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Environment

China repeats pledges on energy security, price reform

BEIJING (Reuters) - China reiterated in an energy policy paper its commitment to boost supply security and price reforms while promoting greener growth, but Beijing shed little light on the new measures to achieve these goals.

Labourers work at a PetroChina refinery in Suining, southwest China's Sichuan province November 22, 2007. China, the world's second-largest oil consumer, is too reliant on international crude markets for last minute oil supplies and needs to arrange more long-term deals, Beijing said in a policy paper released on Wednesday. REUTERS/Stringer CHINA OUT

China, the world’s second-largest oil consumer, needs to arrange more long-term supply deals to reduce the last-minute scramble in the spot oil market, Beijing said in a policy paper titled “China’s Energy Conditions and Policies.”

China, which imports nearly half of its crude requirements, sources more than 60 percent of crude imports through term contracts with top exporters such as Saudi Arabia, Iran and Russia, state oil traders have said.

“China will, step by step, change the current situation of relying too heavily on spot trading of crude oil, encourage the signing of long-term supply contracts with foreign companies and promote the diversification of trading channels,” the paper said.

It also repeated Beijing’s commitment to liberalizing energy prices and the adoption of more fiscal measures to curb wasteful consumption, even though it has kept rigid price controls on fuels and electricity for fear for fanning high inflation.

“It will deepen the reform of energy prices to introduce a pricing mechanism favorable for energy conservation. It will put in force an evaluation and examination system in respect of energy conservation in fixed assets investment projects.”

DIPLOMACY

China has generally been reluctant to discuss international energy politics, despite deals with states including Sudan and Iran, which Western nations have shunned. Beijing has said it seeks only business opportunities abroad.

Officials have been highly sensitive to suggestions that China’s growing demand has been a factor in crude’s rise to record prices near $100 a barrel, or suggestions that its quest for oil could bring it into conflict with other countries.

But the paper appeared to recognize that with its economic and energy fortunes increasingly intertwined with the fluctuations of international markets, it cannot afford to ignore energy diplomacy entirely.

“The international community should work collaboratively to maintain stability in oil producing and exporting countries, especially those in the Middle East,” the paper said.

FOREIGN ROLE

While keeping the most strategic oil and gas sectors almost exclusively under the control of its state-run energy giants, the paper touts foreign investment in power generation, clean coal technology as well as development of unconventional resources.

The paper also underlined China’s support for making liquid fuel from coal. Environmentalists warn that the water and greenhouse-gas intensive process will undermine China’s interests in the long term, but Beijing is investing heavily in the technology to boost energy security.

“(China will) encourage research and development and the spreading of clean coal technologies and quicken the research into and demonstration of substitute liquid fuels,” it said.

Climate change, which has become more important in the political agenda over the past year, also made a first appearance as an energy priority, under a heading “comprehensive control of greenhouse gas emissions,” though the paper contained no concrete details.

Beijing is expected to become the world’s top carbon dioxide emitter as early as this year, bringing international pressure to act, while its geography makes it particularly vulnerable to the environmental impact of changing weather patterns.

For instance, it already has low reserves of water per person, and is prone to drought in the north and flooding in the south, with many of its most advanced cities located on the coast.

The paper also highlighted the need to tackle pollution from the coal-fired power stations that provide more than four-fifths of China’s power. Dirty air and water is provoking social unrest and causing economic losses, it said.

“Coal consumption has been the main cause of smoke pollution in China as well as the main source of greenhouse gas. As the number of motor vehicles climbs, the air pollution in some cities is becoming a mixture of coal smoke and exhaust gas,” it said.

(Additional reporting by Chen Aizhu; editing by Ken Wills)

aizhu.chen@reuters.com; Reuters Messaging: aizhu.chen.reuters.com@reuters.net; +8610 6627 1211

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