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China To Meet Lack Of Pipelines

China confronts lack of pipelines

China will spend about $3.4 billion over two to three years laying thousands of miles of oil pipelines to help secure its energy supply in the face of soaring prices and demand.
With rickety infrastructure threatening economic growth, state oil giants China National Petroleum Corp. and Sinopec Corp. are leading the drive for an oil pipeline grid totaling about 6,000 miles.

That would exceed by almost 70 percent the total built in the last three decades.

Most of China's pipelines were built near aging oil fields in the east before 1993, when China became a net oil importer. Rail and small barges are the main modes of transporting oil in the vast inland. But stellar economic growth in the world's second-largest oil consumer has severely stretched its outmoded infrastructure, worsening a shortage of oil, coal and other raw materials.

"It was very necessary to build pipelines ... as China has been relying on rails to transport almost all its raw materials and the rail system has come under tremendous strain," said Han Wenke, deputy director general of Beijing-based Energy Research Institute, a government energy think tank.

Local firms being used
The main projects include two trunk lines moving surplus oil from the remote northwest, a crude pipeline linking central Asia's Kazakhstan to the northwest, a crude oil line along the Yangtze River and an oil products grid in Guangdong province. Local companies are building the pipelines.

China is speeding construction of about 3,730 miles of pipelines to move natural gas from the resource-rich but economically backward west to the booming east coast, with the West-East gas line project.

Energy security
The development of oil infrastructure would help top state oil group China National make its operations cost-effective, as well as secure its oil supply and help Beijing develop the country's economic backwaters in the remote west.

The state giant, parent of New York- and Hong Kong-listed PetroChina, sealed a landmark deal with Kazakhstan in May to lay a pipeline from the landlocked Central Asian nation to China's northwest Uighur region of Xinjiang.

Diversifying suppliers
Work on the $1 billion, 770-mile project is to start this month and is scheduled for completion by the end of 2005 with initial capacity of 200,000 barrels daily, Chinese official media reported.

"Geopolitically, China needs Central Asia for security of supply," said Wu Jun of independent China energy consultancy Ejin.

China, now buying one out of every five barrels of crude oil it consumes from the volatile Middle East, has been trying to diversify its supply sources.

The Kazakh pipeline became even more crucial after the $2.5 billion Russia-China crude pipeline was stalled by Moscow's indecision over the route and then by the financial crisis faced by the leading Russian party, oil giant Yukos.