VZCZCXRO5120
RR RUEHCN RUEHGH RUEHVC
DE RUEHGZ #1023/01 2550903
ZNR UUUUU ZZH
R 120903Z SEP 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC 6454
INFO RUEHOO/CHINA POSTS COLLECTIVE
RHMCSUU/DEPT OF ENERGY WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC

UNCLAS SECTION 01 OF 02 GUANGZHOU 001023 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
DOE FOR OFE DAS SWIFT 
 
E.O. 12958: N/A 
TAGS: ENRG SENV ECON PGOV CH
SUBJECT: Dept of Energy DAS Swift Discusses South China Energy 
Situation with Industry and Academics 
 
(U) THIS DOCUMENT IS SENSITIVE BUT UNCLASSIFIED.  IT SHOULD NOT BE 
DISSEMINATED OUTSIDE U.S. GOVERNMENT CHANNELS OR IN ANY PUBLIC FORUM 
WITHOUT THE WRITTEN CONCURRENCE OF THE ORIGINATOR.  IT SHOULD NOT BE 
POSTED ON THE INTERNET. 
 
¶1. (U) Summary: In an August 26-30 visit to Guangzhou, Department of 
Energy (DOE) Deputy Assistant Secretary (DAS) Justin Swift gave the 
keynote address at an APEC conference on liquefied natural gas 
(LNG).  Outside the conference, he met with local energy sector 
contacts.  An academic who researches Guangdong Province energy 
policies described the province's efforts to reduce reliance on 
coal.  The Guangdong Oil and Gas Association emphasized LNG as the 
solution to the province's energy problems, and a U.S. oil company 
complained of market access issues.  End summary. 
 
APEC LNG Conference 
------------------- 
 
¶2. (U) DOE DAS Swift traveled to Guangzhou August 26-30, 2007, to 
attend the U.S. Trade and Development Agency-sponsored APEC Natural 
Gas Utilization Workshop.  DAS Swift gave the keynote address on the 
first day of the conference in which he emphasized the need for APEC 
economies to work together to better utilize their natural gas 
resources.  More than 100 participants from 12 APEC economies 
attended the conference.  It included sessions on gas exploration, 
gas monetization, managing risk and finance opportunities. 
 
Academic Outlines Guangdong's Energy Strategy 
--------------------------------------------- 
 
¶3. (SBU) Outside of the conference, DAS Swift met with ConGen 
Guangzhou contacts in the energy sector including Zeng Lemin, Deputy 
Director of the Guangdong Techno-economy Research and Development 
Center, with whom DAS Swift discussed Guangdong Province's energy 
strategy.  Zeng told DAS Swift that both the Guangdong provincial 
government and Guangzhou municipal government are focused on 
increasing energy efficiency.  He said that the central government 
had set a target for Guangdong Province to reduce its energy usage 
for every RMB 10,000 of GDP by 16 percent.  Similarly, Guangzhou's 
target is to reduce energy usage per unit GDP by 18 to 20 percent. 
 
 
¶4. (SBU) According to Zeng, Guangdong's electricity energy mix is 
approximately 60 percent coal, 20 percent oil, 10 percent 
hydroelectric power, and 10 percent nuclear.  The provincial 
government has been working for several years to reduce reliance on 
coal and increase nuclear, wind and solar power usage.  Zeng noted 
that Guangdong is planning new nuclear power plants using more 
advanced technology.  In addition, there are now three wind power 
plants operating in Shantou, Shanwei and Jieyang, and the province 
is looking at new wind turbine technology that can be used over open 
seas.  However, he explained that solar power usage is still small 
scale and experimental in nature. 
 
¶5. (SBU) Zeng described Guangdong's efforts to use cleaner fossil 
fuels.  In addition to the Dapeng liquefied natural gas (LNG) 
terminal in Shenzhen, he said the province is planning three more 
terminals in Zhuhai, Shantou and Zhanjiang.  He explained that 
Guangdong currently obtains LNG from Australia, Russia, the South 
China Sea and Sichuan Province.  Zeng stated that Guangdong consumes 
6 million tons of liquefied petroleum gas per year (LPG -- usually 
composed of propane, butane or a mixture of the two), noting that 
Guangzhou has been converting buses and taxis in the city to LPG.  A 
power plant is also under construction in Dongguan that will run on 
coal using cleaner integrated gasification combined cycle (IGCC) 
technology, he said. 
 
Industry Association Looking Toward LNG 
--------------------------------------- 
 
¶6. (SBU) At the Guangdong Oil and Gas Association (GOGA), DAS Swift 
met with GOGA Chairman Wu Qingbiao.  Wu emphasized LNG as the 
solution to Guangdong province's growing power needs.  He said that 
the province currently consumes about 5 million tons of LNG per 
year, including 3.7 million tons imported through the Dapeng 
terminal primarily from Australia.  Wu pointed out that before the 
Dapeng terminal was operational, most of the province's LNG was 
trucked over land from Xinjiang -- a 4,000 kilometer journey that 
took 10 to 11 days.  Approximately 10,000 cubic meters of LNG was 
transported this way annually.  Wu commented that this expensive and 
difficult transportation method underscored how badly the province 
needed energy.  He identified only two additional LNG terminals 
planned for Guangdong -- in Shantou and Zhuhai -- compared to three 
named by Zeng.  When asked by DAS Swift, Wu suggested that the new 
 
GUANGZHOU 00001023  002 OF 002 
 
 
terminals could provide business opportunities for U.S. firms 
interested in assisting in construction. 
 
¶7. (SBU) Wu downplayed the role of LPG in Guangdong's energy future. 
 He explained that only Guangzhou was promoting LPG usage, partly 
driven by the desire to improve air quality before the 2010 Asia 
Games.  He did not foresee LPG usage extending beyond public 
vehicles to private cars.  Nevertheless, GOGA hopes Guangdong 
Province will start to promote LPG usage. 
 
ExxonMobil Concerned About Market Access 
---------------------------------------- 
 
¶8. (SBU) General Manager Edmund Lo of Esso (Guangdong) Co. Ltd., 
ExxonMobil's local affiliate, complained of market access problems 
Esso has faced in South China.  ExxonMobil has 18 service stations 
in Guangdong under the Esso brand name.  In March 2007, the firm 
added 750 stations in Fujian Province, which use both the ExxonMobil 
and Sinopec names.  Both operations are joint ventures with Sinopec. 
 Lo noted that although the Fujian stations vastly outnumber the 
Guangdong stations, their average revenue is much lower. 
 
¶9. (SBU) Lo said that despite recent measures to further open 
China's retail petroleum markets, foreign firms still faced 
restrictions.  He indicated that ExxonMobil was doing very well in 
China in several other industry segments, highlighting that it is 
the market leader in lubricants.  However, its retail business has 
suffered.  He blamed a double standard for foreign and Chinese 
firms.  Lo said foreign firms are unable to get permission to sell 
LPG at gas stations.  He also objected to municipal governments that 
arbitrarily charged administrative fees to service stations.  He 
explained that in Dongguan, the municipal government had imposed an 
administrative fee, telling ExxonMobil that it was applied to all 
service stations in the city.  Lo later learned that other stations 
weren't paying it.  He said a city official then suggested that the 
firm could negotiate the fee. 
 
¶10. (SBU) In addition, Lo blamed ExxonMobil's difficulty in the 
retail segment on subsidies and other government efforts to keep gas 
prices low.  He contrasted ExxonMobil's experience in Guangdong to 
that of rival BP.  Lo said BP had agreed to sell gas at a fixed 
margin in Guangdong, expanding rapidly in the province in order to 
promote its brand image.  The firm now has approximately 500 service 
stations in Guangdong.  However, Lo explained, ExxonMobil had 
maintained a smaller presence because it believed that margins 
should reflect market demand, instead of prices set by the 
government. 
 
¶11. (U) DOE DAS Swift cleared this message. 
 
JACOBSEN