INDEPENDENT NEWS

Cablegate: China/Xinjiang: Energy Sector Booms As Clean Energy Firms

Published: Thu 18 Feb 2010 09:45 AM
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P 180945Z FEB 10
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 8154
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
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RHEHNSC/NSC WASHDC PRIORITY
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RUEHEK/AMEMBASSY BISHKEK 1378
RUEHAH/AMEMBASSY ASHGABAT 0765
RUEHMO/AMEMBASSY MOSCOW 9492
UNCLAS BEIJING 000401
SENSITIVE
SIPDIS
STATE PASS USTR
STATE FOR EAP/CM-BRAUNOHLER
STATE FOR EEB/ECS
STATE FOR OES, OES/EGC, and OES/ENV
USDOE FOR INTERNATIONAL
USDOC FOR 4420
EPA FOR INTERNATIONAL/MKASMAN
E.O. 12958: N/A
TAGS: ECON ENRG EINV EPET SENV CH
SUBJECT: China/Xinjiang: Energy Sector Booms as Clean Energy Firms
Eye Overseas Expansion
REF: 09 Beijing 3326
SENSITIVE BUT UNCLASSIFIED: NOT INTENDED FOR INTERNET DISTRIBUTION
1. (SBU) Summary: While Xinjiang remains an important resource base
for traditional energy sources--including oil, natural gas, refined
petroleum products, and coal--the region has in recent years emerged
as a clean energy leader, according to local officials and business
contacts. Locally-grown clean energy firms have expanded quickly in
China and are eying overseas opportunities. The opening of the
China-Central Asia natural gas pipeline last December (reftel) was a
significant step forward in enhancing China's energy security and
will bring much needed natural gas supplies to eastern China. St.
Louis-based Peabody Energy, the world's largest private-sector coal
company, has opened an office in Urumqi and is actively pursuing
opportunities in Xinjiang's underdeveloped coal sector. End
Summary.
XINJIANG'S BLACK GOLD
---------------------
2. (SBU) During a visit to Xinjiang's capital Urumqi and the oil
cities of Karamay and Dushanzi January 25-29, Econoffs met with
local officials and business leaders who described the region as an
important resource base for oil, natural gas and coal as well as a
large producer of petrochemical products. According to Zhu Zian,
Deputy Director of the Xinjiang Development and Reform Commission's
(XJDRC) Foreign Investment Department, Xinjiang accounts for 30
percent of China's onshore petroleum resources and 34 percent of the
country's onshore natural gas reserves. In 2009, Xinjiang produced
25.18 million tons of crude oil (roughly 505,600 barrels per day)
and 24.5 billion cubic meters of natural gas.
3. (SBU) The heart of Xinjiang's oil industry lies in the cities of
Karamay and Dusshanzi along the western edge of the Junggar Basin.
Karamay (the name is a transliteration of the Uygur words for "black
oil") is home to the oldest oilfields in modern China which date
back to 1955. Zhao Wusheng, Vice Mayor of Karamay, noted proudly
that unlike larger oilfields such as Daqing in northeastern China,
the Karamay fields have increased their output for 27 consecutive
years. Emphasizing the importance of the oil industry to the local
economy, Zhao said oil accounted for 85 percent of local GDP.
DUSHANZI REFINERY AND STRATEGIC PETROLEUM RESERVES
--------------------------------------------- -----
4. (SBU) In Dushanzi south of Karamay, CNPC operates a 10 million
ton capacity refinery that produces ethylene and methanol as well as
refined petroleum products. According to media reports, China last
September began building national-level Strategic Petroleum Reserves
(SPR) facilities alongside CNPC's commercial storage facilities in
Dushanzi. NEA Director for National Oil Reserve Office Yang Lei
told Econoff February 9 the Dushanzi SPR is part of China's second
phase SPR program and will have a storage capacity of 3 million
cubic meters or approximately 2.2 million tons of crude oil. Fu
Jijiang, the Director for International Affairs at the Dushanzi
refinery, said the SPR facility will store crude oil from
Kazakhstan. He said crude oil from Karamay is of a higher grade
than Kazakh oil and therefore is better suited for refining.
NEW SILK ROAD OF ENERGY
-----------------------
5. (SBU) According to Xinjiang Experts Consultative Committee Senior
Economist Tang Yigai the opening of the China-Central Asia natural
gas pipeline last December (reftel) underscored Xinjiang's
importance as a vital transit route for Central Asian energy
resources. The natural gas pipeline and the existing
China-Kazakhstan oil pipeline (opened in 2006) are China's first
direct energy links with neighboring countries. Tang said Chinese
leaders were keenly concerned about energy security and wanted to
diversify supply routes and sources, citing current efforts to build
oil and gas pipelines connecting southern Yunnan province with Burma
and an oil pipeline spur connecting the Daqing oilfields to the
Eastern Siberia-Pacific Ocean pipeline in Russia. Tang went so far
as to say Xinjiang's role as an energy transit point was more
important to China than the actual energy resources in the ground.
According to CNPC statistics, the China-Kazakhstan oil pipeline
pumped 7.7 million tons (approximately 155,000 barrels per day) of
crude in 2009.
CLEAN ENERGY: GOLDWIND
----------------------
6. (SBU) Founded in 1998, Goldwind Science and Technology Company is
China's largest wind turbine manufacturer in terms of cumulative
installed capacity and ranks ninth among global wind turbine
manufacturers, according to Goldwind's government relations official
Tan Ying. By the end of 2008, Goldwind turbines represented 2,629
MW or 22 percent of China's total installed wind capacity. Although
Goldwind was founded in Urumqi, it has opened production facilities
in Gansu, Xi'an, Baotou and Beijing to meet China's booming domestic
demand. The company's core product is a 1.5 MW wind turbine it
co-designed with the German firm Vensys (which Goldwind has
subsequently acquired). According to Tan, Goldwind's 2.5 MW turbine
prototype is nearing completion and work is underway on 3.0 MW and
5.0 MW turbine designs.
7. (SBU) Goldwind, which is partially state-owned, is already listed
on the Shanghai Stock Exchange. The company is preparing for a Hong
Kong IPO later this year which is expected to raise USD 1.5 billion.
Goldwind's sales revenue more than doubled from 2007 to 2008, and
is projected to exceed 10 billion RMB in 2009. Goldwind primarily
markets its products in China but is looking to expand overseas.
Regarding central government efforts to deal with overcapacity in
the Chinese wind turbine industry, Tan said Goldwind would benefit
from these efforts. She said China had over 80 domestic wind
turbine companies and there was a need for greater consolidation in
the industry.
SUN OASIS SOLAR COMPANY
-----------------------
8. (SBU) During a factory tour January 28, officials from Xinjiang
Sun Oasis told Econoffs the company was producing solar photovoltaic
(PV) cells for a joint venture project in Xi'An with BP Solar. Sun
Oasis has a manufacturing capacity of 200 MW per year and the
majority of the solar panels are sold overseas. According to TBEA
Deputy General Manager Liu Gang, prices for solar PV in China have
fallen dramatically in recent years and were now roughly 0.9 RMB per
kilowatt hour. He said prices needed to drop to 0.3-0.4 RMB per
kilowatt hour to be competitive with coal-fired thermal power
plants. TBEA is the parent company of Xinjiang Sun Oasis and,
according to Liu, is China's market leader in the production of high
voltage transmission cables and transformers. He noted TBEA's
chairman would visit the United States in February to learn more
about developments in the U.S. Smart Grid sector.
COAL: PEABODY COMES TO URUMQI
-----------------------------
9. (SBU) According to XJDRC Deputy Director Zhu, Xinjiang holds 40
percent of China's coal but the reserves are underdeveloped due to
transportation and transmission bottlenecks. Senior Economist Tang
told Econoffs January 26 Xinjiang officials are advocating for
greater central government support to develop Xinjiang's coal
industry in the upcoming 12th Five-Year Plan (2011-2015). Xinjiang
Foreign Affairs Director Ren Xinjun claimed work would begin next
year on a high-speed rail link connecting Beijing and Urumqi which
would free up cargo capacity on the existing rail system.
10. (SBU) Looking to help develop Xinjiang's coal resources, St.
Louis-based Peabody Energy opened an office in Urumqi last December.
Peabody's Head of Project Development for Xinjiang Sydney Parkhouse
said Xinjiang's coal reserves are estimated to be 2 trillion tons,
but production output last year was only 80 million tons. As China
continues to close smaller coal mines in central China, Parkhouse
said, the need will grow to develop mines in Xinjiang to meet the
country's growing coal shortages.
11. (SBU) Peabody has formed a partnership with Shanxi Lu'An Mining
Group to develop an open-cut coal mine in the Hami area of eastern
Xinjiang. Parkhouse said the site has the potential to become a 15
million ton per year operation. Peabody understands winning
approval for the project will be a multi-year process but is
confident the company's established track record of operating large
open-cut mines will prove attractive to Chinese officials. [Note:
Peabody is the only non-Chinese equity partner in GreenGen, a
multi-phase commercial project combining a 650 MW IGCC plant with
carbon capture for enhanced oil recovery and polygeneration. End
Note.]
HUNTSMAN
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