China plans to invest $ 3.4 bn in oil pipelines to secure supply

China will spend about $ 3.4 bn 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.(CNPC) and Sinopec are leading the drive for an oil pipeline grid totalling about 6,000 miles (9,660 km). That would exceed by almost 70 % the total built in the last three decades. Most of China's pipelines were built near ageing oilfields in the east before 1993, when China became a net oil importer. Lumbering 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.

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 China's wealthiest province of Guangdong. Local companies are building the pipelines.
China is also speeding up construction of about 6,000 km (3,730 miles) of pipelines to move natural gas from the resource-rich but economically backward western hinterlands to the booming east coast, with the 4,000 km West-East gas line the flagship project.

The development of oil infrastructure would help top state oil group CNPC 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 land-locked Central Asian nation to China's northwest Uighur region of Xinjiang. Work on the $ 1 bn, 1,240 km (770-mile) project is due to start in August and scheduled for completion by end-2005 with initial capacity of 200,000 bpd.
"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 bn 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.
The Kazakh pipeline will feed an oil refinery and a $ 2.4 bn petrochemical complex in the border region of Xinjiang, one of the key inland economies Beijing wants to boost to close the gap with the prosperous east.

The move to curb costs is another key driver for the pipeline boom, as rail transport is much more costly, analysts said. Top state giants could also use the pipelines to vie for markets in the south and east, where Sinopec, Asia's top refiner, is now in the lead.
"Within the next two to three years Sinopec will put in place a pipeline network covering all the main consuming areas so that it has a solid control of the main markets," said a senior Sinopec official from Beijing.

That network would cover top regional oil consumer Guangdong province, the Yangtze River Delta, the Beijing-Tianjin region and the southwest.
"It's about setting up a modern logistics system with a higher environmental and safety standard," the official said.
A leading project is the 970 km, 540,000-bpd crude pipeline linking six Sinopec refineries along the mighty Yangtze River, to replace barges that are vulnerable to droughts when low water levels stifle oil flows.