Abstract.

The gas industry in China is currently limited to certain regional markets and accounts for less than 3 % of primary energy consumption, compared to about 15%–20% in the OECD countries. In the past twelve months however, there has been a staggering change in emphasis on gas in China. The Chinese government has sanctioned two mega gas projects: the trans China West-East pipeline project ("WEP") bringing 12 bcmy of indigenous natural gas from the remote western regions to coastal cities like Shanghai; and the Guangdong LNG Regasification Terminal & Trunkline project ("GDLNG") initially importing [7 bcmy] LNG into south China. The total infrastructure investment will exceed US$5 billion and will significantly transform the non-existent gas economy in China to prominence.

South China1 in this paper refers to four provinces and two Special Administrative Regions ("SAR"). The total area of South China is 570k sq. kilometres and a population of 170 million. The total gas demand in South China is estimated to triple from the current 3.5 bcmy to over 23 bcmy by 2010. Despite the proximity among the provinces, they exhibit fairly diverse market characteristics in terms of demography, accessibility to gas resources and infrastructure, gas price affordability and elasticity, interfuel competition and environmental regulations. East Pearl River Delta ("EPRD") of Guangdong for example, being the recipient of GDLNG gas from late 2005 onwards will initially be developed as a LNG market, yet the West Pearl River Delta, Hong Kong and Macau SARs will be open to competition between GDLNG and indigenous South China Sea ("SCS") gas. Hainan and Guangxi are geographically located as SCS gas markets and Fujian as the potential LNG market from 2008 With such a huge market potential yet varied market characteristics, the gas marketing strategy must ensure in the first place, that the gas economy can be developed under an appropriate legislative and regulatory framework so that gas supply is competitive and sustainable in the long run.

The focal point of this presentation is to highlight the South China gas market characteristics and articulate the market development strategy taking into account the potential giant leap of gas demand, the supply boundary conditions, the evolving regulatory and policy development, and what efforts are being undertaken by China government to create an new gas economy in the area, including environmental and incentives policies.

Introduction

Up to now gas has been very much a niche fuel in China. In 2000, natural gas accounted for approximately 3% of the PRC's primary energy consumption. Natural Gas is primarily used as chemical feedstock (mainly for fertiliser production) and for distribution as town gas (mainly for residential consumption). However, the government has set a target of increasing gas' usage to 7% of primary energy deman

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