Sinomania!

China National Petroleum Corp., the parent of PetroChina (NYSE:PTR) aims to complete a 200,000 barrels per day capacity oil refinery in Kunming by 2013. The refinery will process crude delivered by the Burma (Myanmar) to Chongqing pipeline currently under construction. When complete it will give 400,000 barrels per day to feed the growing cities of Yunnan Province and in particular independent megalopolis Chongqing. A gas pipeline is also under construction through Burma to Yunnan with terminus in Guangxi Zhuang Autonomous Region that will deliver 12 billion cubic meters of gas. Completion dates for the pipelines are not known at this time but all told China plans to finish refining capacity for an additional 3 million barrels per day in the next 5 years....

According to a report originating at Upstream (an oil & gas industry publication out of Norway) an unnamed senior mandarin in Beijing told Iran that China would not invest in the IPI (India-Pakistan-India) pipeline project to bring gas from Iran's south Pars fields. The source said an extension to China through Pakistan and via roughly the Karakoram Highway was too difficult at present and wouldn't be considered for at least 5 years. China's preference is to buy gas direct from Iran most likely in LNG form....

Husky Energy of Canada confirmed discovery of 4-6 trillion cubic feet of natural gas in an offshore block near Hong Kong. The block is jointly developed by China National Offshore Oil Corp. (CNOOC) (NYSE:CEO) in a production sharing agreement but Husky may spin off the operations into an independent Chinese company listed on the Hong Kong exchange. Production could reach 90 million cubic feet per day and begin as soon as 2013.

CNOOC is also still in talks with French oil major Total to develop oil fields in Lake Albert, Uganda....

The Iran-China Chamber of Commerce says that China is Iran's top trading partner over the EU when factoring in transhipments from China via the UAE. Using that calculation Iran-China trade is valued at over $36 billion (US dollars). Officials in Tehran and Islamabad are openly seeking Chinese involvement in the delayed "IPI" gas pipeline project that would deliver Iranian gas from the South Pars fields to Islamabad, Pakistan, and on to New Delhi, India. India has backed off the deal and for nearly 2 years Pakistan's president Pervez Musharraf has said why not make it the "IPC" pipeline where the C stands for China. Islamabad is only 400 kilometers or so (less than 250 miles) from Pakistan-China border and it might be possible to link the pipeline with the Karakoram Highway transit corridor currently under expansion by Chinese investment....

China solidified its conquest of Pipelineistan energy resources on Monday when Kazakh President Nursultan Nazarbayev signed into law the 2007 agreement to jointly develop pipelines to bring gas into China from Kazakhstan and Turkmenistan. Around 50 million cubic meters of gas will move annually into the Chinese pipeline network also under construction. The estimated cost of the projects is $20 billion (US dollars). Work will be done in Kazakhstan by China National Petroleum Corp.'s subsidiary China Petroleum Pipeline Engineering and local firm KazStroyService. There are two "west-east" pipelines through China (see map) that bring Caspian Sea region resources through Xinjiang all the way to Shanghai and Guangdong Province. A third such pipeline is now in development.

The 2009 Turkmenistan Electric and Scientific Exhibition opens next week in the capital Ashgabat. Turkmen President Gurbanguly Berdimuhamedov was in Rome last week being wined and dined, taken to the racetrack, and signing deals with Italy's oil major ENI while PM Berlusconi promised to send a film crew to broadcast Turkmenistan's charms to Italian travelers.

Meanwhile US special envoy for Caspian Sea energy David Stein was in Baku, capital of Azerbaijan, where leaks say the government is coming close to a deal with Turkemenistan to divvy up the middle of the Caspian and allow a pipeline between the two nations to connect with the Nabucco pipeline project.

Years in planning, the Nabucco pipeline project is the hope of the EU, Germany in particular, to move away from dependence on Russian gas imports. Russia and Turkemenistan are in stalemate over a gas pipeline that is largely complete but not in use. Russian President Medvedev has just arrived in Italy on the heels of his Turkmen counterpart and will visit Turkmenistan later this month.

Turkmenistan may have the world's fifth largest recoverable reserves of natural gas. The country exports electricity to neighbors Iran and Afghanistan and also throughout central Asia via a Soviet era grid system. With American assistance neighboring Uzbekistan has built its own modern grid and announced this week it would soon withdraw from the legacy transmission system and potentially leave parts of the region at Uzbekistan's mercy just in time for Winter weather.

But while Europe, Russia, and all the "stans" compete, the Turkmenistan-China gas pipeline will begin delivering gas to China in mid December.....

China's biggest refiner Sinopec (NYSE:SNP) is finalizing a deal with ExxonMobil to buy nearly a third of the production from a new Liqufied Natural Gas (LNG) works in Papua New Guinea. Sinopec would get 2 million tons per year of LNG and build a terminal in Qingdao, Shandong Province. Incidentally, Sinopec will offer this week 15 billion Yuan (over $2 billion US dollars) in 1-year corporate bonds. Gas use in China is expected to triple over the next 10 years and Sinopec's deal comes just as the head of China's National Energy Adminstration revealed the government wants to close the four remaining coal-fired power plants around Beijing. Beijing will be served by new gas pipelines from Shaanxi Province. It seems reasonable to speculate that Sinopec may bring gas from its new Qingdao terminal to the Chinese capital....

The 8th heads of government meeting of the Shanghai Cooperation Organization (SCO) opens in Beijing this week. Already in town is Russian PM Vladimir Putin and on the way a delegation including first VP from Iran. Iran remains in observor status. Afghanistan is also an observor but no word on whether President Karzai will be in Beijing. Pakistani PM Gilani will be present but is cutting short his stay due to the spate of terrorist attacks in the past few days. The SCO began as a security group and even conducted war games but has devolved into an economic coordinating session. Putin will talk gas deals, Pakistan has its annual list of investment projects seeking Chinese support, Iran will talk gas too. The situation in Afghanistan will also be discussed....

The 9th US-China Oil and Gas Industry Forum is underway in Qingdao, Shandong Province. Obama's Energy and Commerce secretaries are not present and the work of the forum is not well publicized. On the sidelines it was revealed that the huge Chuandongbei gas project in Sichuan Province, jointly developed by CNPC (parent of PetroChina - NYSE: PTR) and Chevron, will begin gas production next year. Ultimately the gas works will produce 3 billion cubic meters per year for 15 years....

On the sidelines of the UN General Assembly the President of Turkmenistan Kurbanguly Berdymukhamedov invited Chinese President Hu to the inauguration in December of the Turkmenistan-China gas pipeline. China will replace Russia as the biggest buyer of Turkmen gas estimated at 40 billion cubic meters per year. Meanwhile the Kazakh-China crude oil pipeline is flowing at near 200,000 barrels per day most of the supply going to an expanded oil refinery in Dushanzi, Xinjiang, between the border and the capital Urumqi. The Kazakh oil pipeline is slated to increase to 400,000 barrels/day although that amount is not contracted yet....

Australian Minister for Resources and Energy Martin Ferguson announced today in Beijing a $50 billion (Australian dollars) liquified natural gas (LNG) deal that will unite PetroChina and ExxonMobile to exploit the giant Gorgon gas fields off the western Australian coast. In the trade deal, ExxonMobile will supply PetroChina with 2.25 million metric tons of gas a year for 20 years. The Gorgon gas fields have been under exploration and development for many years and considered the largest resource project in Australia. Gorgon lies just offshore Barrow Island, a protected natural reserve with unique species. Environmental hurdles are to be expected....

Two Chinese oil majors, China National Petroleum Corp. (CNCP) and China National Offshore Oil Corp. (CNOOC) may gang up to enhance a multi-billion (US) dollar offer for the Argentina assets of the Spanish Repsol energy company. CNCP has offered $14.5 billion for the assets that include exploration and production rights to all oil & gas blocks in Argentina, the country's major oil refinery, and around 1,600 petrol stations.....

The NDRC, Beijing's powerful economic regulator, will allow an 8-10% increases for gas and diesel retail prices helping China's big fuel distributors such as PetroChina but putting a squeeze on domestic drivers. The commission is testing how Chinese respond to paying (somewhat) close to world prices for automobile petrol.....

Russia and China appear set to split Turkmenistan's gas riches at least in terms of current production levels in a new deal briefly mentioned on Turkmenistan TV. Beijing will extend $4 billion (US dollars) in loans and Turkemenistan will up its deliveries of natural gas to China - via an as yet unfinished pipeline - to 40 billion cubic meters per year.

Turkmenistan has the 4th largest proved reserves of natural gas in the world (according to BP statistics) and European and American interests are actively trying to get new production diverted to Europe via an alternative pipeline to lessen Russia's grip on the EU and former Soviet Republics.....

Declaring Gwadar the provincial "Winter Capital", Balochistan Chief Minister Nawab Muhammad Aslam Khan Raisani, well known for his views on Baloch autonomy, wants to toss out the multi-year agreement with Singapore Port Authority to manage the deep water port largely developed by China and control it himself.....

Oil and gas refinery projects, long in planning, are underway all over China with at least two planning production this year - an ExxonMobile joint venture between Sinopec and Saudi Aramco along the Fujian coast and CNOOC's first major refinery at Huizhou in Guangdong. Even more capacity is planned including a multi-billion dollar value Saudi-Chinese refinery inked in China's recent state visit to Saudi Arabia.

With the global correction underway, however, PetroChina announced it will delay two big (10 million ton capacity) refinery projects in the Xinjiang and Guangxi autonomous regions...

It is well observed that China's consumption of all energy is at all times increasing but the impact on global natural gas demand is particularly powerful.

It was revealed at the 3rd Asia-Pacific LNG International Conference this year that consumption of natural gas may rise to 210 to as much as 350 billion cubic meters in China by 2020.

Although domestic production may increase to 150 bln cm by that time (from just under 70 bln cm in '07) the amount of imports will equal close to EU consumption today.

In June the Turkmenistan-China pipeline broke ground. When complete it will provide for 30 years up to 40 bln cm of natural gas. Now where to find the other 160 billion cubic meters?

[graphic: Nouriel Roubini's RGE Monitor]

Beijing will allow key price increases in the energy sector giving oil and gas majors approval for close to 18% price hikes, the second double digit increase in less than a year. Fuel remains subsidized in China and undervalued to world markets.

The announcement brought down the spot price for a barrel of oil more than $4 today.

Electric utilities will also get a rate hike - something sought after before last Winter's devastating snow storms -- to increase kilowatt hour charges just under 5%.

The latest wrong thinking meme in news reporting is to (once again) blame China for the run up in oil prices. In fairness some mainstream media outlets (CBS, PBS) are following the surge in oil prices to NYMEX and placing blame where it belongs - on investors and speculators in oil futures. George Soros has gone so far as to say oil prices are the latest global investment bubble. Of course, Soros has long distrusted oil markets.

Yes, demand in China has increased greater than predicted for the last four years and shows little sign of slowing. The IEA forecasted last year that demand in China would raise to 10 million barrels a day as soon as 2012. But that figure is less than half what the United States currently consumes! And demand is coming from everywhere. Car sales are up over 60% year on year so far in 2008 in Ukraine, as just one example. From Latin America to the states of the Indian subcontinent, millions of people are realizing the dream of the American lifestyle centered around the family car. In many ways the start of the 21st Century is much like the turn of the 20th only this time car culture is reaching new markets all over the world.