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PP RUEHWEB

DE RUEHBJ #0401/01 0490945
ZNR UUUUU ZZH
P 180945Z FEB 10
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 8154
INFO RUEHOO/CHINA POSTS COLLECTIVE PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEAEPA/HQ EPA WASHDC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
RUEHTA/AMEMBASSY ASTANA 0127
RUEHEK/AMEMBASSY BISHKEK 1378
RUEHAH/AMEMBASSY ASHGABAT 0765
RUEHMO/AMEMBASSY MOSCOW 9492

UNCLAS BEIJING 000401 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR 
STATE FOR EAP/CM-BRAUNOHLER 
STATE FOR EEB/ECS 
STATE FOR OES, OES/EGC, and OES/ENV 
USDOE FOR INTERNATIONAL 
USDOC FOR 4420 
EPA FOR INTERNATIONAL/MKASMAN 
 
E.O. 12958: N/A 
TAGS: ECON ENRG EINV EPET SENV CH
SUBJECT: China/Xinjiang: Energy Sector Booms as Clean Energy Firms 
Eye Overseas Expansion 
 
REF: 09 Beijing 3326 
 
SENSITIVE BUT UNCLASSIFIED: NOT INTENDED FOR INTERNET DISTRIBUTION 
 
¶1. (SBU) Summary: While Xinjiang remains an important resource base 
for traditional energy sources--including oil, natural gas, refined 
petroleum products, and coal--the region has in recent years emerged 
as a clean energy leader, according to local officials and business 
contacts.  Locally-grown clean energy firms have expanded quickly in 
China and are eying overseas opportunities.  The opening of the 
China-Central Asia natural gas pipeline last December (reftel) was a 
significant step forward in enhancing China's energy security and 
will bring much needed natural gas supplies to eastern China.  St. 
Louis-based Peabody Energy, the world's largest private-sector coal 
company, has opened an office in Urumqi and is actively pursuing 
opportunities in Xinjiang's underdeveloped coal sector.  End 
Summary. 
 
XINJIANG'S BLACK GOLD 
--------------------- 
 
¶2.  (SBU) During a visit to Xinjiang's capital Urumqi and the oil 
cities of Karamay and Dushanzi January 25-29, Econoffs met with 
local officials and business leaders who described the region as an 
important resource base for oil, natural gas and coal as well as a 
large producer of petrochemical products.  According to Zhu Zian, 
Deputy Director of the Xinjiang Development and Reform Commission's 
(XJDRC) Foreign Investment Department, Xinjiang accounts for 30 
percent of China's onshore petroleum resources and 34 percent of the 
country's onshore natural gas reserves.  In 2009, Xinjiang produced 
25.18 million tons of crude oil (roughly 505,600 barrels per day) 
and 24.5 billion cubic meters of natural gas. 
 
¶3.  (SBU) The heart of Xinjiang's oil industry lies in the cities of 
Karamay and Dusshanzi along the western edge of the Junggar Basin. 
Karamay (the name is a transliteration of the Uygur words for "black 
oil") is home to the oldest oilfields in modern China which date 
back to 1955.  Zhao Wusheng, Vice Mayor of Karamay, noted proudly 
that unlike larger oilfields such as Daqing in northeastern China, 
the Karamay fields have increased their output for 27 consecutive 
years.  Emphasizing the importance of the oil industry to the local 
economy, Zhao said oil accounted for 85 percent of local GDP. 
 
DUSHANZI REFINERY AND STRATEGIC PETROLEUM RESERVES 
--------------------------------------------- ----- 
 
¶4. (SBU) In Dushanzi south of Karamay, CNPC operates a 10 million 
ton capacity refinery that produces ethylene and methanol as well as 
refined petroleum products.  According to media reports, China last 
September began building national-level Strategic Petroleum Reserves 
(SPR) facilities alongside CNPC's commercial storage facilities in 
Dushanzi.  NEA Director for National Oil Reserve Office Yang Lei 
told Econoff February 9 the Dushanzi SPR is part of China's second 
phase SPR program and will have a storage capacity of 3 million 
cubic meters or approximately 2.2 million tons of crude oil.  Fu 
Jijiang, the Director for International Affairs at the Dushanzi 
refinery, said the SPR facility will store crude oil from 
Kazakhstan.  He said crude oil from Karamay is of a higher grade 
than Kazakh oil and therefore is better suited for refining. 
 
NEW SILK ROAD OF ENERGY 
----------------------- 
 
¶5. (SBU) According to Xinjiang Experts Consultative Committee Senior 
Economist Tang Yigai the opening of the China-Central Asia natural 
gas pipeline last December (reftel) underscored Xinjiang's 
importance as a vital transit route for Central Asian energy 
resources.  The natural gas pipeline and the existing 
China-Kazakhstan oil pipeline (opened in 2006) are China's first 
direct energy links with neighboring countries.  Tang said Chinese 
leaders were keenly concerned about energy security and wanted to 
diversify supply routes and sources, citing current efforts to build 
oil and gas pipelines connecting southern Yunnan province with Burma 
and an oil pipeline spur connecting the Daqing oilfields to the 
 
Eastern Siberia-Pacific Ocean pipeline in Russia.  Tang went so far 
as to say Xinjiang's role as an energy transit point was more 
important to China than the actual energy resources in the ground. 
According to CNPC statistics, the China-Kazakhstan oil pipeline 
pumped 7.7 million tons (approximately 155,000 barrels per day) of 
crude in 2009. 
 
CLEAN ENERGY: GOLDWIND 
---------------------- 
 
¶6. (SBU) Founded in 1998, Goldwind Science and Technology Company is 
China's largest wind turbine manufacturer in terms of cumulative 
installed capacity and ranks ninth among global wind turbine 
manufacturers, according to Goldwind's government relations official 
Tan Ying.  By the end of 2008, Goldwind turbines represented 2,629 
MW or 22 percent of China's total installed wind capacity.  Although 
Goldwind was founded in Urumqi, it has opened production facilities 
in Gansu, Xi'an, Baotou and Beijing to meet China's booming domestic 
demand.  The company's core product is a 1.5 MW wind turbine it 
co-designed with the German firm Vensys (which Goldwind has 
subsequently acquired).  According to Tan, Goldwind's 2.5 MW turbine 
prototype is nearing completion and work is underway on 3.0 MW and 
5.0 MW turbine designs. 
 
¶7. (SBU) Goldwind, which is partially state-owned, is already listed 
on the Shanghai Stock Exchange.  The company is preparing for a Hong 
Kong IPO later this year which is expected to raise USD 1.5 billion. 
 Goldwind's sales revenue more than doubled from 2007 to 2008, and 
is projected to exceed 10 billion RMB in 2009.  Goldwind primarily 
markets its products in China but is looking to expand overseas. 
Regarding central government efforts to deal with overcapacity in 
the Chinese wind turbine industry, Tan said Goldwind would benefit 
from these efforts.  She said China had over 80 domestic wind 
turbine companies and there was a need for greater consolidation in 
the industry. 
 
SUN OASIS SOLAR COMPANY 
----------------------- 
 
¶8. (SBU) During a factory tour January 28, officials from Xinjiang 
Sun Oasis told Econoffs the company was producing solar photovoltaic 
(PV) cells for a joint venture project in Xi'An with BP Solar.  Sun 
Oasis has a manufacturing capacity of 200 MW per year and the 
majority of the solar panels are sold overseas.  According to TBEA 
Deputy General Manager Liu Gang, prices for solar PV in China have 
fallen dramatically in recent years and were now roughly 0.9 RMB per 
kilowatt hour.  He said prices needed to drop to 0.3-0.4 RMB per 
kilowatt hour to be competitive with coal-fired thermal power 
plants.  TBEA is the parent company of Xinjiang Sun Oasis and, 
according to Liu, is China's market leader in the production of high 
voltage transmission cables and transformers.  He noted TBEA's 
chairman would visit the United States in February to learn more 
about developments in the U.S. Smart Grid sector. 
 
COAL: PEABODY COMES TO URUMQI 
----------------------------- 
 
¶9. (SBU) According to XJDRC Deputy Director Zhu, Xinjiang holds 40 
percent of China's coal but the reserves are underdeveloped due to 
transportation and transmission bottlenecks.  Senior Economist Tang 
told Econoffs January 26 Xinjiang officials are advocating for 
greater central government support to develop Xinjiang's coal 
industry in the upcoming 12th Five-Year Plan (2011-2015).  Xinjiang 
Foreign Affairs Director Ren Xinjun claimed work would begin next 
year on a high-speed rail link connecting Beijing and Urumqi which 
would free up cargo capacity on the existing rail system. 
 
¶10. (SBU) Looking to help develop Xinjiang's coal resources, St. 
Louis-based Peabody Energy opened an office in Urumqi last December. 
 Peabody's Head of Project Development for Xinjiang Sydney Parkhouse 
said Xinjiang's coal reserves are estimated to be 2 trillion tons, 
but production output last year was only 80 million tons.  As China 
continues to close smaller coal mines in central China, Parkhouse 
said, the need will grow to develop mines in Xinjiang to meet the 
 
country's growing coal shortages. 
 
¶11. (SBU) Peabody has formed a partnership with Shanxi Lu'An Mining 
Group to develop an open-cut coal mine in the Hami area of eastern 
Xinjiang.  Parkhouse said the site has the potential to become a 15 
million ton per year operation.  Peabody understands winning 
approval for the project will be a multi-year process but is 
confident the company's established track record of operating large 
open-cut mines will prove attractive to Chinese officials.  [Note: 
Peabody is the only non-Chinese equity partner in GreenGen, a 
multi-phase commercial project combining a 650 MW IGCC plant with 
carbon capture for enhanced oil recovery and polygeneration.  End 
Note.] 
 
HUNTSMAN