China's plan: burn its coal, export more oil

Energy conservation, more use of domestic coal, and rapid development of solar, geothermal, wind, and other nonconventional sources of power. Sound familiar? America's blueprint for greater energy independence is the same as China's for becoming a modern industrial power.

The Chinese want to slow their oil consumption in order to free more domestic crude for export to other countries. It would provide the foreign exchange earnings that Peking desperately needs to finance its ambitious modernization plans, which call for buying a lot of equipment and technology overseas in the coming years.

Indeed, those investment plans have undergone "readjustment" in the past year. China has not earned as much from foreign trade as it had hoped, and so purchases of advanced technology have slowed.

However, oil exploration and development have accelerated as the need for export earnings intensifies. "In short, oil is the crux of China's modernization program," declared Dr. Sevinc Carlson, director of international energy studies at Georgetown University.

"The Chinese have shifted a lot of offshore oil activity to foreign companies. They see they cannot develop [the oil reserves] fast enough on their own," agrees J. Ray Pace, president of Baker World Trade Inc. of Houston, a leading seller of American-made petroleum equipment to China.

The need for more rapid oil development is evident in China's new interest in letting foreign companies help develop inland reserves as well. Union Oil Company of California; Conoco Inc.; Tenneco Inc.; Exxon Corporation; and some non-American firms reportedly have been invited to visit inland areas as a possible prelude to exploration activities.

Offshore, there are 19 US oil companies and 15 other foreign oil interests doing exploratory seismic surveys for China in the South China Sea, Yellow Sea, and the Gulf of Bohai. what these companies find in those largely unexplored areas will, to a great extent, set the tempo of the country's economic expansion , US experts say.

With current oil production of 2.1 million barrels a day, and domestic consuption growing 10 percent annually, China is in no position to export much more than the estimated 11 or 12 percent of its crude now being sent overseas, according to Dr. Carlson. In fact, some export contracts -- with the Japanese, for example -- are being pared back, she notes.

Some experts say they feel new discoveries are critical to simply meeting the nation's growing domestic oil appetite. Last year, China pumped only 1.9 percent more oil than in 1978, leading Dr. Carlson to conclude that the largest onshore producing fields -- Daquing and Shengli in the north and east -- have peaked.

How much new oil is waiting to be found? "The truth is, no one really knows, " asserts Robert W. Scott, editor of World Oil magazine and noted expert of China's oil industry.

China's crude oil reserves are estimated at 20 billion barrels, but projections of ultimate reserves range as high as 100 billion barrels. If that high forecast proved true, China would join the ranks of oil-rich nations.

If current offshore exploration yields significant finds, Dr. Carlson envisions China becoming a "major oil exporter" no earlier than the late 1980s or early 1990s. By major, she means crude exports in the range of 1 million barrles a day, compared with an estimated 200,000 to 300,000 a day currently.

Christopher H. Phillips, president of the National Council for US-China Trade recently forecast that Chinese oil exports would reach 380,000 barrels a day by 1985, earning the country $5 billion a year in foreign exchange.

Between now and 1985 China will need $80 billion in technological imports to meet its modernization goals, the National Council for US-China Trade estimates.

Important to the quest for greater oil export earnings is domestic coal consumption, Mr. Pace of Baker World Trade poins out. China is already a coal-based economy, and the extent to which the nation's vast coal reserves can be exploited even further will dictate how much oil can be released for export.

However, like many aspects of China's industrialization program, greater use of coal has drawbacks. To burn more coal, much of it in remote areas, the Chinese will need a greatly improved network of rail and truck transportation, a coal slurry pipeline system, or more mine-mouth power plants with sophisticated power transmission lines, Mr. Pace points out.

Better transportation on a national scale will take years to develop. And a slurry pipeline or mine-mouth power plants, with their transmission systems, would require expensive foreign investment -- the very type of investment the Chinese are finding difficult to afford.

"None of the options are easy," observes Mr. Pace.

The Chinese government already has ordered large-scale conversion of power plant boilers from oil to coal.

While foreign involvement in China's search for oil has accelerated, purchases of petroleum-related equipment and technology have slowed considerably Mr. Pace says his company signed fewer than half as many new equipment contracts last year as in 1978.

However, Mr. Pace now sees signs that purchases are once again beginning to grow.

"They're gradually building momentum, and by 1981 we will be back in full swing," he predicts.