BEIJING, Sept. 30 -- The soaring oil prices have led many to use the opportunity to tout alternative energy sources. Kong Linhe is one of them.

    General manager of a Hebei-based bio-diesel producer, Kong told Business Watch Magazine his enterprise has registered unprecedented sales this year.

    Kong and fellow alternative energy producers have been enjoying booming business since the end of June. With oil prices on the international market hovering above US$60 a barrel and even topping US$70 recently, domestic producers have raised the prices of petrol and diesel. Analysts expect prices to stay above US$50 a barrel through the end of 2006.

    In 2004 China imported 122 million tons of crude oil. Imports may increase to 140 million tons this year. "China is entering a crucial stage in terms of energy consumption," said Chen Qingtai, former deputy director of the Development Research Centre of the State Council.

    The proportion of China's oil imports relative to the global market remains small, but given the price pressure, China needs to tap new sources of energy, such as ethanol and bio-fuel, to cut its import bills and back up rapid economic growth.

    Both the public and private sectors are looking into alternative fuels.

    The government "tends to develop technologies that can be applied to quick and large-scale production. Coal liquefaction and ethanol-gasoline mixture are good choices," Zhou Fengqi, deputy director of the Institute of Energy of the policy-making National Development and Reform Commission, was quoted by Business Watch Magazine as saying.

    Coal liquefaction is a technology that uses chemical methods to produce petrol, diesel and other products while ethanol-gasoline mixture helps reduce the consumption of petrol through mixing it with ethanol.

    Brazil has extensive experience of developing ethanol-gasoline that it can pass on to China, which is actively experimenting with the technology.

    As ethanol is cheap and the government is providing generous support, nine provinces plan to replace traditional gasoline with the new mixed energy on a trial basis by the end of this year.

    Meanwhile, China is planning the construction of a number of coal liquefaction projects, with a projected production capacity of 16 million tons and investment worth billions of US dollars.

    But the energy shortage will not be overcome simply by searching for alternatives to oil, which are limited by various disadvantages at present. The government needs to map out an overall applicable and effective energy strategy.

    "Coal liquefaction and ethanol-gasoline mixture are actually expanding the oil supply. They cannot play a major role as even coal is suffering from shortages of supply," Ji Xing, an energy expert, told Business Watch Magazine.

    The ethanol for the fuel mixture, on the other hand, comes mainly from stale grain. Supply of the material will hinge on the country's grain production and will not remain stable in the long run.

    Worse, production of the mixture is costly. The State subsidizes to the tune of 1,800 yuan (US$222) for every ton of ethanol sold. Producers have to beg for State support to survive. Without an astronomical level of input from the government, the new approach will not be successful or spread to other corners of the country.

    Natural gas is an alternative, but China does not boast much in the way of gas reserves. Besides, most of its natural gas reserves are in its western regions, meaning they would have to be piped a long way to the prosperous east.

    Methanol, which is also a highly effective fuel, is yet to play much of a role in alleviating the shortage as, like ethanol, it is mixed with gasoline, meaning it is merely a supplement.

    Bio-diesel technology is starting to secure a foothold in the domestic market. Although developments have been fast in recent years, some people still regard it as a menace, not an alternative to traditional fuel produced by two domestic oil giants that monopolize the market. Since the new energy has to be sold through petrol stations, which are largely controlled by the two companies, the door to the market is actually closed.

    With traditional fuel prices soaring, there is a market for relatively low-priced bio-diesel. But the future is highly uncertain, particularly if prices of crude oil actually fall.

    To come to terms with the looming energy crisis, it is in China's best interest to create a more favourable market environment for developing energy alternatives.

    Chinese companies are bidding in the international market for oil companies and fields. But it is undeniable that the world's oil resources have been largely secured by a few major powers. It is unlikely China will be able to rely on a foreign oil supply for its domestic consumption in the long term.

    The pinch, on the other hand, has offered China a precious opportunity to tap new resources to break away from the limitations of oil for its future development.

    Chinese enterprises and research institutes are experimenting with new technologies that can power vehicles with new types of energy, such as fuel cells. Major auto makers have announced they will launch mixed-fuel cars next year. The government is drafting laws and regulations encouraging renewable energy sources.

    Western economies are levying heavy taxes on the consumption of traditional fuels such as coal and oil, on the basis of the amount of carbon released into the atmosphere, to encourage the use of cleaner, renewable alternatives. China should follow suit.

    The government, as Chen suggested in Business Watch Magazine, should play a vital role in improving the overall efficiency of energy consumption.

    It needs to establish a powerful department to effectively co-ordinate the implementation of energy policies, said Chen. China has an energy office under its cabinet, but it lacks teeth given its relatively low profile.

    It is a must for China to draft a comprehensive national energy strategy, said Chen.

    Traditional fuel suppliers will try to impede the adoption of new technologies. The State must stand up to them and tackle the matter to ensure China proceeds smoothly to embrace an effective energy strategy.

    (Source: China Daily)