China: Panda or Dragon?

This article appears in the August 2008 issue of Oilweek.

By Peter McKenzie-Brown

A symbol of unrivalled wisdom and power, China’s dragon is a long, scaly, snake-like creature with the paws of a tiger and the claws of an eagle. This chimera is an emblem of ancient imperial power. Indeed, the dynastic emperors were known as dragons.

The revolutions of the twentieth century made a break with the past, and the present regime does not think the dragon is a proper symbol of China. Instead, the country’s rulers prefer to use the giant panda – that loveable, bamboo-eating member of the bear family – as the national emblem. By tradition a rare and noble creature, the panda has been part of diplomacy since 685 CE, when an emperor of the Tang dynasty sent a pair to his counterpart in Japan.

As the world sets its eyes on Beijing, where the Olympics will showcase progress since the death of Mao Zedong two decades ago, this commentary asks a simple question. Is the panda in charge of Chinese energy strategy, or is it the dragon? From the security of its bamboo forest, the gentle panda would stress comparative advantage. The dragon would rely on cunning, speed and power.

The charts below show growth in China’s oil consumption (top) and the country's oil production - both since the death of Chairman Mao

Until 15 years ago, China exported oil to neighbouring countries. Today, it has an almost insatiable appetite for the stuff. Since the Great Helmsman’s death in 1976, the People’s Republic has become the world’s second largest oil consumer (behind the U.S.) During those years Chinese consumption has quadrupled to about 7.7 million barrels per day while production – about 3.7 million barrels per day – has barely doubled.

The International Energy Agency thinks China will burn 16.5 million barrels per day by 2030, after buying 13.1million barrels abroad. Think about it: Saudi Arabia’s total output is now less than 11 million barrels per day.

Thrift: This article suggests that such parabolic growth requires the skills of the dragon to survive. In that spirit, China is now applying its extraordinary energy in four ways to meet its petroleum and other resource needs. The first is domestic resource development. Diplomatic manoeuvres on behalf of its petroleum industry are the second. The third involves partnerships with Western companies. Last is what the mandarins call “thrift.”

Based on efficiency, conservation and innovation, thrift is sometimes called the fifth form of energy.

China’s rise is making the world a more energy-efficient place. The country’s energy intensity – the amount of energy it uses per unit of GDP – has dropped by about 75% in the last 20 years, largely because of more efficient industry. Its energy intensity higher than America’s but lower than Canada’s, in 2006 China adopted the slogan “Save energy, cut emissions” as part of a drive to cut energy intensity even further. The country is thus improving its energy efficiency while increasing its energy-intensive role as workshop of the world. So don’t blame the Chinese for the world’s energy woes. They are doing an effective job of managing energy.

A latecomer to the world’s petroleum stage, China is now simultaneously the world’s second-largest oil consumer, the third-largest net importer, and the fifth-largest producer. In the last 15 years the dragon has been sending its agents into the world to secure the new energy supplies it desperately needs. Compared to the West’s international producers, China’s national oil companies arrived late to the petroleum Olympics, and they are not large contenders. The prizes left in play are expensive, and often in countries where Western companies refuse to operate because of human rights issues and geopolitical risk.

Through petroleum-related state-owned enterprises (SOEs) – China National Petroleum Corporation (CNPC), China National Offshore Oil Corporation (CNOOC) and China Petroleum and Chemical Corporation (Sinopec) – China started investing outside the country in 1993, just as the country became a net oil importer. China’s first petroleum acquisition was in Thailand, but CNPC acquired exploration acreage in Canada and Peru the same year. The amount of equity oil generated by those projects was relatively insignificant, and this remained the case for several years.

In terms of Canada’s ties with China, 1997 was an important year. As the British were preparing to return Hong Kong to China, Sir Li Ka-shing, the colony’s richest man and chairman of the Hutchison Whampoa conglomerate, became the owner of Husky Energy. Husky’s headquarters continued to be in Calgary, and the acquisition did not affect the company in the short term. However, Husky has since expanded its assets offshore China, and is now the largest foreign owner of exploration blocks there. All its holdings there are in the South China Sea.

Since 2001 Husky has signed eleven production sharing contracts in collaboration with the China National Offshore Oil Company (CNOOC) – now publically listed, but 70% owned by the government of China. Husky can participate in these projects up to 51%, and the company describes its entry into China as part of a strategy to develop conventional oil and gas outside North America. Certainly the company is also part of Chinese strategy, also. It is one source of capital for mandarins focused on securing energy supplies by developing the Middle Kingdom’s domestic resources.

The Venezuela Card: China cannot secure Canadian oil supplies as long as the only export pipelines from Alberta lead into the United States. Especially after the two countries announced in 2005 an agreement on energy cooperation, it was therefore astonishing when CNPC announced last year that it had pulled out of an agreement to take a 50% stake in the proposed Enbridge-operated Gateway Pipeline. When completed, the pipeline will transport 400,000 barrels of oil per day to Kitimat BC for overseas export. According to the terms of the original deal, CNPC would take 200,000 barrels per day of throughput, with the balance being exported to refiners in California. If the line had been expanded to 800,000 barrels per day capacity, CNPC could have acquired a larger stake.

For a country with rapidly rising oil demand, what’s not to like about this deal? When PetroChina vice president Song Yi-wu announced the dragon’s decision, he put it in the political context of a nation re-evaluating its commitment to Canada’s oilsands.

Projects take too long to get off the ground here, he said, and the political environment “frustrates” Chinese investors. Song said China would slow down its involvement in the Canadian oilsands business, give up its involvement in the Gateway pipeline project and wait for better investment policies and politically friendly opportunities in the future. Translation: Chinese policy-makers were frustrated over the unwillingness of Canadian producers to partner with CNPC in a production/refining venture that would see Canadian bitumen and heavy oil sent to Asia for processing.

Forecasting that CNPC couldn’t begin to produce bitumen from the oilsands for at least another decade, he made it clear that China’s near-term heavy oil strategies were pointed directly at Venezuela, where a “warm-hearted” President Hugo Chavez has taken steps to nationalize oil operations. Song said China is building energy security for its people in “politically friendly” countries, which include Venezuela, Saudi Arabia, Russia and a host of Asian and African nations – Burma, for example, and Sudan. Call it the Venezuela card.

The Venezuela card suggests a competitive advantage for China that Western countries often will not play. The dragon sees oil security as an urgent need, and is willing to exert whatever cunning, speed and power it must to meet its future needs. Not surprisingly, given its political structure and domestic situation, China will not let issues like liberal democracy and human rights stand in the way of its quest for energy.

Do Western oil companies let political and human rights niceties stand in the way of business? It’s a matter of degree, of course, but it is not difficult to find examples of North American and European companies pulling out because of political risk and public pressure based on human rights abuses. In Canada the most famous case is that of Talisman.

Ten years ago the company acquired a 25 percent interest in a developing oil project in Sudan. The production facilities, pipeline and offshore loading terminal were being built and the wells were being drilled. By the summer of 1999, oil was flowing and being exported. By 2002, the project was producing 240,000 barrels of oil a day, with the equity oil being distributed to the project’s participants, three of which were subsidiaries of state-owned oil companies from China, Malaysia, and Sudan. The only privately owned company in this consortium, Talisman bowed to public pressure based on Sudan’s human rights record and sold its 25% interest to an oil company owned by the government of India.

The pattern is clear. The Asian players were unconcerned about human rights. There is a subtext here about Asian strategies toward energy. Especially in the face of a high-profile divestment campaign like that launched against Talisman, Western companies will buckle in the face of pressure related to human rights, environmental integrity and so on. Chinese and other Asian companies will not. For example, all three of China’s oil and gas SOEs are active in Burma. Latecomers to the petroleum Olympics, they measure petroleum victory in terms of land, reserves and production.

Comparative Advantages: Chinese industry’s willingness to overlook “soft” issues like human rights gives it a distinct comparative advantage. China’s willingness to bring diplomacy to bear on behalf of its SOEs gives it another. These advantages are rebalancing the planet toward East Asia. The dragon is rising.

Chinese energy policy is directed by government, and some 70% of the world’s petroleum resources are now controlled by national oil companies like Saudi Aramco and Petróleos de Venezuela. State-to-state negotiations are especially important when one of the participants is an emerging superpower.

Much of China's efforts are directed to the energy-rich nations of Central Asia, which can deliver energy overland instead of by tanker. For example, a trans-Kazakhstan pipeline is already delivering oil from the Caspian Sea.

Two other factors in China’s favour deserve mention. One is that Southeast Asia is home to many in the Chinese Diaspora – the descendants of the many waves of migration from China over the last millennium. Particularly as colonialism collapsed after the Second World War, they came to control great assets and even some national economies. By some estimates the third largest economic entity in the world, the Overseas Chinese began repatriating capital to China in the 1990s, thereby igniting the Chinese miracle. Today they occupy key positions in Southeast Asian business and government, and strengthen local ties with China.

Another factor working for China began during Cultural Revolution – that decade of social, political, and economic madness from 1966 until the arrest of the Gang of Four. Despite mutual fascination and incomprehension, during those years black African governments and African revolutionary movements were the recipients of Chinese aid (both military and economic) and other diplomatic efforts. African governments – many of them successors to those revolutionary movements – remember China’s efforts during that time. That diplomacy is now paying off with preferential access to petroleum leases and production sharing contracts.

A classic example is Angola, in West Africa. Mainly because of the expansion of its oil industry that country has the fastest-growing economy in the world, and its growth is mainly driven by Chinese explorers and producers. China’s SOEs got access to Angola’s offshore as a ‘Thank you’ to the People’s Republic of China. Despite desperate poverty at home during the Cultural Revolution, the dragon still found the wherewithal to support Angola’s independence movements during those critical years.

China’s Peaceful Rise: A final point deserves comment. In the late 1990s, China’s central government developed what it called “the new security concept.” The idea is that the Cold War mentality of antagonistic blocks no longer makes sense. In a globalizing world, nations can increase their security through diplomatic and economic interaction. This notion has become part of a foreign policy doctrine known among diplomats as “China’s peaceful rise” – a policy that, for example, encourages Chinese businesses to form partnerships with Western firms. For Canada, which is one of the few countries likely to increase production in the coming decade, it has important implications.

Consider, for example, that Enbridge is undeterred by CNPC’s decision to pull out of the Gateway Pipeline. “The appeal (of this pipeline) to Canadian producers is that you would get another bid on the crude oil from somewhere other than the United States,” said Enbridge’s executive vice president, Steve Wuori. Also, of course, pipeline costs would be less.

“When (Enbridge) first started we were aiming (to complete the project in) 2011,” Wuori says. “But now we are targeting 2012-2014.” Will Canada be able to supply new markets with heavy? Wuori thinks so. “Production forecasts up to 2020 for the oil sands support that kind of growth potential, even if you risk it for economics and environmental concerns.”

Although China has placed less than 1% of the $50 billion investment in the oilsands since the early 1990s, it is still part of the equation. China’s most significant direct investment has been the SinoCanadian Petroleum joint venture, through which Sinopec owns a 40% stake in Synenco’s Northern Lights project. CNOOC made its presence known with the acquisition of a small interest in MEG Energy, which is focusing on a project at Christina Lake.

Obsessed with diversifying its oil sources and avoiding dependence on a single supplier, Beijing sees Canada as a country in the U.S. sphere of influence, a country where oil could be held hostage to political concerns. It has little enthusiasm for multibillion-dollar oil deals in a country whose relations with China have been soured by human-rights disputes. Think Tibet.

“China doesn’t want to make a multibillion-dollar commitment to a country where the political contacts are constrained,” says Jiang Wen-ran of the University of Alberta’s China Institute. Professor Jiang adds that the Middle Kingdom worries about Canada’s business practices. Canadians can’t explain how they will triple production from the oilsands given environmental constraints. The costs of environmental protection seem out of control. Labour costs are reaching the moon.

The Panda Speaks: This article has focused on the areas of Chinese petroleum development where Westerners are more likely to see a dragon than a panda. Of course, in modern China it is the giant panda that speaks for the neo-imperial court. To conclude, let’s listen to what this species has to say.

According to China’s State Council, a policy-making arm of the People’s Republic, “The basic themes of China’s energy strategy are giving priority to thrift, relying on domestic resources, encouraging diverse patterns of development, relying on science and technology, protecting the environments, and increasing international cooperation for mutual benefit.”

The panda adds that its energy development is based on “the principle of relying on domestic resources and the basic state policy of opening to the outside world.” In its efforts to ensure a stable supply of energy, the country wants “a steady increase in domestic energy production.” It also wants to “promote the common development of energy around the world.” China’s energy development “will bring more opportunities for other countries.” It will “expand the global market, and make positive contributions to the world’s energy security and stability.”

All this will help perfect the national system of “socialism with Chinese characteristics.”

Can Less Oil Consumption in the West Lead to Lower Global Demand?

By Peter McKenzie-Brown Until recently, there has been a constant refrain to the effect that Western economies seem undeterred by higher oil prices. Demand destruction does not seem to be taking place within OECD, even at today’s high numbers. The gist of the argument is that, compared to the situation in the 1970s, for example, oil is such a small part of GDP that the impact of energy prices is almost negligible. A lot of industrial demand destruction took place during previous periods of high prices, in the 1970s and 1980s. More recently, it has been taking place through the outsourcing to emerging economies of oil-intensive manufacturing. The chart shows that in transport, where fuel costs are almost everything, these notions do not apply. The ratio of the Dow Transports to the price of oil, which you calculate by simple division, illustrates how profoundly the lowest oil prices of recent years (1997-1999) helped boost such transportation industries as railways, airlines, trucking and shipping. It also shows how negatively higher prices have affected transportation shares in the years since. Here is the same chart in less abstract form, displayed in terms of its two constituents. In this chart and the one above, the RSI (relative strength index) and MACD indicators apply to the transport index. Click on the charts to see them full size, or click here for updates on the charts used in this article. There is nothing particularly profound in pointing out that the transportation industries are strongly affected by higher oil prices. To use air travel as the most obvious example, fuel represents something in the order of 60% of its operating costs. To what extent is that affecting other parts of the economy? High energy costs are causing industry outside the transportation sector to find ways to cut per unit energy costs, and that is significant. Also, North Americans are buying more energy-efficient vehicles, but so far that has been more a trickle than a flood. However, this chart suggests what I think may be a coming sea change in North America’s energy consumption behaviour. Before you read my interpretation of this graphic, see whether you can figure out why. NYMEX gasoline futures have only been traded for four years. Since data is so limited, we have to be careful how we interpret this chart, which shows wholesale gasoline and oil price changes, and also indicates (vertical blue lines) America's driving season. When I look at this chart three things seem obvious. The first is that gasoline prices peak during the American driving season. That makes sense, since the summer months are the period of peak demand. My second observation is that peak gasoline prices during the driving season are higher than the relative changes in the price of oil by a considerable margin. The third is that wholesale prices are reaching new highs well ahead of the driving season this year, reflecting much higher crude prices. To my mind, all this suggests a steep spike in gas prices coming, and a change in the recent dynamics of crude oil's crack spread. We Canadians, who buy gasoline in litres, pay the equivalent of about $4.50 per gallon out of smaller per capita incomes. Even at those prices, we are paying barely half of most European prices. But our American neighbors are complaining about pain at the gas pumps with gasoline below four bucks a gallon. Will much higher gasoline prices this year finally cause them to begin changing their driving habits? I should think so. Perhaps, like Canadians, they will finally begin driving smaller, more fuel-efficient cars, drive less and so on. If so, that would be a good thing, and it would lead to continued crude oil demand destruction, although on a small scale. There is solid evidence for this in a number of areas. US gasoline inventories are at their highest levels since 1993, for example, and gasoline demand is trailing last year's level. (However distillate fuel inventories - diesel and heating oil - are lower than last year, especially in the Northeastern US market.) Will these developments lead to global demand destruction? Not according to an excellent commentary from Paul Hodges. Hodges acknowledges that demand in OECD countries is flat to declining. "The major influence is the weather. This year is seeing a mild winter, so demand will probably be down around 1mbd (million barrels per day)." However, he says, demand outside OECD is growing at around 1.6 million barrels per day per year.

This is focused on China (390 thousand barrels per day growth in 2008), Saudi Arabia (150 kbpd), other Middle East (330 kbpd) and India (140 kbpd). The common characteristic of all these areas is a relatively young population, growing incomes, and heavily subsidised oil product prices. There seems little chance of any of these factors changing in the next few years. Governments do not want to stir up social unrest by increasing domestic prices, and have no pressing need to do so as they all have healthy fiscal positions. 2008 is also likely to see a particular boost in China in the use of transportation fuels, due to the Olympics.

Compressed Gas Hits the Metals Markets

By Dave Dubyne In mid-June, Chongqing City held its tenth anniversary as a Special Economic Zone in western China. The city government held a fireworks display on the waterfront, with 120,000 fireworks explode in the sky. Traffic was a gridlocked mess and the business district came to a standstill. Bus engines idled and drivers continued to blow their horns as if doing so would move traffic. Walking along, I noticed the relative lack of air pollution for the large amount of vehicles. The thought dawned on me that if I were in Bangkok the air would be a toxic black cloud. Why are there such pollution differences in gridlocked Asian traffic, and how does all this relate to Peak Oil? In his book GeoDestinies, Walter Youngquist argues that the fuel of the future will be electricity, rather than a liquid we pump from the ground. Wandering along through gridlocked traffic I saw all around me a vital interim step between fossil fuel liquids and electricity: Compressed Natural Gas (CNG). You may not see the connection, but for me – I live in China and study the commodities markets there – the light bulb clicked on. Presently several cities in China run their entire public transportation systems on CNG: from taxis and buses to city utility vehicles, it’s all CNG. Shortly, as the world wakes up to the fact that crude oil supply will soon peak and then decline, there will be a panic for better alternatives for our transportation and delivery networks. I spotted a taxi with its hood open and gave the driver 10 Yuan (about $1.50) for a tour of the vehicle’s CNG system. I wanted to see the main components, and what they were made of. Then I conducted a thought experiment, imagining what the implications would be if the world converted all its vehicles to natural gas. To convert and re-fit every car, bus and truck on our planet, the sheer volume of metal required would drive base metal prices to never-before-seen levels. In 2004, there were 880 million motor vehicles worldwide; this included passenger vehicles, heavy trucks and buses. To convert all of these vehicles, the world would need tanks fabricated from high-strength steel, aluminum or wound fiberglass to contain compressed natural gas, base plates for the tanks, stainless steel hoses, brass couplers, aluminum or steel brackets to hold the tank in place, all of the metal screws, nuts and bolts for the complete assembly of each unit, fuel control valves, oxygen sensors, vacuum hoses, vacuum fittings, fuses, tee fittings, high- and low-pressure regulators and particulate filters, plus solder and welding rods to hold it all together. As you can see, the list is long and each component uses a different metal or combination of metal alloys, and each component is assembled and manufactured at a different location that is dependent on a functioning delivery system. Supply and demand for metals in the re-fitting of our transportation fleet will affect commodity prices worldwide. Entire industries would need to be created to mass-produce pressure-testing kits and to make sure the units were installed properly. Re-fitting vehicles is but one facet of a larger undertaking. We would also need to construct CNG refilling stations throughout the world. Many countries including Argentina, Brazil, China and Italy already use CNG and have a spattering of refilling locations, but in reality CNG charging stations would have to be as numerous as present-day liquid petrol pumping stations. The typical CNG station is expensive, because of the special equipment needed to store and dispense a liquid at a temperature of -200 to -260 degrees Fahrenheit and a pressure of 25 to 135 pounds per square inch. The tanks have to be very large and are usually constructed from magnesium pressure-plated steel, which also needs a base plate and brackets. These gas storage vessels then need to be connected to gas dispensers at the pump. Beyond the use of large amounts of metals, specialized safety equipment needs to be installed at the pumping station. This includes an air extraction system; a lighting system with anti-explosive elements; a manual ventilation system that can be activated from a remote location; remote switching boards for an automatic ventilation system; a fire control system; wires, hoses and couplers to connect everything; and a thick, walled bunker to house everything in case of explosion. In 2006 there were 167,476 petrol stations in America alone, but only 30,000 CNG stations worldwide. Research at the Idaho National Engineering and Environmental Laboratory puts the minimum cost of construction for each CNG filling station at $100,000. You do the math. And don't forget to include stations for the other 200 countries on our planet. Another often-overlooked part of the switchover is space lost where the tank is mounted in the vehicle. In a bus, the last four seats in the rear are displaced; in a car, the high-pressure tank reduces trunk space by 30 per cent. Delivery trucks are another issue altogether: reduced load means more trips and more natural gas to deliver the same amount of goods. Currently to convert a bus to CNG costs $25,000-$35,000. Even in China, where parts and labour are cheaper than in other regions of the world, automobile conversion costs $1,000-$2,000. This transition to compressed natural gas for transportation is dependent on the continued free market access to minerals and commodities worldwide. Many knowledgeable people see more OPEC reductions of crude oil production as a possibility, but I rarely hear talk of a base metals embargo. If resource nationalism became the norm, and the supply of base and rare metals on the world market began to decline, the switchover to natural gas or electricity could find it hard to proceed. This idea is not as odd as it may seem; take a look at China. The government began an export quota on two metals – indium and molybdenum – on June 18. China's molybdenum product exports are set to decrease by 10 per cent or 830,000 tonnes; export permission will only be granted to exporters with a trade export volume during the last three years of more than 3,000 tonnes. China is also the world’s largest producer of indium, accounting for more than 30 per cent of global total, along with 90 per cent of global tungsten production. What happens if Russia, Canada, Brazil or any of the African nations decide to follow in China’s footsteps and begin export quotas or withhold commodity sales to drive up prices? Oil embargo or commodities embargo: which would be more devastating for the world economy? More usage of natural gas would mean more volume of a product that needs to be produced, stored and transported. New spider webs of natural gas pipelines and compression stations would be required to keep it all moving. We would need to increase production of both crude oil and natural gas, which are different fuels and need to be stored, produced and transported by different means and use different infrastructure to do so. In addition, we as a world would need to increase natural gas production as we went ahead full throttle finding, developing and producing from the remaining oil fields. This also means more metal usage. More pipes, more metal, so an increase in metal consumption and metal prices will follow. Not to worry: container ships and trains can continue to chug along burning heavy-sulfur crude oil, which the world will produce more of, especially the new projects coming online from Saudi Arabia and the Caspian Sea Basin. Keep in mind, CNG is only the middle transition stage of fuel sources to keep goods moving around our globalized planet. The final fuel source will be electricity, which requires its own set of infrastructure to generate. Once again, the volume of metals used in those developments will be huge. This unique set of circumstances presents a Catch 22 for all societies on earth. We need to use fossil fuels to extract and manufacture resources to allow a transition to a liquefied natural gas infrastructure. Then our societies will have to use the remaining natural gas reserves to exploit even more minerals and commodities to transition to electric infrastructure. Regardless of nationality, religious background or social status, we as a people will have to complete this conversion process together. We must begin now to convert our transportation systems from liquids to compressed gas to, ultimately, electricity, and to do so will be resource-intensive. To say I expect a continuing bull market in metals would be an understatement.

David DuByne is from the United States and is presently living and teaching Business English in Chongqing, China. He and webmaster Marc Hastenteufel are translating www.daveseslbiofuel.com, an English teaching web site devoted to bio-fuel and oil depletion, for those studying English around the planet into Mandarin Chinese. Robert Rapier, an expert on cellulose ethanol, gas-to-liquids (GTL), and butanol production, also provides technical assistance for content throughout daveseslbiofuel in the renewables and conservation section.

Going West in China

by David DuByne As I gazed out my office window into the grey smog covering Chongqing, a city district of 30+ million people in central China, I began to think about the expansion of this economy. Here are my thoughts. The Chinese government continues the Go West Campaign. It is designed to convince those who are heading into big cities looking for work to go to the western cities and spur the same economic boom that is occurring along the east coast. This includes upgraded and new infrastructure, additional energy generation, and the intensification of natural resource extraction in the western regions. Every road throughout the nation is being refinished with concrete. From highways to one lane roads that were formerly dirt, nearly every road in every province is being upgraded to allow movement of goods and people at a faster pace. This would account for China’s usage of 45% of the world’s cement year upon year. This is expected to grow at an average annual rate of 8.5% (or 90 million metric tons) during the 2006-2007 period. Traveling by rail through Sichuan Province and everywhere else, parallel rail lines beside existing lines are being built for rapid transit and high speed delivery of goods and people. From now to 2010 the Chinese government plans to complete an additional 19,800 kilometers of new tracks and up grade 15,000 kilometers of existing routes. Where development and economic growth compete against environmentalism, conservation always falls on deaf ears. One of the most pristine areas in the western part of Yunnan province is the Nujiang Valley, which will have a series of 13 dams built that will cover a 700 kilometer section of the valley built by Huadian Corporation. This one of the last two major dam-free rivers in China. The 100 billion kilowatts per hour of generated electricity would be for factories on the EAST coast of the country. In addition the power will be used in new factory complexes that are slated to come into the western region to take advantage of tax breaks and special incentives to relocate there. One of the biggest tourist draws in Yunnan province for trekking is in the Tiger Leaping gorge, but a series of eight dams along a 564 kilometer section of the Jinsha River to provide power will alter the gorge. Lancangjiang Hydropower Development Corporation, a subsidiary of China Huaneng Group states “the dam will have an overall capacity of 20 million kilowatts, it is almost the same size as the Three Gorges Dam, but the water storage capacity in Tiger Leaping Gorge reservoir will be even bigger.” In addition to electricity generation, this dam is supposed to help solve the siltation problem that is threatening to block the Yangtze Three Gorges Dam 1500 kilometers downriver. The new hydroelectric power sources will be for mining operations in the western portions of China as resource extraction heats up. China’s internal mining capacity will only keep consumption of metals for manufacturing at the break even point. Mining as an industry has seen 20% growth year on year. Antimony and Molybdenum along with Gold, Silver, Copper, Aluminum, Zinc, Nickel and Lead are leading the growth. Roads leading to the Myannmar border are being expanded to four lanes as new sea ports and oil loading platforms are within easy reach and accessible in the Bay of Bengal from the west of China. A new natural gas field discovery containing 3.8 trillion cubic meters near Dazhou in the N.E. part of Sichuan Province was instantly slated for smelters, in addition to the hydroelectric power set to come on line. The new find of oil in Bohai Bay is just a drop in the bucket compared to the needs of this insatiable economy; at best it will add 200,000 barrels per day of production, and that was the amount of new increased oil usage country wide for last year alone. The Chinese government is giving incentives for recent graduates to relocate, or “population transfer” as its sometimes called, to the second and third-tier cities of the west. Job placement and minimum guaranteed salaries are but a few of the gems offered. Additionally students who use state loans to finish their university studies may have their loans waived. The loan, up to 24,000 yuan (US$4,000) per student, is paid by the Chinese government if the graduate promises to work in a western or remote region for at least three years. On a recycling note not a single plastic bottle, cardboard box or glass container goes uncollected by the endless stream of individual collectors digging through the road side rubbish bins, back alleys and street curbs looking for the new treasure of China, recyclables. Cities are scoured by collectors daily for anything that can be sold as scrap. I watched as an old apartment building was torn down by hand and a woman emerged from the building with a bag if old light switches. At first I thought she would use the complete switch, but she took out a small hammer and broke them into pieces, carefully separating the copper from the plastic. Recycling is an enormous multi-billion dollar business, gobbling up our western throw away products and growing expodentialy larger every year. Ethanol production is skyrocketing as the largest ethanol producer China Agri Industries which is the grain-processing unit of Cofco Ltd., China's largest grain trader is planning to open two more refineries this year, a 100,000 ton project in Hubei and a 300,000 ton project in Liaoning.These projects will use sweet potatoes as the feed stock. An additional 1 million tons of capacity, awaiting permission, will be added by the end of 2008. China Agri is using several different feedstock grains and plant to produce ethanol. As it was explained, diversifying feedstocks reduces the reliance on a single crop in case of crop failures. Sinopec and PetroChina have teamed up with China Agri in the downstream ethanol blending business. Lastly, as I listen to the never ending car horns below, I remembered reading a recent article stating that an estimated 3000 cars are added to Chongqing's roads every day and presently 70% of the city’s road space is filled during the day. My own experience of traveling six miles the other day taking me two and a half hours, with 30-40 storey buildings along the entire distance makes me a believer. There is much talk around the world saying again and again that China’s 8-10% growth rate cannot be sustained, that may be true along the east coast, but as economic productivity flattens out in that part of the country it grows in the west. New land routes to the sea via Myannmar are providing an economic kick start in this region. The boom is in its infancy, and if it turns out anything like the massive growth in the east, the growth will be long and continuous.

David DuByne is from the United States and is presently living and teaching Business English in Chongqing, China. He and webmaster Marc Hastenteufel are translating www.daveseslbiofuel.com, an English teaching web site devoted to bio-fuel and oil depletion, for those studying English around the planet into Mandarin Chinese. Robert Rapier, an expert on cellulose ethanol, gas-to-liquids (GTL), and butanol production, also provides technical assistance for content throughout daveseslbiofuel in the renewables and conservation section.