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PetroChina Plants Trees for Oil

One month ago, the National Development and Reform Commission called for the halt of corn-to-ethanol processing, causing a temporary uproar as 'grain ethanol' became taboo in the energy industry.

Non-grain ethanol and tree-based bio-energy resources have become hot concepts. Oil tycoon Hu Lianglun, chairman of the board at Guangyuanfa Group, tells us that his company plans to process pig lard into diesel fuel-- they already have a production line in Qingdao capable of producing 100,000 tons of bio-diesel per year. They plan to use pig, cow, and lamb fat products along with vegetable oil to produce bio-diesel.

PetroChina recently announced its plans to cooperate closely with the Ministry of Forestry on the cultivation and development of plant-derived bio-fuels. This year they will construct the first batch of facilities in Yunnan and Sichuan.

PetroChina and the Ministry of Forests will cooperate in 2007 in Yunnan and Sichuan on an operation that will develop 20,000 to 30,000 tons of biodiesel based on jatropha curcas. Before, PetroChina had already invested RMB 5 million with the Ministry of Forests to set up four bio-diesel facilities working with plant products.

To Liu Taiyun, Yunnan's Finished Oil Product Circulation Association, the development of bio-fuel in Yunnan is a good thing. Yunnan has the capacity to use a lot of bio-fuel, but the province still lacks refineries, oil fields, and thus must rely on rail lines to import the oil. Transport costs are high, and long-term demand will not be met by supply.

One factor behind the decision to use bio-energy is the cost of the raw materials. Yunnan has large mountains with much low-yield farmland, but the planting costs of castor oil and hemp are low. In the long term, this project will populate the region and increase income there.

What vexes Liu is that Yunnan was originally Sinopec's domain, with a distribution network spread all over the province. If Sinopec undertook this project, its industrial chain would probably be much more efficient. But since PetroChina has been given the project, the moment the project starts they will expand operations in the region. According to Gu Zhibang, director of the Ministry of Forestry, developing plant-derived bio-energy will ultimately result in a structure that integrates cultivation, processing, and sales.

According to Yuannan media reports last November, Sinopec announced that it supported the planned expansion of ethanol and that it was looking forward to using Yunnan's resource superiority to develop this emerging industry. But looking at recently announced projects and plans, PetroChina, seems much more ambitious.

One goal set for the end of the '11th 5 year plan' is to push non-grain ethanol production beyond two million tons per year.

China's bio-fuel is most concentrated in the the Southwest. After Yunnan, PetroChina's most heavily invested area is Sichuan. Last November, PetroChina and theSichuan government signed a comprehensive cooperation agreement to develop sweet potato and jatropha curcas bio-fuels and to build a prototype facility in Nanchong. Two months ago, China Shanghai Oil came to Sichuan to sign an agreement with the Panzhihua local government, planning to invest RMB 2.35 billion to establish a base capable of producing 100,000 tons worth of bio-fuels a year.

In the two days before PetroChina signed with the State Forestry Administration, the Indonesian firm SMART and Hong Kong Energy Ltd. signed a USD 5.5 billion alternative energy venture to develop crude palm oil-based bio-fuel as well as sugarcane and cassava-based bio-ethanol.

China Shanghai Oil spokesperson Liu Junshan says, alternative energy, as part of a global trend, will overcome oil in 20 to 30 years. If China Shanghai Oil wants to be around in another hundred years, it has to start thinking about alternative energy. For this reason they have all established new departments for new energy.

PetroChina also set up a 'new energy' department last year, mainly focusing on bio-energy and coal-derived-methane. Regarding the Sichuan and Yunnan projects, the afformentioned expert says that the projects are all reforestation efforts, using the fruit from trees and thus not damaging the forests.

However, Liu Junshan says that the development of alternative energy is controlled by the market, that currently there still is no true alternative energy, and that bio-fuel is still not as good as traditional oil while also being limited by region.

'Powerful companies should aim to be the the leadersof alternative energy research, with well-defined financial resources being invested in new things. This is a sign of foresight,' an expert from the Sinopec Oil Prospecting Institute says. 'In the future, whether it's due to oil price increases or the demands of environmental protection, all will need effective alternative energy.'

To him, bio-energy technology is still immature and international oil prices are not actually high. Even in Europe, where new energy is taken very seriously, new energy hasn't made much progress. Thus, bio-energy projects should be fixed in scope, we cannot rush them or place such a large subsidy burden on the country.

China's goal is to have alternative energy compose 10 percent of the energy system by 2010; and 16 percent by 2020.

Looking abroad is one way to accomplish this. China lacks palm, cassava, and other raw materials that can be processed into ethanol. Southeast asian countries such as Indonesia have large quantities of palm and sugarcane, comparitive advantage with the development of renewable energy. 'This is a critical moment for cooperation with southeast asia,' says the expert.

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