More than ever before, China needs oil. Hard won through a mix of domestic exploration and overseas procurement, oil is essential to feed the nation's rapidly expanding economy. This has now seen over two decades of sustained growth. Annual crude oil imports reached 90 million tons last year, and are projected to hit 100 million tons this year.

To ease the impact of any potential energy shortages on the Chinese economy, the government is working on establishing strategic oil reserves in the coastal areas.

However without detracting in any way from the importance of the oil reserve, some energy experts say there is also a need to establish a coal reserve. They believe that this should be undertaken as a matter of priority and cite the example of the recent Sino-EU coke trade dispute. The EU wants China to increase its coke export quota and has threatened to take the matter to the World Trade Organization (WTO) for arbitration.

It is quite ironic that China, a country with its own energy supply shortages, finds itself pressurized into continuing to supply massive exports of an important coal derivative. Time and again, China's manufactured goods find themselves facing anti-dumping challenges in overseas market, but no one seems to want to restrict their imports of China's energy resources.

This year, China's domestic demand for coal is expected to reach 1.78 billion tons. Taken together, the four major industrial sectors of power generation, metallurgy, building materials manufacture and fertilizers will consume 1.58 billion tons, up 12.9 percent on the previous year. Meanwhile exports will exceed the 80 million ton mark.

Energy expert, Han Xiaoping, says, "The fundamental reason for China to slash its coke export quota lies in China's deepening energy crisis. China's current coal reserves and rates of exploitation are just not sufficient to continue to sustain the rapid development of the Chinese economy.

Statistics from the State Administration of Coal Mine Safety show that at the end of April, the coal stock was 98 million tons, down 19.1 percent year-on-year. This was the lowest level of coal stocks seen in the past couple of decades. Meanwhile soaring coal prices are pushing up the cost of industrial products together with the cost of living.

Professor Xu Zhongbo of Beijing University of Science and Technology says, "China is paying insufficient attention to its abundant coal reserves as it pursues new overseas oil sources". The professor points out that coal can be used as a raw material for the production of oil and gas, so coal should be a priority for an energy security reserve.

Guo Yuntao, the director of the China Coal Development Research Center, said at a recent international forum in Beijing that China's rapid economic growth has been underpinned by heavy consumption of energy and raw materials. He estimates that by the year 2020, coal consumption will account for some 65 percent of China's total energy consumption. He anticipates minimum demand at that time will be 2.4 billion tons, over 0.7 billion tons more than the output in 2003.

Guo said, "It's only a matter of time until a coal reserve is set up."

Another official from the Ministry of Land and Resources, Zeng Shaojin said, "The issue of a coal reserve is a matter of concern for the top leaders and they are preparing to bring in the necessary measures. For instance, the ministry has stopped the issue of new coal exploitation licenses. The eleventh Five-year plan will also reportedly bring forward plans for a strategic coal reserve."

A coal reserve strategy might be expected to address these key areas:

· In order to better secure the nation's coal resources, special protection should be given to state-level coal exploitation zones, to key coal mines and to sources of rare and important types of coal.

· The system for providing finance and investment for exploration of new coal reserves should be strengthened. Exploitation should be better resourced and commercial exploitation should be encouraged. There should be further geological exploration in areas around existing coal mines.

· Operations should be put on a sound commercial footing and where necessary this could mean transferring or auctioning the mining rights. Priority should be given to extending the working lives of existing mines. Proper operational procedures should be strictly implemented in new mines.

· Technical innovations should be utilized to raise average coal recovery rates from the current 30 percent to 50 percent and this figure should be over 60 percent in medium and large mines.

Professor Xu cautioned that administrative responsibilities are currently divided, so creating potential for inefficiency and losses. The National Energy Bureau under the National Development and Reform Commission is responsible for long-term forecasts and for the strategic oil reserve. But short-term forecasts of supply and demand for oil are handled by the Economic Operations Bureau. And what's more, the coal sector is entrusted to the commission of China's Coal Industry Association.

He called for the establishment of a new unified administration, such as an Energy Ministry, to streamline and coordinate China's long-term energy strategy.

(China.org.cn by Tang Fuchun June 17, 2004)