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

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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

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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