Energy fuels dreams for China's Kuwait

YULIN - The only palm trees are plastic and the nearest beaches are thousands of kilometres away, but Yulin Mayor Wang Dengji is thinking more of fossil fuels than scenery when he describes his remote northwestern city as China's Kuwait.

The dirt-poor region, where rural residents' average annual income is $292, is rich in coal, oil and natural gas - but much of these are shipped out to fuel growth in richer provinces or used in small, inefficient plants.

Wang wants to tackle poverty by planting power and petrochemical plants across the arid semi-desert to turn this corner of Shaanxi province into a wealth-generating energy hub.

Building has started on many plants, and some are even churning out products, but Wang faces an uphill task.

Questions over how much oil and gas can be extracted, the long distances and poor-quality roads and the task of luring workers to desert outposts are major hurdles.

Ambition is the one thing Yulin does not lack however, seeking US$12.1 billion ($17.7 billion) of investment by 2010 to help it use its resources to fuel local development as well as feed the country's ravenous appetite for energy.

"This is a key area of energy resources for the whole country," Wang said. "We are the Kuwait of China."

Yulin and the more than 43,000sq km that surround it lie on proven reserves of more than 300 million tonnes of oil, although just a quarter of that could be extractable. The area also stands on part of the gas-rich Ordos Basin.

Previous efforts to exploit the oil included a rare flirtation with private exploration and production during the mid-1990s, but that had led to waste and environmental damage, Wang said, and the wells were re-nationalised.

Yulin now targets crude production of 8 million tonnes a year by 2010, from an estimated 5 million tonnes this year. Wang also wants natural gas output to hit 10 billion cubic metres a year, from 6.5 billion in 2005.

The plan is to cut exports of raw materials, instead of building up an industrial base and sending out more valuable products.

"We have a 'three transforms' policy to help the region grow: transform coal into electricity, use electricity to build an industrial base and turn coal, natural gas and oil into chemicals," he said.

Much of the electricity will be sent east or south.

"This energy will help fuel the Beijing Olympics," said a proud official standing under the half-built towers of the Guohua power plant who gave only his last name, Zhang.

Wang said companies from as far afield as Britain and Thailand were discussing investing in the area, while international chemicals giant Dow was considering carving out a 60sq km enclave in the new Jinjie industrial park.

If the US firm did go ahead, it would join six major projects and around 30 smaller ones that have netted 18.5 billion yuan of initial investment.

Perhaps the main potential threat to the plans is a glut like one that has left idle cement factories in other parts of the province. But many projects are relatively small scale and officials seem more interested in expansion than caution.

"At present, market conditions are strong, so competition is not a problem, although it could be later," acknowledged carbinol plant manager Zhang Haiyu.

"We can worry about that when we come to it."

- REUTERS