Weekly Kickoff - November 19, 2012

China Increases Domestic Gas Production Forecast, Questioning Future Import Deals
China’s Ministry of Land and Resources released a new outlook for petroleum output to 2030 at the beginning of this month, which increased gas production forecasts by 50% year-on-year. The Ministry expects China to produce over 450 billion cubic meters (bcm) of gas by 2030, compared to 300 bcm it projected last year. The announcement signals a potential warning to gas suppliers in the region, particularly Russia, who looks to the growing energy markets in East Asia as future anchors for the Russian gas industry.
Radio Free Asia, November 12

China’s Wind Energy Outlook
At the end of last year, China had a total installed wind power capacity of 62.36 GW, generating 1.5% of total national electricity output. By 2020, China seeks to increase this capacity to 200-300 GW, according to Greenpeace’s latest report. Greenpeace claims that wind power is projected to displace coal consumption in China, but the country coal made up 70% of the country’s total energy consumption in 2009, according to the EIA. There are several formidable barriers to increasing wind energy capacity in China: building infrastructure to deliver this energy to the country’s densely population regions in the east and southeast; and overcoming resistance by China’s two state-owned electric grid companies to accommodate new wind energy capacities. They have traditionally opted instead to rely on fossil fuel inputs, which comprise over 90% of the country’s energy mix, for power generation.
The Diplomat, November 14, 2012

China Holds World’s Largest Shale Gas Reserves, But Faces Challenges in Finding Upstream Shale E&P Expertise
Earlier this year, China’s Ministry of Land and Resources announced that China is home to over 25 trillion cubic meters (tcm) of exploitable onshore shale gas. But the country still lacks the technology to unlock it’s shale potential. Last month, China held it’s second shale gas auction, this time allowing foreign companies with technical expertise in shale production to participate. 83 companies made 152 bids for licenses to explore shale plays in 20 blocks across 8 different provinces. Winners of the tenders will be announced after a group of experts considers each bidding package. However, foreign companies will only be allowed to operate through joint ventures with domestic state-run companies.
Energy Tribune, November 12

Gazprom Pushes Forward With Plans for South Stream, Despite Uncertainty of European Gas Demand
South Stream partners made a final investment decision last week on the 900-kilometer Black Sea offshore section of the pipeline. Gazprom signed an agreement with Slovenian representatives on November 13 in Moscow, and with the Bulgarian state energy company on the construction of the onshore section of South Stream on November 15. On November 13, European gas demand has declined due to the economic slowdown and imports of cheap coal from the United States, which has displaced natural gas in power generation. Still, South Stream seeks to supplant Western-backed pipeline projects slated to deliver Caspian gas to Europe’s Southern Corridor. Construction of the 16 billion euro pipeline with an eventual capacity of 63 billion cubic meters is set to begin on December 7.
FT.com beyondbrics, November 15

U.S. Coal Exports Continue to Displace Natural Gas in Europe
According to the U.S. Energy Informaiton Administration (EIA), approximately 75% of U.S. coal exports were shipped to markets in Europe and Asia in 2012. American coal exports to Europe this year are expected to reach a record high.
U.S. Energy Information Administration, November 15

China to Direct Wealth Fund Investments Toward Asian Markets
The head of China Investment Corporation announced last week that the company will begin investing the country’s enormous sovereign wealth fund into projects in fast-growing Asian economies over Western countries. Increasing regulatory and investment barriers, like in Canada and the U.S., have frustrated Chinese bids to acquire shares in a number of energy and infrastructure projects. Canada has repeatedly delayed a decision to allow China’s CNOOC to takeover Nexen for $15.1 billion. Policymakers in Washington have even blocked a privately-owned Chinese company from investing in a wind power project, citing concerns that the site is located too close to a military base.
The Sydney Morning Herald, November 12

Afghanistan Selects Companies for Oil Exploration Projects
The Afghan government selected Dubai’s Dragon Oil, Kuwait Energy, and the Turkish Petroleum Corporation as partners last week in an oil exploration project in northern Afghanistan, near the Tajik border. The region is projected to hold more than 1 billion barrels of oil. China’s National Petroleum Corporation became the first foreign company to produce oil in Afghanistan and is expected to build the country’s first oil refinery within the next 3 years.
Associated Press, November 12

Ben Priddy
Central Asian Analyst

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