time for power users to conduct massive direct transaction with power generating enterprises through cross-regional transmission grid. More than 20 percent of power in the done deal was contributed by wind and solar energy from northwest China, the result of which is that users in east China can use the clean energy from western part of the country. The target of optimizing energy allocation across the whole country has become reality through market approach.

Beijing Power Exchange Centre is the first organization for power trading with business registration. It aims to become an important platform to optimize energy resources extensively in China. Beijing Power Exchange Centre, with its establishment based on the implementation guidance of building and operating power exchange entities, are independent from power grid enterprises and their other businesses, said Shu Yinbiao ( 舒印彪 ), managing director of State 35

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CEFC China Energy Journal

Chinese Local Reineries Brace for New Opportunities

Purchase Federation of Independent Refineries (hereinafter referred to as the Federation). Certain local refineries with an import quota for crude oil have allied together with the purpose of establishing a platform to conduct the centralized purchasing of crude oil, thus realizing not only centralized purchasing, but also consistent negotiations, uniform pricing, and centralized clearances and loans in accordance with each reinery’s quota. The Federation’s creation is the latest new measure that local reineries have adopted to strive for their “two rights,” namely the right to import crude oil and the right to process that imported oil. The irst 16 members of the Federation include Shandong Dongming Petrochemical Group Co., Ltd., Shandong Huifeng Petrochemical Group Co., Ltd., and Shandong Tianhong Chemical Co., Ltd. Of the 16 Federation members, 14 are from Shandong, a leading province in this industry, and two more from Henan and Jiangsu provinces, respectively. Thus far, 5 companies of the Federation have already acquired the qualifications to import and use crude oil, which accounts for 62.5 percent of the total number of all independent refineries in China that have achieved such qualifications. An additional 9 refineries with the Federation have submitted reports and are currently being examined, accounting for 90 percent of the total for such companies.

Wang Haixia The concept of “local refineries”, also called independent reineries, is a result of China’s macro control policies on the petroleum and petrochemical industry from 1998. Compared with central stateowned refineries, local refineries have long been suffering from a shortage of raw materials because of the limited amounts of crude oil available under 36

the previous supply structure. Nevertheless, it is because of their perseverance that they have inally come upon new opportunities. Purchasing alliances unveiled to further break monopoly On February 29, independent reineries oficially declared the creation of the China Petroleum

Industry analysts have put forward that with more and more local refineries obtaining the “two rights” to crude oil, they are becoming both more capable and more competitive. This is an important step to push forward market-oriented reform with domestic product oil sector. With the granting of rights and the creation of the Federation, domestic independent refineries have united once again to march into international crude oil market. This enables them to have greater say in the international trading market, and also

breaks the monopoly on crude oil use in China, which optimizes domestic market order for product oil. From shortage to abundance It was in 2015 when China started to accept applications for the rights to process imported crude oil and import crude oil in the form of non-state trade. Before implementation of this policy, only ive trading houses of state-owned Sinopec Group, China National Petroleum Corporation (CNPC), China National Offshore Oil Corporation (CNOOC) and others were entitled with the right to use and import foreign crude oil with private reineries ruled out. Nowadays, local refineries are also entitled to the “two rights” and treated equally with Sinopec Group, CNPC, and CNOOC. According to statistics provided by www.oilchem.net, a market information supplier on oil and gas, since the second half of 2015, 23 local refineries that applied to use imported crude oil have meet the requirements, 12 have been given permits and applied for the use of 51.39 million tonnes of imported crude oil quotas. Two local refineries are at the stage of making public announcements, while nine have had their application materials approved and have altogether applied for 38.11 million tonnes of imported crude oil quotas. At present, 10 enterprises have acquired the qualifications for the non-state trade of crude oil, the total amount being 42.39 million tonnes. It is regarded as a good sign for local reineries to have good opportunities to be entitled with the rights to import and use overseas crude oil. For example, there are many local refineries in Dongying of Shandong Province, and every local refinery in the province has made profits in 2015 whatever their scale, according to a high-ranking oficial with the Dongying Municipal Commission of Economy and Information Technology. The main 37

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reason is that the gradual liberalization of the “two rights” has activated local reineries’ reining ability and production initiative. With local refineries gradually acquiring the right to use imported crude oil, the shortage of raw materials has been fundamentally resolved. The raw materials they have since gained can meet the demands of the whole year. The operation rate of local reineries is also at a record high. An anonymous oficial with the Supervision Ofice of Shandong Dongming Petrochemical Group stated that before acquiring these rights, the operation rate was less than 50 percent and only came to full production afterwards.

CEFC China Energy Journal

of product oil. This amounts to profits of local refineries. The gap between wholesale and retail price of gasoline produced by local refineries has come to 2,000 yuan per ton or even 2,500 yuan, according to market information supplier www. chem99.com. Despite the continually decreasing international oil prices, ex-factory prices of gasoline and diesel of Chinese refineries keep stable, according to an analyst with market information supplier JYD Online Co., Ltd. It is expected that the proit margin of main refineries in China would be still high in March. New situation brings new challenges

Most local refineries used to import large amounts of fuel oil as raw materials to maintain production as they could not obtain crude oil normally before. Because of this, they had long faced the dilemma of having no oil to refine. Currently, with the broadening of channels by which to obtain crude oil, more and more local reineries are now process crude oil. This is because it costs more to reine fuel oil compared with crude oil, and fuel oil also has a stronger corrosive effect to machinery because it contains more impurities than crude oil.

With this new policy in effect, there is no way for turning back. China is granting more and more rights to local refineries. In 2016, the quotas of

crude oil imports via non-state trade will be 1.752 million barrels per day, three times the amount in 2014. A total of 20.93 million tonnes of product oil export quotas under processed trade as the first batch in 2016 was granted, jumping 115 percent over that in the same period last year, and equal to 70 percent of last year’s entire quotas. In particular, the export quotas for local reineries reach 430,000 tonnes, with gasoline, kerosene, and diesel accounting for 22.1 percent, 39.4 percent, and 38.5 percent of the total, respectively. More and more Chinese local refineries are willing to import crude oil directly, and many of them also take part in the exports of refined oil for the first time, according to forecast by Argus. Nevertheless, despite the fact that local refineries have more autonomy and rights in accessing raw

materials, new problems continue to emerge. Most local refineries fight alone when purchasing crude and are unfamiliar with price negotiations and international clauses, said Pang Guanglian, Deputy Secretary of CPCIF. It requires further observation yet whether the newly created purchasing alliance can effectively improve local refineries’ ability to purchase crude oil from overseas. Analysts from Argus reminded that there still exist great uncertainties and risks in international crude and product oil markets, which poses a challenge to those who have just entered the market. There remain many thorny problems for them to solve, such as the renting of international oil tankers, the choice of warehouses, the hedging of derivatives, contract negotiation, and forecast of the international crude and product oil markets.

In the future, fuel oil will be replaced completely by crude oil because it is produced by foreign crude oil producers speciically for Chinese local refineries in order to dodge the previous policies, says an oficial with production department of Shandong Lanqiao Petrochemical. Yet as local refineries begin gradually using crude oil, there is no need for foreign oil producers to produce fuel oil as they can directly sell crude to local reineries. In terms of downstream sales, the National Development and Reform Commission sets a floor price of 40 US dollars, which leads to a big gap between wholesale prices and retail prices 38

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CEFC China Energy Journal

How 1.3 Mln Employees in Coal Sector Resettled amid Overcapacity Cut Drive?

100 billion yuan in rewards and subsidies will be provided by the central government, which will be mainly used to resettle employees laid off from these enterprises.” According to preliminary statistics from the Ministry of Human Resources and Social Security of China (MOHRSS), cutting overcapacity in the steel, coal industries across the country will involve resettlement of 1.8 million employees, in which 1.3 million from coal enterprises and 500,000 from steel enterprises. How will the country resettle 1.3 million employees from coal industry after cutting overcapacity, which is viewed as the primary task of supply-side structural reform? Urgent for overcapacity cut in coal industry As a matter of fact, it is urgent to eliminate overcapacity in coal industry. Heilongjiang Longmay Mining Holdings Group (Longmay Group) located in northeast China serves as an example in point. In December 2004, Longmay Group reorganized and saved four mining enterprises in Jixi, Hegang, Shuangyashan, and Qitaihe from bankruptcy. By reorganization, Longmay Group has become the largest coal group in northeast China.

Wu Xiaojuan The Government Work Report, delivered on March 5, said “We will focus on addressing the overcapacity in the steel, coal, and other industries facing difficulties, strictly control the expansion 40

of production capacity, shut down outdated production facilities and eliminate overcapacity in a planned way. We will address the issue of ‘zombie enterprises’ proactively yet prudently by using measures such as mergers, reorganizations, debt restructurings, bankruptcy and liquidations.

economic structure, changes in energy structure, and restraints from ecosystems and the environment and other factors. At the end of the year 2015, the closing price of Qinghuangdao Port 5500 Kcal steam coal declined to 370 yuan/tonne, the same as the price level in 2004. But the highest value of this benchmark price had once topped 800 yuan/tonne in 2011. With the coal price decreasing, Longmay Group inevitably fell into losses. According to public information, the net loss of Longmay Group in 2012 was 800 million yuan. In 2013, this igure increased to 2.3 billion yuan and to 6 billion yuan in 2014. “Longmay Group has been pushed into very dangerous situation, and reform will provide the company the last chance to survive,” said a Heilongjiang provincial oficial. As the whole coal industry entered winter, Longmay Group is not the unique company trapped in dificulties. Statistics from China National Coal Association (CNCA) showed that, in the first 11 months of 2015, the national coal enterprises above designated size achieved a profit of 42.55 billion yuan, down by 61.2 percent on a year-on-year basis.

At the beginning of the reorganization, when the coal industry was in a golden time of rapid development, Longmay Group had planned to downsize itself to become more profitable and competitive, but the group missed the opportunity to reform inally.

According to data released by National Bureau of Statistics, China’s coal consumption dropped by 3.7 percent in 2015. The amount of social coal reserves, on the other side, has exceeded 300 million tonnes for 48 consecutive months by the end of 2015. Moreover, the production capacity of existing domestic coal mines is about 4 billion tonnes and production capacity under construction reaches 1.1 billion tonnes. The overcapacity in China’s coal industry is very serious.

With the time goes, the whole coal industry stepped into a cold winter since 2012, with slowdown in economic growth, optimization of

If the overcapacity of coal enterprises could not be cut timely, the weakening demand would weigh on coal prices for a long time, said Lin Boqiang (林 41

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伯强), Director of Collaborative Innovation Center for Energy Economics and Energy Policy (CICEP) of Xiamen University. The difficult financial situation is not only not conductive to cutting overcapacity, but also not beneficial to the transformation and development of coal enterprises either. Under the “new normal” in economic d e v e l o p m e n t , t h e C e n t r a l E c o n o m i c Wo r k Conference held by the end of 2015 pointed out that China will carry out supply-side structural reform with a focus on solving the serious problem of the overcapacity in coal and steel industry. Addressing the issue of “zombie enterprises” On February 5, the State Council issued a policy document on cutting overcapacity and getting off difficulties in coal industry. It says that the overcapacity in coal industry will be cut by 500 million tonnes, and production will be reduced by about 500 million tonnes through reorganization within the next three to ive years starting from 2016. In principle, the approval of new coal mine projects, technological transformation projects of production capacity expansion and other capacity expansion projects would be halted within the next three years. On February 22, the National Energy Administration announced that more than 1,000 outdated coal mines with total production capacity of 60 million tonnes will be shut down in 2016. China will speed up the merger and reorganization of the coal industry. On March 5, the Government Work Report pointed out that this year we should focus on addressing the overcapacity in the steel, coal, and other industries facing difficulties. In this process, the market should serve as a check, enterprises should be the major players, local governments should play a coordinating role, and the central 42

CEFC China Energy Journal

government should provide support. We should use economic, legal, technological, environmental, quality inspection, and safety-related means to strictly control the expansion of production capacity, shut down outdated production facilities and eliminate overcapacity in a planned way. We should address the issue of “zombie enterprises” proactively yet prudently by using measures such as mergers, reorganizations, debt restructurings, bankruptcy and liquidations. At the moment, the most important task is to address “zombie enterprises” in carrying out supply-side structural reform, said the authorities. By cutting overcapacity, valuable in-kind resources, credit resources and market space could be released. Cutting overcapacity should begin with shutting down “zombie enterprises” of low value-added and high energy consumption, said Li Jin (李锦), chief researcher of Chinese Enterprise Research Institute. Efforts should be done to shut down outdated production facilities of the coal industry and encourage those coal enterprises with resources advantage and being qualified for upgrading to take part in mergers and acquisitions, said Bo Changsen ( 卜昌森 ), a deputy to the National People’s Congress (NPC) and Director of Shanxi Administration of Coal Mine Safety. For those modern coal mines with large amount of resource reserves, high degree of security protection and strong market competitiveness, we should explore their full potential via swap of capacity expansions. 100 bln yuan Earmarked for Eewards and Subsidies To s p e e d u p c u t t i n g o v e r c a p a c i t y a n d eliminating “zombie enterprises” is the main task for carrying out the supply-side reform, of which employees’ resettlement is of most importance. According to the Government Work Report, the

Chinese government will improve the fiscal and financial policies to support this work and 100 billion yuan in rewards and subsidies will be provided by the central government, which will be mainly used to resettle employees laid off from these enterprises. Some experts believed that the supply-side structural reform is unlikely to satisfy all parties concerned. As a result, the fittest will survive in the process of the reform whether for industries, enterprises, or employees. Although the throes are acceptable, we should treat them with caution. The priority should be given to the resettlement of the layoffs during the process of cutting overcapacity, said Yang Kaisheng ( 杨凯生 ), a member of National Committee of Chinese People’s Political Consultative Conference (CPPCC) and former Chairman of Industrial and Commercial Bank of China (ICBC). The government should take these factors into consideration, including the local re-employment capacity, resettlement expenses, which part of the expenses can be shouldered by social security, which part can be inanced through iscal channel and which part can be shouldered by the concerned enterprises themselves.

In order to cut overcapacity and resettle the layoffs smoothly, the key is to properly handle the employment relations, strengthen social security to remove workers’ worries, but relevant reforms should follow closely, said Zheng Gongcheng (郑功成), a member of NPC Standing Committee, and president of China Association of Social Security. There are more channels to create jobs in eastern China with the vigorous economy. Therefore, even mass layoffs happen in some industries there, the problems can be solved smoothly, said Zheng Dongliang ( 郑东亮 ), director of the Institute of Labor Science with Ministry of Human Resources and Social Security. Before then, on the resettlement of the layoffs, Yin Weimin ( 尹蔚民 ), Minister of Ministry of Human Resources and Social Security, said we need to encourage enterprises to tap the potentials to resettle the layoffs within their own enterprises. To those who need to leave their enterprises, we should initiate the employment support project to help them ind new jobs and launch their own business. To those who are qualified for early retirement, with the willingness of both the employees and the enterprises, we can help these people into early retirement. To those who are unable to ind suitable jobs in the labor market and in difficulties, the government will provide public-service jobs for them as a bottom line. To t h e e n d , L o n g m a y G r o u p s p e c i a l l y established a center for business starting and training. Since the late September 2015, all the office staffs from the headquarters, secondary enterprises and ground units of the Longmay Group have entered the center. Longmay Group has completed the irst round reform in the mining companies and in the 119 mining units, and reduced a large number of staffs. In the irst three quarters of 2015, even with the falling coal price, the group reduced a loss of 1.2 billion yuan. 43

Energy Security

CEFC China Energy Journal

China’s Annual Energy Consumption Forecast down to 1.4 Percent in Next 15 yrs

and 2030 respectively. That means that the country would likely have an annual growth rate of 1.1 percent in primary energy production from 2016 to 2030. The share of fossil fuel in primary energy production will decrease to 68.8 percent in 2020 and 58.7 percent in 2030, while the proportion of non-fossil fuel will climb to 17.7 percent in 2020 and 26.9 percent in 2030. China’s dependence on foreign energy sources will be around 20 percent by 2030.

The report further predicted that China’s coal consumption has peaked and is likely to fall back to around 3.6 billion tonnes in 2030, accounting for less than half of total energy demand. Meanwhile, China’s oil consumption will hopefully near its peak within the five-year period from 2025-2030 and stand at a level of around 660 million tonnes in 2030. If alternative fuels, electric vehicles in particular, make a rapid clip, oil consumption is likely to peak earlier than expected.

China’s Coal Consumption Has Peaked

However, Zhou Dadi ( 周地 ), CERS’s managing deputy director, believed the report’s forecasts may be a little high. Firstly, there are many uncertainties about economic growth for the next stage. Mr. Zhou noted that it is harder to maintain medium-high speed now than ever. Intensive investment during the period of rapid growth led to excess production capacity nearly in all industries, thus it is dificult to maintain the construction scale at a high level as economic driving factors such as investment, exports, infrastructure construction and real estate play limited roles. In addition, even if growth rates could be held firm, considering the high base levels of production, the means for achieving growth would need to undergo a signiicant change.

Accordingly, China’s total energy consumption and overall energy structure are affected by multiple factors including economic slowdown and economic structure optimization, the shift of growth pattern from production factor and investmentdriven to innovation-driven, and the environment’s carrying capacity.

China’s energy consumption growth is supposed to be sluggish in years to come, but to what extent the slowdown in energy consumption growth remains in doubt.

Research Society (CERS) on March 1. In other words, China will likely see a 1.4 percent of annual growth rate in energy consumption from 2016 to 2030. The per capita energy consumption will hit 3.9 tce by 2030, as many as the level of the United Kingdom in 2014, said the report.

China’s energy consumption is expected to amount to 4.8 billion tonnes of coal equivalent (tce) and 5.3 billion tce in 2020 and 2030, respectively, according to a report released by the China Energy

As for the energy supply, the report believed the primary energy production will decrease as energy consumption growth slows, which is expected to reach 4.1 billion tce and 4.3 billion tce in 2020

Zhu Xuerui

Considering the environmental protection, resource constraints and carbon emissions reduction, China’s primary energy consumption structure is undergoing sustainable optimization, with coal consumption to fall signiicantly to 60 percent and 40 percent in 2020 and 2030, respectively. Meanwhile, clean energy will enjoy a rapid development, with non-fossil fuels making up 15 percent and 22 percent of total energy consumption in 2020 and 2030, respectively. China will undergo a signiicant change on the way to reduce carbon emissions which is likely to peak as early as 2025. Its carbon emission intensity will accumulatively be chopped by 54 percent for the period from 2016-2030. Energy intensity reflects the extent to which economic growth relies on energy. China’s energy intensity is forecast to drop by 50 percent over the period 2016-2030 and is expected by 2030 to roughly equal the current level in the United States, but still lag fairly far behind European countries with low energy consumption.

Second, there is insufficient consideration of the extent to which energy structure reforms will increase efficiency. “Economic growth resulting from energy optimization, as well as the emphasis on quality instead of quantity, will both have a huge effect on energy consumption, and we have not adequately calculated these factors,” said Zhou. He also pointed out that supply and investment capacity was inadequate in the past, but now there is an oversupply. “It seems that we are looking for an exit for certain energy sources, so the forecast is likely be a little high.” Regarding natural gas, the report believed there is great potential for future development, 45

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anticipating Chinese natural gas demand to reach 290 billion cubic meters by 2020, and 480 billion cubic meters by 2030, at which point it would take up 12 percent of total energy consumption. Growth of electricity consumption will slow down, but still exceed growth rates of total energy demand on the whole. Annual growth rates for electricity are estimated at 4.9 percent for the 10-year period from 2010-2020, and 2.3 percent for the period of 20202030, while China’s total electricity consumption will reach around 6.8 petawatt hours (PWh), or 6.8 million GWh in 2020 and 8.5 PWh by 2030. Wu Yin ( 吴吟 ), deputy director at CERS, deemed that, considering growth rates in electricity consumption for the year of 2012, 2013, and 2014 reached only 5.9 percent, 8.9 percent, and 3.7 percent respectively and were far below the annual growth rates of 13.1 percent and 11 percent during the 10th and 11th Five-Year Plans, the report’s

estimates for future electricity demand are therefore likely too high.

2020-2030 will come from new and renewable energy sources.

Accelerated Development in New Energy

As for hydroelectricity, it is estimated that total installed capacity will reach 380 GW by 2020 and 450 GW by 2030, generating approximately 1.3 PWh of electricity in 2020 and 1.45 PWh in 2030. Owing to the rapid increase in installation from other new energies, the proportion of hydroelectric installation and generation in 2030 will be slightly less than peers in 2014, reaching 18.8 percent and 16.9 percent, respectively. The report also noted that further hydroelectric development faces ecological and environmental constraints, which adds a degree of uncertainties to expansion.

The CERS report also claimed that new and renewable energy will register a faster development thanks to systematic and technological progress. By 2020, new and renewable energy sources will witness an installed capacity of around 860 GW, accounting for 42.9 percent of national total installed capacity. Utilization will stand at 720 million tce, making up 15 percent of overall energy consumption. By 2030, the installed capacity will reach as high as 1,440 GW, accounting for 60 percent of total capacity, and utilization will increase to 1.17 billion tce, providing 22 percent of overall energy consumption. In total, 90 percent of the increased energy consumption during the period

Nuclear power should maintain steady development, with total installed capacity reaching 53 GW by 2020, and generating 0.38 PWh of electricity, around 2.2 times the amount in 2015, and accounting for 5.6 percent of total electricity

generation. By 2030 total installed capacity will reach 136 GW, generating one PWh (an increase of 1.6 times over 2020), and accounting for 11.8 percent of total electricity generation. Concerning wind energy, its installed capacity will strive to reach 250 GW by 2020, or 12.5 percent of the total, which will further climb to 450 GW and 18.8 percent by 2030 with 0.9 PWh of electricity sent to the grid, taking up 10.6 percent of total generated electricity. The report also pointed out China’s curtailment of wind power may constrain further development of wind energy in China because construction of infrastructure for transporting electricity outside is lagging. In addition, China’s wind industry has yet to fully resolve problems of operating at high-risk with low proits. Distributed wind energy is likewise facing several obstacles and challenges. For example, connecting to the grid is still dificult, with limits on how much electricity will be accepted from wind power. There is also too much procedural rigmarole, insufficient resource assessment data, and lack of comprehensive standard for grid access technology. Solar photovoltaic (PV) electricity generation is estimated to reach 160 GW in installed capacity by 2020, 5.4 times the amount in 2014, and occupying 8 percent of total installed capacity. Solar energy will generate 0.2 PWh of electricity by this time, equaling 3 percent of total generated electricity. In 2030, these igures are estimated to reach 350 GW, 14.6 percent, 0.42 PWh, and 5 percent, respectively. The CERS report believed distributed PV is a major direction for future PV development. The problem is that the market is indifferent, even with enthusiastic policies, as many industrial and commercial players show a lack of optimism for development on difficulties of obtaining location sites, connecting to the grid and getting inancing, all of which will constrain its future development.

Technology

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CEFC China Energy Journal

Wuli

CNPC Stays Strong in International Stage through Technological Innovation

In an international market with increasingly ierce competition and low oil prices, technological innovations are driving CNPC (China National Petroleum Corporation) to move forward. In the “12 th Five-Year Plan” period, CNPC

made 15 major breakthroughs in core technologies and 25 innovations in key equipment and software. Annual proved oil and gas reserves of CNPC have increased over 1 billion tons of oil equivalent for 9 consecutive years, and in the past 21 years, CNPC’s oil production has never fallen below 100 million tonnes. Having realized the importance of “innovation”, CNPC has incorporated it into the development strategy of the company to guide its overall development. Major Innovations in Theory Solving a World-famous Puzzle The problems that CNPC is facing in oil and gas exploration have become more complicated as newly discovered crude oil hides deeper underground, has higher intensity and contains more water, according to Du Jinhu ( 杜金虎 ), deputy general manager of Exploration and Production Company of CNPC. But because of the series of technological innovations that the company made, it manages to remain one of the leaders in oil and gas exploration in the world, said Du. In medieval Sichuan uplift, where Weiyuan Gas Field was discovered, people had to explore an area of 60,000 square kilometers before determining the exact location of the field. In the 47 years that followed the discovery of the field, workers were confronted with many dificulties in recovering natural gas trapped underground. In the process, CNPC innovated the “ancient carbonate accumulation” theory, because of which, Anyue Gas Field, a super gas pool with a reserve of over 1.5 trillion cubic meters (tcm), was discovered. Anyue Gas Field is not only the biggest and most significant gas field found in China so far, its discovery also contributes to people’s understanding of the Upper Proterozoic-Lower Permian accumulation theory. At the same time, many more huge gas fields were discovered in the basins of Sichuan, Ordos and Tarim.

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Alkaling/Co-Suefactants/Polymer Flooding (ASP), which has increased oil recovery percentage by 18 percent, has become a strategic technology adopted in Daqing Oilield. And China, as the only country in the world that has applied this technology in industry, will take the lead in developing oilrecovery enhancement technology. As a result of scientific innovation, oil recovery rate of Daqing Oilfield, which has been exploited for 56 years, reaches up to 46 percent, more than 10 percentage points higher than the world average. And it has been able to sustain an annual output of above 50 million tonnes for 27 years and then 40 million tonnes for 12 years, a stable production period 22 years longer than like oilields in the world, which is a miracle in oilfield exploitation. As a result, Daqing Oilfield has been awarded National Prize for Progress in Science and Technology for many times. The Ordos Basin has always been a conundrum for oil and gas companies. Technology for the exploration and exploitation of super lowpermeability oil and gas resources has solved the conundrum, enabling Changqing Oilfield in the basin to maintain an annual output of over 50 million tonnes of oil equivalent. And 2.464 billion tonnes of oil reserves and 4.28 trillion cubic meters of natural gas reserves were newly proved because of the technology. And over 500 million tonnes of oil reserves in the basin that used to be left undisturbed because of a lack of technology can now be recovered. Changqing Oilfield is now the biggest of its kind in China. Thanks to these technological breakthroughs, CNPC has increased its annual proven oil reserves of over 600 million tonnes for 10 consecutive years and yearly proven gas reserves up to 400 billion cubic meters for 9 years. What’s more, in the past 21 years, CNPC’s oil production has never fallen below 100 million tonnes and its gas production increased from 18.3 billion cubic meters in 2000 50

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to 95.5 billion cubic meters in 2015, a five-fold increase in 16 years. Energy Strategic Corridor Guaranteed by Key Technological Breakthroughs Construction of pipelines is an important way to ensure national energy security and also an effective approach to transporting oil and gas. China has constructed a nationwide core network of gas pipelines in just 10 years, in which technological innovations regarding pipelines have played a key part. Through setting up special incentive funds for science and technology, CNPC has surmounted some key technological difficulties, including manufacturing of high-grade steel pipes, domestication of equipment, design and construction of pipelines, centralized control of pipe network and integrity management of pipelines etc. These technological breakthroughs make sure that China’s goal to set up a strategic energy corridor will be achieved. CNPC uncovered fracture mechanism of X80 spiral pipes for the first time and invented weld pipes with extra thickness and the pipefitting. Using the new inventions, CNPC succeeded in constructing the second line of West-East Gas Pipeline Project in China, which extends over 4,800 kilometers with pressure of 12 MPa. X80 pipes also lay a technological basis for the eastern natural gas pipeline between China and Russia. Vital pipeline parts like high-power electric compressors, combustion compressors and highpressure large-diameter ball valves used to be monopolized by a few western countries, and China had to import these key parts from these countries as well. But now CNPC can make 20-megawatt electric compressors, 30-megawatt combustion

compressors and 48-inch high-pressure all-welded ball valves by itself. Not only are CNPC’s products as good as their western counterparts, but also it can reduce the cost by 10 percent to 30 percent. As a result, China has stopped importing these products and enhanced its core competitiveness. CNPC also innovated complete technologies used for LNG receiving and regasification, which enabled the company to build 3 LNG receiving terminals in Jiangsu, Dalian and Tangshan with a receiving capacity of 10 million tonnes and above. Moreover, in the “12 th Five-Year Plan” period, CNPC made huge progress in design and construction of pipelines and safety operation by drawing from others’ experience. CNPC’s pipeline construction standards with its own proprietary intellectual property right are one of the highest in China, marking that China’s pipeline design, construction and operation have reaching international advanced level. While China is building the strategic energy corridor, its innovations on pipelines of large transportation capacity raised the country’s capacity of independent innovation and stimulated growth of relevant industries. And China has transformed from a pursuer in the pipeline industry to a leader, which is significant for China’s “One Road, One Belt” initiatives and China’s oil and gas cooperation with Russia and Central Asia. Large-scale Reining and Petrochemical Tech “Going global” Large oil reining projects with reining capacity of 10 million tonnes and above, large ethylene with the capacity of 1 million tonnes and above and large fertilizer manufacturing projects are important indicators of a country’s petrochemical engineering capacity. In the “12th Five-Year Plan” period, CNPC

made 23 major breakthroughs and innovations in the above-mentioned 3 projects, tackled 93 key technology difficulties, won 163 patents and invented 82 proprietary technologies, marking a great leap of CNPC’s refining and petrochemical technologies. With its own world-class technologies, CNPC put an end to foreign monopoly. At present, over 40 companies in the world are applying CNPC’s complete refining and petrochemical technologies in more than 80 projects with the refining capacity of 10 million tons and above, meaning that the company has the EPC general contracting capacity for such projects. At the same time, CNPC’s complete technologies for large ethylene plants have been included in National Sci-Tech Support Plan. China became the fourth country after America, Germany and France with complete technologies for large ethylene plants. Technological breakthroughs made in large oil reineries, large ethylene plants and large fertilizer plants have turned China from a technology importer to a technology exporter. They have helped CNPC make huge progress in oil reining, organic and inorganic chemical engineering. World-class Technologies Support “One Belt, One Road” Cooperation By the end of 2015, CNPC had had 91 oil and gas businesses in 35 countries, covering Africa, Central Asia, South America, the Middle East, and the Asia-pacific region. The company had formed a complete oil industry chain from oil exploitation, pipeline transportation, oil refining and chemical engineering to marketing. By the end of 2015, its overseas oil production capacity had exceeded 100 million tonnes, overseas oil-refining capacity had reached 13.6 million tonnes and overseas natural gas production capacity had approached 30 billion cubic meters. And its oil and gas pipelines in foreign countries had spread over 15,000 kilometers 51

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with crude oil transportation capacity of 78 million tonnes and natural gas transportation capacity of 60.4 billion cubic meters. CNPC’s overseas business started from scratch 20 years ago, and it has grown very strong, which wouldn’t have been possible without its world-class technologies, according to Liu Yingcai (刘英才), deputy general manager of Overseas Exploration and Development Company of CNPC. In the past more than 20 years, CNPC fully played its advantages in technology by assimilating mature technologies and making innovations. After years of practice, the company gradually shifted its focus on three businesses in foreign countries: geological exploration, oil and gas

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field development and new project assessment. Its core competitiveness in the international market has been noticeably improved. CNPC has established its Research Institute of Petroleum Exploitation & Development and 12 technology centers specializing respectively in geophysical exploration, refining and petrochemical, drillingcompletion, natural gas, ground engineering and ocean engineering and so on. All these facilities, together with oil and gas ields in China, including Daqing, Liaohe, Dagang and Yumen, have partnered up with a specific overseas CNPC project to offer customized assistance. Currently, CNPC has invested over 60 billion U.S. dollars in 49 oil & gas projects in 19 countries along “One Belt, One Road”, accounting for over

81 percent of its total overseas investment. In 2015, CNPC gained 60 million tonnes of share oil and gas from these 49 projects, accounting for about 75 percent of the company’s total overseas share production. Oil equipment emerges as business card for “Made in China” Equipment manufacturing is core business of CNPC. The company has been able to manufacture make high-end equipment and made a series of new technological achievements. CNPC’s geophysical prospecting equipment has been widely applied in both China and foreign countries. Its seismic data processing software has dominated the domestic market and completely replaced the imported one and its logging equipment and software also help China from dependence on import. In the past, a set of imported logging equipment cost about 100 million yuan, while the price for a set of logging equipment made in China is only 50 percent of that. And oilield tubing units made in China can reduce the cost by 30 percent compared with imported one. These “made in China” equipment has been exported to countries of Central Asia, offering an impetus for the “One Belt, One Road” initiatives. In the “13th Five-year Plan” period, CNPC will still focus on professionalization, marketization and internationalization for its equipment manufacturing business. The company will continue to encourage innovation and speed up transformation and upgrading for this business. To be more specific, its equipment manufacturing technology will be upgraded from low-end to high-end; its market will be shifted from domestic market to both domestic and international market; and its business pattern will be transformed from manufacturing-oriented to service-oriented. With these efforts, CNPC is to realize a stable and sustainable development for the

sector. CNPC offers clean oil products for blue sky Automobile exhaust emission is a major contributor to smog in big cities in China. To reduce emission and have a blue sky, CNPC has improved the quality of its oil products on schedule. By the end of 2015, CNPC had provided the state-V gasoline and diesel in large quantity for 11 provinces and municipally in eastern China with sulfur content less than 10 mg/kg. CNPC achieved a package of technologies for production of clean gasoline and diesel through independent research and development, which enabled the company to upgrade its product quality and ensure market supply. The property of China’s crude oil decides that China needs to use different oil reining equipment from other countries, said Xing Yingchun ( 邢颖春 ), chief engineer of PetroChina Reining & Chemicals Company. The equipment used in China should be able to upgrade product quality quickly, save oil, meet market demand and raise gasoline and diesel production yield. After a decade of hard work, CNPC succeeded in developing packaged technologies for upgrading gas and diesel quality and these technologies can help to produce gasoline and diesel meeting the sate IV and V standards. In 2017, China will carry out the state V standards for gasoline and diesel nationwide and the state VI standards are also put under planning. CNPC has determined to pace up technological innovations to meet the demand for gasoline and diesel of higher standards so as to fulfill its social responsibilities. 53

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CEFC China Energy Journal

during the opening day meeting.

Shanxi Refreshes Image via New Understanding of Coal

“

▲ Li Xiaopeng , Governor of Shanxi province

Cheng Sisi Shanxi province has always been the largest province in coal resources in China. It was once booming for coal but now it is caught in dificulties for coal. As coal industry is identiied as “industry in dificulty” for the irst time in Government Work Report this year, could Shanxi, which heavily depends on the coal industry, resist the pressure of economic downturn? And will coal industry gradually withdraw from its historical stage? On March 6, the opening day of the delegation of 54

Shanxi, these questions attracted attentions from all delegation members and nearly 140 Chinese and foreign reporters on the spot. Why is Shanxi Coal Industry in Dificulty? “As a traditional coal industry base, Shanxi has more historical problems. The burden of coal enterprises is very heavy, and the whole industry is facing difficulties,” said Li Xiaopeng (李小鹏), a deputy to the NPC and governor of Shanxi province,

“The fundamental reason is oversupply. The core issue is that the management of coal industry doesn’t adapt to the new situation; that is, the management system of the government, industry and enterprises doesn’t meet the current needs of the coal industry’s development. At the same time, clean, safe, and efficient use is essential, that means only when coal is used in a clean way can the whole industry go out of the dilemma really. In addition, the continual decline of international commodity prices also has a significant impact on coal industry.”

Li Xiaopeng pointed out the difficulties that coal industry in Shanxi is facing can be described from three perspectives. First, the whole industry is experiencing “two declines and one rise,” that means decline of production and sales, decline of prices, but with rise of inventory. Data showed that last year Shanxi province sold a total amount of 816 million tonnes of coal, falling 26 percent compared with the previous year. Coal price fell for 55 consecutive months, and it has dropped by more than 60 percent compared with its highest level. Meanwhile, the coal inventory in Shanxi was about 50.76 million tonnes, 44.6 percent higher than that at the start of the year and three times higher than that at the end of 2011. “Secondly, coal enterprises are suffering from ‘two rises and one fall’, which means rises of accounts receivable and the corporate debt ratio and deep fall of returns of enterprises. Take the five major Shanxi provincial coal enterprises for example: till the end of last year receivable accounts had reached 67.82 billion yuan, 39.4 percent higher than at the beginning of 2015, and 2.4 times that of 2011. The debt ratio of the ive coal groups went to 81.79 percent in 2015, and the loss for the whole coal industry in Shanxi province in 2015 reached 9.425 billion yuan, and the decrease of proits and increase of losses reached 10.829 billion yuan on a year-on-year basis.” “Third, from the perspective of people’s livelihood, some coal enterprises delayed paying wages, or simply did not pay any social security or wages at all,” said Li Xiaopeng. When it came to the reason behind difficulties in Shanxi coal industry, Li Xiaopeng pointed out that it primarily laid in the unbalance between supply and demand. “The fundamental reason is 55

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oversupply. The core issue is that the management of coal industry doesn’t adapt to the new situation; that is, the management system of the government, industry and enterprises doesn’t meet the current needs of the coal industry’s development. At the same time, clean, safe, and eficient use is essential, that means only when coal is used in a clean way can the whole industry go out of the dilemma really. In addition, the continual decline of international commodity prices also has a signiicant impact on coal industry.” Coal Needs New Understanding “The reason for we consider coal to be such a serious source of pollution is that we don’t know enough about coal itself and about how to use coal as well,” said Li Ruifeng ( 李瑞丰 ), a deputy to the NPC and Dean of College of Chemistry and Chemical Engineering with Taiyuan University of Technology. He held that basic research on coal should be strengthened so as to help us better understand and utilize coal.

CEFC China Energy Journal

utilization.” The second is anthracite, which is used in the fertilizer and chemical industry. In the coming years, Shanxi should seize the opportunity provided by the “One Belt, One Road” initiatives and export anthracite to South Asia, where the level of agricultural production is relatively low. The third is thermal coal. The caloriic value of thermal coal in Shanxi is more than 7,000 kcal per kilo, and we hope Shanxi could join the integrated development of the Jing-Jin-Ji (Beijing-TianjinHebei) and provide more clean energy for this economic circle. The fourth is lignite. In Shanxi, the emission standard for low calorific value coal is almost equal to that for natural gas. Lignite can be made into active carbon to control water pollution, while biomass coal can be used to solve the problem of land pollution. “Coal looks black, but it is actually clean

Li Ruifeng pointed out that coal is a precious resource for Shanxi, and coal will still be China’s main energy for a long period of time in the future. Therefore, how to make good use of coal is very important. Coal in Shanxi should be managed on different categories, said Shen Ruitao ( 申瑞涛 ), a deputy to the NPC and deputy director of Shanxi Provincial Comm is s ion of Economy and Inform at i o n Technology. The first is coking coal, which is the precious resource not only for Shanxi, but also for the whole country. According to the existing coal reserves, technologies and speed of extraction, there are only 30-50 years left for the future extraction. “So we should protect coking coal as we treat the rare earth material in the process of development and 56

and green. Coal needs new understanding, and a new understanding of coal is to have a new understanding of Shanxi. When it can make full use of its coal resources, Shanxi will completely change its self-image,” said Wang Rulin, a deputy to the NPC and Secretary of the Shanxi Provincial Committee of Communist Party of China. He also suggested that depending on innovation, Shanxi can transform itself into a producer of high-end fuel oils and lubricant from coal, as well as develop and utilize associated resources of coal. Meanwhile, research and development, promotion, and application of utilizing coal as an alternative for petroleum products should also be done well. Shen Ruitao further added that, “methanol is also a good alternative automobile fuel. The Ministry of Industry and Information Technology has been collecting relevant information in Jinzhong city of Shanxi province since 2013, which proves that as an automobile fuel, methanol is not only energy-saving and environmentally-friendly, but also is of good economic beneits.”

“Our country is rich in coal but poor in oil and natural gas. Such a basic national situation requires that we must develop alternatives to oil. Coal could be the best alternative option. This is of great signiicance to our country’s energy security,” Wang Rulin ( 王儒林 ) concluded. Supply-side Reform Helps Coal Industry out of Plight To “revitalize coal industry through revolution”, the key is to vigorously push the energy revolution mainly in production and consumption, promote clean and efficient utilization of coal, and realize the transformation from traditional energy to green energy, said Zhang Youxi ( 张有喜 ), a deputy to the NPC and chairman of the board for Datong Coal Mine Group Co., Ltd. For enterprises, the main task is to perform well in the intensive and eficient exploration, local utilization, as well as the development of the circular economy, said Zhang. “We will promote the revolution in coal consumption, supply, management and technology and expand opening-up and cooperation in the coal industry. In the near term, we will implement the central government’s requirements on supply-side structural reform, put great efforts to promote the structural reform from the supply-side for the coal industry,” said Li Xiaopeng. He further stressed the following points. “First, we will solve the problem of excess capacity, and enhance high-quality capacity. Second, we will promote the revolution to improve coal administration. Third, we will actively and steadily carry out the reform of state-owned coal enterprises. Fourth, we will promote the scientific and technological innovation in coal enterprises, and speed up the process of tackling hard-nut problems within coal industry. Fifth, we will take coal as a medium to find partners, and promote win-win cooperation in coal industry.” 57

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CEFC China Energy Journal

advantage of superior quality, mature technology, high eficiency, low cost for exploration, lexibility in deployment, hydropower is expected to plan an important role of promoting energy revolution in production and consumption in China, enhancing the realization of China’s commitment on energy conservation and emission reduction, and achieving the objective of green development and ecological civilization in China,” said Zhang Jiyao ( 张基尧), Chairman of China Society for Hydropower Engineering at the forum. It is learned that hydropower accounts for more than 80 percent of the renewable energy in China, generating around 1.1 trillion kWh of electricity each year. It is forecast that by 2020, 2030, and 2040, electricity produced from hydropower will stand for a high ratio in renewable energy, which is expected to exceed 75 percent, 62 percent and 46 percent, respectively. Hydropower also accounts for more than 63 percent, 50 percent and 33 percent of the electricity output by non-fossil energy, respectively.

Bright Prospects Expected for Hydropower Development in the World Jin Yaqin World’s total hydropower installed capacity is to reach 2.05 billion kilowatts by 2050 and newlyinstalled capacity is to be 100 million kilowatts by 2030. As an important component of clean energy, the continuous development and utilization of hydropower has become a common understanding 58

worldwide. It was learned from China Hydropower Development Forum 2016 held in February this year that there will be bright prospects for hydropower development in the next two or three decades. By 2050, the installed capacity of hydropower around the world is expected to reach as high as 2.05 billion kilowatts, with a utilization rate of almost 50 percent. “As a clean and renewable resource with the

“By 2050, installed capacity of hydropower is still expected to grow continuously,” said Zhou Jianping ( 周建平 ), Chief Engineer of PowerChina Limited. “It is estimated that by 2030, the install capacity of hydropower will exceed 400 million kilowatts. By 2040, it will exceed 500 million kilowatts. By 2050, the level of hydropower development will reach current level of developed country.” Huge Potential for International Market Proactive actions in tacking climate change bring both sound opportunities for hydropower development in China and vigor to the world market. By the end of 2014, the global installed capacity of hydropower exceeded one billion kilowatts with

a utilization rate of about 27 percent, said Zhou Jianping. “Hydropower is the third largest source for electricity following thermal power and natural gas power, which currently accounts for 70 percent of renewable energy. In the near future, hydropower will remain to be a major kind of renewable energy.” Currently, some developed countries in North America and Europe possess a high level of development and utilization for hydropower. However, the level in Asia, Africa and South America is much lower, which also indicates huge potentials for future development and these areas will also be the world’s focus for hydropower development. “The utilization level of hydropower is less than 10 percent in Africa and about 18 percent in Asia. Considering resource conditions and market demand, the hydropower utilization will reach 32 percent and 46 percent in Africa and Asia, respectively, by 2050. The global utilization rate will then reach 51 percent by then.” Zhou noted. It is learned that the installed capacity for hydropower will reach 1.55 billion kilowatts worldwide by 2030 and 2.05 billion kilowatts by 2050. “From now to 2030, the newlyinstalled capacity for hydropower will be 500 million kilowatts, making the utilization level of hydropower reach 38 percent. China will have newly-installed capacity for hydropower of 100 million kilowatts by 2030,” Zhou added. Analyst said that among the newly-installed capacity of 500 million kilowatts in the world seen during 2030-2050 period, 150 million kilowatts of which would come from China and 350 million kilowatts from the rest of the world. However, it will still be a dificult task to develop hydropower in some developing countries, even in some underdeveloped areas with the aim of meeting the growing power demand, ighting against the climate change and reducing dependence on fossil energy. 59

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China Fastens Hydropower Development According to the latest statistics, China is planning to have a total installed capacity of hydropower at about 660 million kilowatts. The major waters for hydropower development, mainly located in Yunan province, Sichuan province and Tibet Autonomous Region, include the upstream of Jinsha River, Nujiang River, Yellow River, Dadu River, Yalong River and Yalutsangpo River, with installed capacity of hydropower expected to reach 170 million kilowatts in 2020, and 260 million kilowatts in 2030. As the Chinese economy enters into “new normal”, there have been significant changes in power market, with a sharp decline in social demand for electricity, while thermal power still grows. This has further worsened the unbalance situation in power supply and demand. Though more and more hydropower plants are put into operation, the demand for hydropower cannot meet requirements of the medium and long-term plans. Currently, for the development plan of “Eight Power Stations in One Reservoir” in the midstream of Jinsha River, as approved by the National Development and Reform Commission (NDRC), all others have been put into operation except for two of Longpan and Liangjiaren power stations. The Longpan Longtou power station, which was classified as a “project with priority for recent development”, was put aside for indefinite period. Zhou appealed that this project should be started as soon as possible. “Longpan Reservoir is the last super-large reservoir in China, which is also an indispensable component in flood control and allocation of water resources along the Yangtze River. It will create opportunities for transformation and upgrading of industrial structure and poverty alleviation in Longpan Reservoir area,” Zhou said. 60

It is learned that the planned storage capacity of Longpan Reservoir is 38.6 billion cubic metres, with a regulated storage capacity of 22.1 billion cubic metres. It is the optimal water source in the central Yunnan province. Heishanxia River in the upstream of Yellow River has a full length of about 200 km, with a natural fall of 137 metres. The available installed capacity is estimated to be 1.7 to 2 million kilowatts, which is expected to generate electricity of 7 to 10 billion kWh. However, there has been no plan for hydropower development up to now. As for hydropower development of Nujiang River with a debate lasting 12 years, Zhou considered that it should enjoy priority in development with reasons of the need of promoting regional economic and social development, minimal loss in hydropower project construction in the midstream and downstream of Nujiang River, small number of migrants, low development cost and short distance of power transmission. According to the Energy Development Plan in the 12th Five-Year period issued by the State Council, Nujiang Songta Hydropower Base is listed as a key project for construction, and projects in Liuku, Maji, Yabiluo and Sage are listed for construction in an orderly sequence. However, there has been no actual progress so far.