FHI, 6 April 2004 FHI, 6 April 2004 ((Federation Technology Branches ~) Federation Technology Branches ~) (Measurement Equipment for Oil and) (Measurement Equipment for Oil and)

(Gas Pipelines)(Gas Pipelines)

Go to China or Go to China or Go out of Go out of Business !Business !

Reflections on China’s Global Industrial Reflections on China’s Global Industrial and Mega-Infrastructural Revolution and Mega-Infrastructural Revolution

Willem van Kemenade Website: www.willemvk.org E-mail:

kemenade@xs4all.nl

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China: The Workshop China: The Workshop of the of the WorldWorld• “Ten years ago, SE Asia attracted half the FDI into Asia outside

Japan, and China only 20 %. … Now the proportions are reversed. China has become the world’s biggest centre for the manufacture of primary goods and everyday industrial products, taking over the role that used to be filled by Britain (middle 19th century), the US (before WW II) and Japan (1970s-1990). With WTO entry and the reduction of import tariffs and quota’s this will intensify”.

• Main reasons: abundant, cheap good quality labor. Supply of locally made parts and components also cheapest in the world, proximity of port like Hong Kong.

• SE Asian countries at first felt threatened by the exodus from their countries of multinationals, Japan feels threatened by relocation of Japanese companies to China.

• China, however stresses its “rise” as “peaceful”, behaves like a “benevolent big brother” and imports huge quantities of raw materials, components and commodities from SEA and luxury goods from Japan.

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Comprehensive Comprehensive Infrastructure Infrastructure Goals by 2010Goals by 2010

• By the year 2010, the rail and road networks will be extended to 100,000 km (from 70.000 in 2000) and 1.4 million km. (1.25 m) respectively while 1,000 deep water berths (600) in the major seaports will become available.

• Additionally, about 300 well equipped airports, modeled on the Beijing International Airport (40), will also be available so that transport efficiency, safety of operations and quality of services would meet the demands expected by national economic and social development.

• China plans to spend $ 22 bn on roads, subways and stadiums for the Summer Olympics in 2008 and more on the World Expo in Shanghai two years later.

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The Golden Age of The Golden Age of Driving in China Driving in China

• The world's last big “communist” country has opened the way for public companies to finance the modern highways that more and more of its motorists are paying to use, tripling the length to 158,000 kilometers from 45,000 kilometers a decade ago.

• Highways increasingly ring major cities; and most are free of charge. Arteries connecting and spanning the provinces, which charge a toll, are being financed by private investment capital, rather than by state funds.

• The Jiangsu-Anhui Expressway and Zheijiang Expressway are the most attractive investor-owned highways in China.

• Freeways Tongjiang – Sanya (4.000 km) and Shanghai – Kashgar (5.000 km) are in advanced stage of construction.

• These new highways are reminiscent of the 1950s U.S. interstate program, which intensified America's love affair with the automobile and opened up new sections of the country to commerce.

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China’s Strategic Shift away China’s Strategic Shift away from the Middle East and from the Middle East and from Oil and Coal to Gas from Oil and Coal to Gas

• China, which relies on coal and oil for 90 % of its fuel, wants gas to account for 8 % of energy supply by 2010 from about 3 % now. The government is encouraging power producers, such as China National Offshore Oil Corporation (CNOOC) to switch to natural gas to cut pollution in all major cities.

• CNOOC last October signed an initial agreement to buy liquefied natural gas from ChevronTexaco's proposed A$ 11 billion, or US$ 8.2 billion Gorgon project off northwestern Australia, which the West Australia State government said might lead to more than 100 million tons of LNG over 25 years.

• A series of LNG terminals and pipelines will have to be built along the East-China coast.

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Sino-Russian Energy Cooperation Sino-Russian Energy Cooperation suffers a Setback suffers a Setback

• In the context of their strategic cooperation in Central and North- Asia, Chinese and Russian interests seemed to culminate in long term cooperation in the energy field. China hoped to cooperate with Russia and Central Asia to immunize itself from American domination and against a potential blockade of energy supplies from the Middle East.

• However, Russia, after long negotiations with China about a 2.400 km $ 1.7 billion pipeline from Angarsk near Irkutsk to Daqing in Heilongjiang - in mid-March – decided in favor of a rival Japanese plan, a 3.800 km pipeline which will run to the Russian Far Eastern port of Nakhodka near Vladivostok.

• This is perhaps a serious setback for Sino-Russian strategic cooperation. The Japanese arrangement would purportedly allow for greater access for Russian oil to world markets, including the US.

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China’s Primary Energy-Focus China’s Primary Energy-Focus is now on is now on Kazakhstan Kazakhstan • Spurred by Russia’s reneging on the pipeline to Daqing, president

Hu Jintao, during a visit to Astana in June 2003, concluded a landmark deal – in the works since 1996 - for a 3.200 km pipeline from the Caspian Sea to Xinjiang.

• Work on the pipeline will start this spring and by 2015 it may pump 3.5 m barrels a day to China.

• China’s energy drive into Central Asia may transform the Sino-Russian relationship from a cooperative towards a competitive one.

• For the US and Europe, China's moves have inserted a volatile new factor into the Caspian balance-of-power equation. Beijing's growing influence could challenge the post-September 11th regional designs of both the U.S. military and of an expanding NATO.

• But more than anything else, Beijing's emergence as a regional player suggests that the rules of the new "Great Game" have changed dramatically.

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The On- and Off Game with The On- and Off Game with Shell’s Mega-ProjectShell’s Mega-Project• In July 2002 Shell, ExxonMobil and Gazprom signed a framework

agreement with PetroChina for a 3.900 km pipeline, from Xinjiang to Shanghai. It is one of China’s biggest projects, and a key part of its campaign to shift consumption from polluting coal to natural gas.

• Ever since, Shell has been struggling to complete the $ 18 billion contract. Shell insisted on a return on investment target of 15 % but PetroChina has been unable to agree a price at which the gas is to be sold in eastern provinces, in particular to industrial customers such as power plants, which are expected to make up half the buyers.

• The largest Shell project still under construction is the $ 4.3 billion petrochemical plant in Nanhai near Hong Kong together with Sinopec (China National Offshore Oil Corporation – CNOOC)

• On March 17, 2004, Chinese officials made clear that negotiations with Shell were making little headway and they were convinced Petrochina can manage the project by itself. A Shell spokesman said negotiations were continuing without deadline

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Pipeline Construction in the Tarim Basin

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Nanhai Petrochemical Project Construction

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The East-China Offshore The East-China Offshore Gas PipelineGas Pipeline

• After eight years of negotiations, executives from CNOOC, Sinopec, Royal Dutch/Shell Group and Unocal signed a series of contracts in Beijing in August 2003 to begin producing gas from two areas of the Xihu Trough, a geological formation 250 miles, or 400 kilometers, southeast of Shanghai, and to explore three more areas of the trough.

• CNOOC, short for the China National Offshore Oil Corp., and Sinopec will each own 30 percent of the project while Shell and Unocal will each have 20 percent.

• The project is slated to begin sending gas to Shanghai by pipeline by the middle of 2005. An executive at one of the four companies involved in the transaction put the cost of the project's initial phase at $850 million.

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The Lake Baikal ~ The Lake Baikal ~ Northeast China Northeast China PipelinePipeline• In October 1993, Rusia Petroleum,

Petrochina and Korea Gas signed another major contract for a $ 12 billion, 3.900 km gas pipeline from East-Siberia to China and Korea.

• The pipeline will run from fields, named Kovykta near Lake Baikal in eastern Siberia, will skirt Mongolia, running via Harbin in Manchuria and then on to South Korea via the Yellow Sea.

• The project will send 20 billion cubic meters, or 706 billion cubic feet, a year of gas to China, two-thirds of its consumption last year. South Korea will get another 10 billion cubic meters a year for more than two decades.

• Kovykta has estimated gas reserves of about 1.8 trillion cubic meters, worth more than $100 billion.

• China's government is encouraging state-run oil companies to buy more oil and gas reserves abroad, preferably in countries outside the Middle East where it believes American influence is a negative.

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The “Three Gorges The “Three Gorges Dam”: Dam”: Biggest Biggest Infrastructure Project Infrastructure Project Since the Great Wall Since the Great Wall • After the closure of the gates and the filling of the reservoir in June

2003, China is still dealing with issues of mind-numbing complexity in the effort to ensure that the benefits of the project are not outweighed by the costs and risks.

• Three main problems have yet to be resolved: 1) The discharge of silt by the outlets at the base of the dam; 2) The area affected by the project has been greatly underestimated; and 3) Safety issues related to potential missile attacks on the dam.

• The waterlevel in the reservoir is now 135 m and by 2005 will be 156 m. Some want to raise it to 175 m by 2010, which will bring in much more sediment and will likely require the resettlement of an additional 150,000 - 200,000 people.

• The higher waterlevel will also increase the risk of earthquakes. • China's Three Gorges area desperately needs to revamp its tourist

attractions as other industries go to the wall, officials say.

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““Moving Southern Water North”Moving Southern Water North”• Water-shortages and drought are the worst ecological disaster in

the world since the Soviet Union dried up Lake Aral in Uzbekistan.• After years of debate, the first phase of a $ 59 bn 50 year project of

transporting water from the south to the north started in December 2002. It will be a 1.300 km aqueduct, running uphill from the Yang Tse near Shanghai to the Yellow River in Shandong.

• The second phase will run via canals and pipelines to the north from the Han river, a tributary of the Yangtze near Wuhan. This phase is more feasible because the gradient is mostly downhill.

• A third, to be finished by 2050, will cut through the high mountains near Tibet to link the Yangtze with the headwaters of the Yellow River, which chronically dries up from overuse.

• The advantage of the western line is that water is plentiful in these high altitude areas, and populations sparse. The main drawback is the water would have to be transported more than 1.600 km through a combination of canals, pipelines, aqueducts and other structures - running up huge costs.

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Think Big and Think Big and Go West Brother !Go West Brother !• During 1980s focus of development was on East Coast; during

1990s on Yang Tse-basin. Latest shift is to huge western region.• Occupying 5.4m sq.km., Western China has a population of about

300 million and includes ten provinces. However, it attracts only 3 % of national aggregate total of foreign investment

• Economic growth in Guangdong averaged 14 % between 1978 and 1998, in Qinghai only 6.9 %. For the sake of national unity and stability, the widening disparity must be bridged. National wealth has to be redistributed.

• Key projects: a $ 18 bn. 4.200 km gas pipeline from Tarim Basin in Xinjiang to Shanghai, a $ 2.5 bn. railway from Qinghai to Tibet, a rail-link Kashgar-Kiev (the Southern Eurasian Land Bridge), 20 new airports, solar-, wind- and hydroelectric power stations. Opening of Xi’an to foreign banks etc.