Dept of Energy DAS Swift Discusses South China Energy

UNCLAS SECTION 01 OF 02 GUANGZHOU 001023 SIPDIS SENSITIVE SIPDIS DOE FOR OFE DAS SWIFT E.O. 12958: N/A TAGS: ENRG SENV ECON PGOV CH SUBJECT: Dept of Energy DAS Swift Discusses South China Energy Situation with Industry and Academics (U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED. IT SHOULD NOT BE DISSEMINATED OUTSIDE U.S. GOVERNMENT CHANNELS OR IN ANY PUBLIC FORUM WITHOUT THE WRITTEN CONCURRENCE OF THE ORIGINATOR. IT SHOULD NOT BE POSTED ON THE INTERNET. ¶1. (U) Summary: In an August 26-30 visit to Guangzhou, Department of Energy (DOE) Deputy Assistant Secretary (DAS) Justin Swift gave the keynote address at an APEC conference on liquefied natural gas (LNG). Outside the conference, he met with local energy sector contacts. An academic who researches Guangdong Province energy policies described the province's efforts to reduce reliance on coal. The Guangdong Oil and Gas Association emphasized LNG as the solution to the province's energy problems, and a U.S. oil company complained of market access issues. End summary. APEC LNG Conference -------------- ¶2. (U) DOE DAS Swift traveled to Guangzhou August 26-30, 2007, to attend the U.S. Trade and Development Agency-sponsored APEC Natural Gas Utilization Workshop. DAS Swift gave the keynote address on the first day of the conference in which he emphasized the need for APEC economies to work together to better utilize their natural gas resources. More than 100 participants from 12 APEC economies attended the conference. It included sessions on gas exploration, gas monetization, managing risk and finance opportunities. Academic Outlines Guangdong's Energy Strategy -------------- ¶3. (SBU) Outside of the conference, DAS Swift met with ConGen Guangzhou contacts in the energy sector including Zeng Lemin, Deputy Director of the Guangdong Techno-economy Research and Development Center, with whom DAS Swift discussed Guangdong Province's energy strategy. Zeng told DAS Swift that both the Guangdong provincial government and Guangzhou municipal government are focused on increasing energy efficiency. He said that the central government had set a target for Guangdong Province to reduce its energy usage for every RMB 10,000 of GDP by 16 percent. Similarly, Guangzhou's target is to reduce energy usage per unit GDP by 18 to 20 percent. ¶4. (SBU) According to Zeng, Guangdong's electricity energy mix is approximately 60 percent coal, 20 percent oil, 10 percent hydroelectric power, and 10 percent nuclear. The provincial government has been working for several years to reduce reliance on coal and increase nuclear, wind and solar power usage. Zeng noted that Guangdong is planning new nuclear power plants using more advanced technology. In addition, there are now three wind power plants operating in Shantou, Shanwei and Jieyang, and the province is looking at new wind turbine technology that can be used over open seas. However, he explained that solar power usage is still small scale and experimental in nature. ¶5. (SBU) Zeng described Guangdong's efforts to use cleaner fossil fuels. In addition to the Dapeng liquefied natural gas (LNG) terminal in Shenzhen, he said the province is planning three more terminals in Zhuhai, Shantou and Zhanjiang. He explained that Guangdong currently obtains LNG from Australia, Russia, the South China Sea and Sichuan Province. Zeng stated that Guangdong consumes 6 million tons of liquefied petroleum gas per year (LPG -- usually composed of propane, butane or a mixture of the two),noting that Guangzhou has been converting buses and taxis in the city to LPG. A power plant is also under construction in Dongguan that will run on coal using cleaner integrated gasification combined cycle (IGCC) technology, he said. Industry Association Looking Toward LNG -------------- ¶6. (SBU) At the Guangdong Oil and Gas Association (GOGA),DAS Swift met with GOGA Chairman Wu Qingbiao. Wu emphasized LNG as the solution to Guangdong province's growing power needs. He said that the province currently consumes about 5 million tons of LNG per year, including 3.7 million tons imported through the Dapeng terminal primarily from Australia. Wu pointed out that before the Dapeng terminal was operational, most of the province's LNG was trucked over land from Xinjiang -- a 4,000 kilometer journey that took 10 to 11 days. Approximately 10,000 cubic meters of LNG was transported this way annually. Wu commented that this expensive and difficult transportation method underscored how badly the province needed energy. He identified only two additional LNG terminals planned for Guangdong -- in Shantou and Zhuhai -- compared to three named by Zeng. When asked by DAS Swift, Wu suggested that the new GUANGZHOU 00001023 002 OF 002 terminals could provide business opportunities for U.S. firms interested in assisting in construction. ¶7. (SBU) Wu downplayed the role of LPG in Guangdong's energy future. He explained that only Guangzhou was promoting LPG usage, partly driven by the desire to improve air quality before the 2010 Asia Games. He did not foresee LPG usage extending beyond public vehicles to private cars. Nevertheless, GOGA hopes Guangdong Province will start to promote LPG usage. ExxonMobil Concerned About Market Access -------------- ¶8. (SBU) General Manager Edmund Lo of Esso (Guangdong) Co. Ltd., ExxonMobil's local affiliate, complained of market access problems Esso has faced in South China. ExxonMobil has 18 service stations in Guangdong under the Esso brand name. In March 2007, the firm added 750 stations in Fujian Province, which use both the ExxonMobil and Sinopec names. Both operations are joint ventures with Sinopec. Lo noted that although the Fujian stations vastly outnumber the Guangdong stations, their average revenue is much lower. ¶9. (SBU) Lo said that despite recent measures to further open China's retail petroleum markets, foreign firms still faced restrictions. He indicated that ExxonMobil was doing very well in China in several other industry segments, highlighting that it is the market leader in lubricants. However, its retail business has suffered. He blamed a double standard for foreign and Chinese firms. Lo said foreign firms are unable to get permission to sell LPG at gas stations. He also objected to municipal governments that arbitrarily charged administrative fees to service stations. He explained that in Dongguan, the municipal government had imposed an administrative fee, telling ExxonMobil that it was applied to all service stations in the city. Lo later learned that other stations weren't paying it. He said a city official then suggested that the firm could negotiate the fee. ¶10. (SBU) In addition, Lo blamed ExxonMobil's difficulty in the retail segment on subsidies and other government efforts to keep gas prices low. He contrasted ExxonMobil's experience in Guangdong to that of rival BP. Lo said BP had agreed to sell gas at a fixed margin in Guangdong, expanding rapidly in the province in order to promote its brand image. The firm now has approximately 500 service stations in Guangdong. However, Lo explained, ExxonMobil had maintained a smaller presence because it believed that margins should reflect market demand, instead of prices set by the government. ¶11. (U) DOE DAS Swift cleared this message. JACOBSEN