Feasibility Study on the Utilization of High Sulfur Pet. Coke As a By-Product at SINOPEC Fujian Petrochemical Company Limited

New Energy and Industrial Technology Development Organization (NEDO) Entrusted to Chiyoda Corporation

020005084-7 Feasibility Study on the Utilization of High Sulfur Pet. Coke as a By-Product at SINOPEC Fujian Petrochemical Company Limited

This basic survey carries out for Fujian Petrochemical Co. Ltd., Fujian Province, China. This project is the basic investigation for cutting down the greenhouse gas by the energy conservation introduction of technology of our country. The effective utilization of high sulfur petroleum coke Project in the petroleum refinery is planned, and the energy conservation cost performance of the project, the greenhouse- gas curtailment cost performance, profitability, circulation, etc. are investigated. Clean Development Mechanism which our company will carry out in the future (henceforth CDM) It aims at investigating that it should consider as the promising project connected. NEDO-IC-OOER23

New Energy and Industrial Technology Development Organization (NEDO) Entrusted to Chiyoda Corporation Introduction

This report is summarized the conclusions on Feasibility Study on the Utilization of High Sulfur Pet. Coke as a By-Product atSINOPEC Fujian Petrochemical Company Limited Fujian Province, China which Chiyoda Corporation was contracted as a joint implement project in the 2000 fiscal year from the New Energy and Industrial TechnologyDevelopment Organization (NEDO).

The Third Conference of the Parties to the United Nations Framework Convention on Climate Change (COP3) was held in Kyoto, Japan in December 1997, and at the conclusion of the conference, the Kyoto Protocol was targeted for developed countries (including former USSR and Eastern Europe) to reduce their overall averaged emission rate of greenhouse effect gases such as carbon dioxide by at least 5 percent below 1990 levels between 2008 to 2012 in order to prevent the global warming. In the Kyoto Protocol, the reduction target for Japan is adopted to 6 percent. Joint Implementation(JI) and Clean Development Mechanism(CDM) are possible measures provided by the Kyoto Protocol to afford flexibility for achieving this goal positively acted to reduce the emissions of greenhouse effect gases collaboratively and distributing the result among numerous countries.

The purpose of this basic survey is to find the Project, which contributes to the reduction of the greenhouse effect gas with the maintainable economic development in a partner's country, by introducing the Japanese energy conservation technology. It is also to aim at finding the possible project, which will be realized as Clean Development Mechanism with the corporation in Japan, through this feasibility study on the project planning need to be examined in details.

Considering the above background and objective, this Effective utilization of high sulfur petroleum coke Project is selected and feasibility studies are conducted for Fujian Petrochemical Co. Ltd., Fujian Province, China..

The contents of this survey are to study the effects of the energy conservation and reduction of the greenhouse effect gas by the new provision of the Integrated gasification combined cycle(IGCC) facility which carried out the effective utilization of the petroleum coke. .

By carrying out this project, the investigation result which it not only can gain the reduction of the large greenhouse gas, but is that which satisfies the energy conservation goal and the profitability of refinery operation of the Fujian Petrochemical Co. Ltd., was obtained.

For project realization, the detailed plot including the money raising will be examined with the counter partner, and it will correspond from now on.

Finally, we, Chiyoda Corporation, wish to express our gratitude to the persons to be cooperated with this feasibility study, and sincerely hope that this report will be useful to all persons concerned.

Company Name Division/Dept./Group Title Name Chiyoda Ryuzo Energy Project Division Project Manager Corporation Watari NCF Team Chiyoda Tsutomu Domestic Business Dept. Manager Corporation Fujishiro Chiyoda Ryuichi Industrial Facility Project Division General Manager Corporation Araki Environmental Project Dept. Chiyoda Hisao Industrial Facility Project Division Assistant General Corporation Takahashi Environmental Project Dept. Manager Chiyoda Misao Industrial Facility Project Division Manager Corporation Tateno Environmental Project Dept.. Chiyoda Yusuke Industrial Facility Project Division Manager Corporation Shimada Environmental Project Dept. Chiyoda Syozo Industrial Facility Project Division Manager Corporation Mori Environmental Project Dept.. Chiyoda Taro Energy Project Division Engineer Corporation Ogawa NCF Team Chiyoda Ginnjiro Front End Engineering Division General Manager Corporation Fujima Process Engineering Dept. Chiyoda Hiroo Detailed Engineering Division Engineering Corporation Tsuruta Mechanical Engineering Dept. 1 Consultant Chiyoda Hideki Energy Project Division Assistant General Corporation Hori NCF Team Manager Chiyoda Hiriyasu Detailed Engineering Division Assistant General Corporation Naito Electrical Engineering Dept. Manager Chiyoda Kumao Project Control Dept. Assistant General Corporation Sato Manager Chiyoda Musashi Energy Project Division Engineer Corporation Sekine NCF Team Chiyoda Toshio Detailed Engineering Division Assistant General Corporation Takano Control System Engineering Dept. Manager Chiyoda Taketoshi Detailed Engineering Division Engineer Corporation Machidaa Mechanical Engineering Dept.l Company Name Division/Dept./Group Title Name Chiyoda Takashi Detailed Engineering Division Engineering Corporation Noto Mechanical Engineering Dept.2 Consultant Chiyoda Kunio Detailed Engineering Division Assistant General Corporation Suzuki Control System Engineering Dept. Manager Chiyoda Shin taro Detailed Engineering Division Engineer Corporation Abe Control System Engineering Dept. Chiyoda Shizuo Detailed Engineering Division Engineering Corporation Ishikawa Mechanical Engineering Dept.l Consultant Chiyoda Tomoyoshi Detailed Engineering Division Assistant General Corporation Ohara Mechanical Engineering Dept.2 Manager Chiyoda Toshiyuki Procurement Division Assistant General Corporation Horiike Purchasing Dept. Manager Chiyoda Yukihiro Energy Project Division Engineer Corporation Yamamoto NCF Team Chiyoda Daisuke Domestic Business Dept. General Manager Corporation Wakabayashi Chiyoda Kouichi Domestic Business Dept. Assistant General Corporation Kara Manager Chiyoda Takashi Industrial Facility Project Division Manager Corporation Sakamoti Environmental Project Dept. Chiyoda Akemi International Business Dept. Manager Corporation Takahashi Contents

Feasibility Study on the Utilization of High Sulfur Pet. Coke as a By-Product at SINOPEC Fujian Petrochemical Company Limited Fujian Province, China

Summary...... S-l 1. Basis of Project ...... 1-3 1.1 Present Status of Partner Country...... 1-3 1.1.1 Political, Economic and Social Conditions ...... 1-3 1.1.2 Energy Situation ...... 1-21 1.1.3 Needs for Projects for CDM...... 1-71 1.2 The Need for Introduction of Energy Conservation Technology in the Target Industry ...... 1-77 1.3 Significance, Need, Effect of the Project Concerned, and Dissemination of the Results to Similar Industries...... 1-79

2. Materialization of Project Plan...... 2-3 2.1 Project Planning ...... 2-3 2.1.1 Outline of the Regional Conditions of the Project Site...... 2-5 2.1.2 Description of Project ...... 2-17 2.1.3 Greenhouse gases, Etc. Targeted for This Project ...... 2-22 2.2 Overview of the Project Site (Company)...... 2-23 2.2.1 Level of Interest at the Project Site...... 2-23 2.2.2 State of Related Facilities at the Project Site (Company)...... 2-26 2.2.3 Project Implementation Ability at the Project Site (Company) ...... 2-41 (1) Technical ability ...... 2-41 (2) Management system ...... 2-41 (3) Management base and management policy...... 2-42 (4) Financial capability ...... 2-42 (5) Personnel capability ...... 2-43 (6) System responsible for the implementation of this project...... 2-43 2.2.4 Details of the Project at the Implementation Site (Company) and the Specifications of Related Facilities after Modification...... 2-44 2.2.5 Scope of Project Funds, Facilities and Equipment, Services Etc., to be Supplied by the Both Parties at the Project Execution Stage ...... 2-93 2.2.6 Prerequisites for Implementation of the Project and Possible Problems Involved ...... 2-96 2.2.7 Project Execution Schedule...... 2-96 2.2.8 Plot Plan...... 2-100 2.3 Materialization of Project Financial Plans...... 2-103 2.3.1 Financing Plan for Project Execution ...... 2-103 2.3.2 Prospects of Raising Project Funds...... 2-104 2.4 Matters Pertinent to CDM Conditions ...... 2-105 2.4.1 Matters to be coordinated with the counterpart country for realization of CDM, such as setting of project implementation requirements and allocation of responsibilities with full consideration for the current situation at the project implementation site...... 2-105 2.4.2 Possibility of the Counterpart Country ’s Agreement on this Project to be Implemented as CDM (conditions to which counterpart country agrees — on the basis of the attitude of the counterpart country ’s governmental organizations relevant to CDM and the company at which the project is to be implemented)...... 2-106

j. Effects of the Project ...... 3-3 3.1 Energy Conservation Effects...... 3.1.1 Technological Grounds for Production of Energy Conservation Effects ..3-3 3.1.2 Baseline to be Used for Calculation of Energy Conservation Effect...... 3-5 3.1.3 Specific Amounts of Energy Conservation, Duration and Cumulative Amount...... 3-6 3.1.4 Method of Identifying Specific Amounts of Energy Conservation ...... 3-8 3.2 Greenhouse Gas Emission Reduction Effect...... 3-9 3.2.1 Technological Grounds for Expecting Reducing Greenhouse Gas Emissions ...... 3-9 3.2.2 Baseline as a Basis for Calculating C02 Emission Reduction ...... 3-9 3.2.3 Specific Amounts of Greenhouse Gas Reduction, Duration and Cumulative Amount ...... 3-10 3.2.4 Method of Identifying Specific Amounts of Greenhouse Gas Emission Reduction...... 3-11 3.3 Effect on Productivity ...... 3-12

4. Profitability of the Project ...... 4-3 4.1 Economic Investment Return Effect...... 4-3 4.1.1 Estimation of the Cost of Implementation of the Project ...... 4-3 4.1.2 Estimation of the Operational Costs before and after Implementation of Project ...... 4-5 4.1.3 Estimation of Annual Profit and Payback Period ...... 4-8 4.2 Cost Benefits of the Project ...... 4-9

5. Identification of Dissemination Effect...... 5-3 5.1 Possibility of Promoting Technologies to be Introduced in the Counterpart Country through the Project ...... 5-3 5.1.1 IGCC Equipment Technology Dissemination Scenario ...... 5-3 5.2 Effects in Prospect of Dissemination ...... 5-9 5.2.1 Energy-Saving Effect...... 5-9 5.2.2 Greenhouse Gas Emission Reduction Effect...... 5-10 5.3 Dissemination Examples of Target Technologies in Countries Other than the Counterpart Country ...... 5-11 5.3.1 State of Introduction of Gasification Equipment on a Global Basis...... 5-11 5.3.2 State of Introduction of Gasification Units by Region ...... 5-12 5.3.3 State of Introduction of Gasification Equipment by Use...... 5-14 5.3.4 State of Introduction of Gasification Equipment by Type of Material...... 5-15 5.3.5 Typical Plant for Residue Gasification ...... 5-16

6. Effects of the Project on Other Aspects...... 6-3 6.1 Effect of the Project on Other Environmental, Economic, and Social Aspects in Addition to Energy Conservation Effect and Greenhouse Gas Emission Reduction Effect Obtained through the Implementation of the Project ...... 6-3

This study is intended to evaluate the feasibility and the cost effectiveness of the project by calculating the possible energy conservation effect and the greenhouse gas carbon dioxide reduction effect that would be produced in the following case: IGCC (Integrated Gasification Combined Cycle) is introduced into the refinery of the Fujian Petrochemical Co. Ltd., to gasify the residue as a feedstock in order to produce a clean syngas of a level almost identical to natural gas and use the syngas as fuel for power generation facilities.

The investigation conditions of this study were set on the basis of the two site surveys and three meetings with SINOPEC. More specifically, discussions were held with the Chinese side regarding whether monogeneration (to produce only electric power) or cogeneration (to produce both electric power and hydrogen) should be adopted as an operating mode of IGCC. After evaluations made on the basis of economic factors (product prices, annual rate of operation, utility costs, labor costs) presented by the Chinese side, it was decided that monogeneration should be used as a production base. Furthermore, the following basic design conditions required for this study, which would be needed in the execution of engineering, were confirmed with the Chinese side in order to carry out in-depth studies with the aim of maximizing the energy conservation effect and the C02 reduction effect. • Climatic conditions • Feedstock quality • Utility conditions • Regulatory values for environmental protection

1) Energy conservation effect and C02 reduction effect A boiler turbine power generator (BTG) using coal as fuel is adopted as a baseline for studying the energy conservation effect and the C02 reduction effect. The overall efficiency, including transmission loss, is set at 32% in accordance with “Electric Power Industry in China, 2000” published by the China’s National Electric Power Company. The overall efficiency in the project case, on the other hand, would be 41% because a) Power transmission loss is negligible as an IGCC facility is constructed on the site of an oil refinery b) The Waste Heat Boiler mode and the F-Type Gas Turbine are adopted to improve the overall efficiency c) Heat energy is optimized by attempting inter-facility integration. As a result, a prospect of reducing energy consumption by 22%-, equivalent to 94,300 toe/y of crude oil, compared with the baseline, has been obtained. Furthermore, it is expected that a reduction effect of 291,600t-COVy will be attained.

2) Investment cost vs. Project effect The following factors are considered to confer advantages in economic terms on a petroleum residue-based IGCC. a) Synergistic effects on the process side of petroleum refining can be expected. • The production of oil with high value added is boosted when IGCC is used in combination with residue upgrading equipment, and appraisal of residue after extraction can be made very low in monetary terms. b) Synergistic effects on the cost side can be expected. • The infrastructure of a refinery can be used and the investment costs of offsite facilities and utilities facilities as well as labor cost can be curbed, and furthermore, no fuel transportation charges will be incurred. c) Location in proximity to users Power transmission loss becomes considerable in the case of a coal-fired power generation facility since it is generally located in a remote place due to its adverse environmental impact. In the case of IGCC, on the other hand, power transmission loss is negligible because it can be located in proximity to users of electric power, in addition to its environmentally friendly nature.

8-2 The result of this study showed prospects of high profitability-3.4 years of return on investment- because of the above-mentioned synergistic effects and also because of the comparatively high electric power price. Moreover, regarding the investment cost vs. energy conservation effect, a favorable result of 3.18 toe/year is expected to be achieved.

3) Environmental load reduction effect An IGCC facility using petroleum residue as a feedstock is a power-generation facility with a low environmental load. In addition, remarkable levels of reduction in C02, as well as SOx, NOx, particulate matter, waste water and solid waste are expected in comparison with a coal-fired power generation facility. Regarding atmospheric emissions in particular, an IGCC facility can attain an excellent level of particulate matter emission, 6mg/Nm 3, against the Chinese regulatory range of 200~500mg/Nm 3, and recovery of 99% or more of SOx can be expected, compared with 85-90%- in case of a coal fired power generation facility. Moreover, with regard to NOx, an IGCC can attain a 30ppm level of NOx without the installation of de-NOx equipment: this level is nearly the same as that of a coal fired power generation facility fitted with de-NOx equipment.

4) Financing plan As for funding to facilitate the early realization of this project, it would be necessary from the viewpoint of environmental protection to use environmental yen loans with a low interest rate and a long repayment period. To this end, further negotiations will be held with the Chinese side to file an application preferentially for environmental yen loans with the Japanese government after obtaining the Chinese government ’s agreement as to the necessity for this project.

Through the feasibility study, it has become clear that remarkable effects on energy conservation and C02 reduction, as well as an improvement in environmental load can be expected if an IGCC is introduced into the refinery. This has helped to improve the Chinese side’s understanding of this project. Furthermore, at the 6th Conference of the Parties to the United Nations Framework Convention on Climate Change, the representative of China emphasized the following point in his speech. “The 10th five-year plan for economic and social development and the grand development plan for the West of China are currently being formulated. The Chinese government assigns the highest priority to subjects such as the ecosystem and

S-3 environmental protection and sustainable development. ” In this way, the Chinese government has declared its policy of making positive efforts toward realization of the Clean Development Mechanism. Further detailed plans, including a financing scheme for obtaining mainly yen loans from Japan for the environmental protection, will be drawn up through discussions and investigations with the Chinese counterpart.

This chapter provides an overview of the current political, economic and social conditions of the People ’s Republic of China, a counter partner with whom this basic survey is jointly implemented, as well as a general description of its energy situation and measures and policies for CDM projects.

The social turmoil caused by the struggle for power with the rise of the Gang of Four following the death of Mao Zedong in 1976 has ended, and political, economic and social conditions in China have changed dramatically as a result of the reform and open door policy pursued by Deng Xiaoping from around 1978. Below we explain these changes and describe conditions, measures and policies in China relating to the environment and energy issues.

China celebrated its 50th anniversary on October 1, 1999, and a grand commemorative event and the country ’s first military parade in 15 years were held in Beijing. Following the end of the Second World War, China continued to be beset by civil war. Militarily stronger than the Communists thanks to United States backing, the Kuomintang seized power. However, the party ’s control was weak due to despotism and corruption in the Kuomintang, and, gradually overwhelmed by the Communist Party, its members and followers fled to Taiwan in 1949. On October 1 that year, the establishment of the People ’s Republic of China (PRC) was declared in Tiananmen Square, and the unification of China (with the exception of Taiwan) was achieved.

Under the leadership of the Communist Party and Mao Zedong in particular, the PRC sought to create a socialist state. Society and the economy, however, remained in a state of total collapse due to the turmoil that had plagued the country since the end of the Qing dynasty. China faced additional difficulties due to the tense international atmosphere created by the confrontation between the US and Soviet Union. As a result of the outbreak of the Korean War in 1950, gradualist reform was replaced by rapid reform, and the failure of the Great Leap

1-3 Forward, which began in 1958, the internecine struggle among the anti-rightists, and the Cultural Revolution between 1966 and 1976 plunged the country into chaos.

It was amid such chaos that China lost first Mao Zedong and then Zhou Enlai. With Deng Xiaoping ’s third comeback in 1977, however, the situation was brought under control, and the government began to place priority on economic recovery based on the principles of open door and self-reliance. Internationally, China embarked on a course of restoring international relations. After rejoining the United Nations in 1971, China normalized diplomatic relations with Japan in 1972, and then restored diplomatic ties with the US in 1979.

In 1989, pro-democracy students went on hunger strike in Tiananmen Square. Deng Xiaoping and others who suppressed the movement using military force ousted the reformist faction led by Zhao Ziyang, and Jiang Zemin was made General Secretary of the Communist Party. In March 1993, Jiang Zemin was elected President at the National People ’s Congress, and Li Peng became Premier.

In February 1997, Deng Xiaoping, the architect of the reform and open door policy, died, and the locus of political power moved relatively smoothly to Jiang Zemin. Subsequently, at the National People ’s Congress, Li Peng became NPC Standing Committee Chairman and Zhu Rongji succeeded Li Peng as Premier to form a troika with President Jiang Zemin. Under this new regime, reform of government organizations, state-owned enterprises and financial institutions is being pursued, and a cleanup campaign is underway to clamp down on corruption and smuggling and ban the involvement of the military and security forces in profit-making ventures. The political situation is currently stable, and China is seeking a place for itself in the global system through, for example, joining the World Trade Organization (WTO).

In July 1997, meanwhile, the reversion of Hong Kong from British to Chinese control that Deng Xiaoping had long craved became a reality, and this was followed by the return of the Portuguese territory of Macao to China in December 1999.

1-4 In recent years, China has actively sought to attract inflows of foreign capital. Economically, China has enjoyed robust growth. At the same time, however, there exist numerous problems such as the growing disparities between the regions, the spread of the pursuit of wealth, corruption among officials, restrictions on freedom of speech and political activity as evidenced by the Tiananmen Incident in 1989, and the issue of Taiwan.

These, then, constitute the main political and social developments from the start of the process of modernization through to the present. Below we summarize other details of politics and society in China.

1) Date founded : People ’s Republic of China founded on October 1, 1949. (Brief summary) Qing dynasty overthrown by Nationalist revolution (Hsin-hai Revolution). Republic of China established. 1921 Communist Party of China founded People ’s Republic of China established on October 1 after two civil wars.

2) Constitution : Promulgated on December 4, 1982. Partially amended in March 1993.

3) State system : Constitutionally, China is a socialist state ruled as a people ’s democratic dictatorship. In practice, however, China is under the single-party rule of the Communist Party.

7) Political parties : 8 political parties including the Communist Party of China and the Revolutionary Committee of Chinese Kuomintang.

According to the recently published Report on the Chinese Population Problem, compiled by demography experts including members of the Commission for Planned State Growth under the China’s Social Science Council, the country ’s population had reached 1,259,090,000 as of the end of 1999, and is not expected to exceed the 1,300 million mark before the year

The report points out that the growth of China’s population has been efficiently restrained since the country began implementing its planned parenthood policy from the 1970s. By the late 1990s, China had attained an ideal balance between a low birth rate and a low death rate, resulting in slow population growth.

The population growth rate has already fallen below 1%, which is clearly lower than the rates of other developing countries.

According to the National Bureau of Statistics, the population will exceed 1.3 billion in 2003, and in 40 years its growth rate should have fallen to zero. The bureau projects that the population will stabilize at around 1.5 billion sometime in the future.

Population statistics reveal that 400 million out of China’s total population of 1.2 billion live in urban areas. Chinese government plans call for the urbanization of 40% of the country by 2010. In the 21st century, China is expected to change from an agricultural country, defined as one in which the majority of the population is engaged in agriculture,

1-6 to an industrialized country where the majority of the population is engaged in non-agricultural employment.

The latest census has revealed that the population of Beijing has now exceeded the 12.8 million mark. The data reveals that there were 11,003,357 persons holding Beijing census registration, and an additional 1,842,363 persons registered in other provinces, cities, and districts of the country who had been living in the capital for at least six months, giving a total of 12,845,720. The present demographic structure of Beijing displays the following two major characteristics. There are many cases of disparity between actual domicile and official census registration: 2,910,000 persons, or 27% of Beijing ’s total population, are not officially registered as residents of the areas where they currently reside. The number of people who have moved into Beijing from elsewhere in the country is large, at 2,389,000. Of these, 1,842,000 have lived in Beijing for at least six months, accounting for 15% of the city ’s population. Of Beijing ’s 18 districts, Hai Dian district has the largest number of residents possessing Beijing census registration, while Chao Yang district contains the largest number of people who have moved in from outside Beijing.

Since the 1990s, the Chinese government has been aggressively pursuing a policy of promoting the growth of the national economy through bolstering China’s strength in scientific fields. As a result of these measures, girls and young women have been given access to education in all fields and at all levels, resulting in an across-the-board improvement in learning levels by female students. Statistics show that the number of years of education for females aged 15 or over has increased by more than for males, while simultaneously, illiteracy rates among females have shown a larger decline than among males. These facts are clear evidence of a sharp narrowing of the formerly wide education gap between men and women.

According to a report on activities for these five years related to the “Beijing Declaration ” and the “Action Policy Framework ” of the 4th World Conference on Women, drawn up by the Action Committee for Women and Children of the State Council, the number of illiterate adults in China has been decreasing by over 4 million persons per annum over the past few years, and women account for 65% of this decrease. As of 1998, 22.6% of the adult Chinese female population were illiterate, down 1.5 points from 1995. For the 15-45 age bracket, only 8% of women were functionally illiterate. The average number of years of education received by Chinese women in 1998 was 6.5, and the gap between the average number of years of education for men and women, which was 1.7 years in 1995, had narrowed to 1.5 years.

To overcome the difficulties that girls and women experience in receiving education in certain parts of China along the country ’s borders, in economically deprived areas, and in regions inhabited by minority ethnic groups, the official Chinese education authorities and other people involved in education have been giving special classes for girls and adult women, as well as opening all-female schools free of charge. Thanks to these efforts, the proportion of female students in China’s schools has risen. Compared with the situation in 1995, the proportions of female students at universities and colleges, high schools, junior high schools, and elementary schools in 1998 had risen by 2.9%, 1.3%, 0.9%, and 0.3%, respectively. Moreover, while the percentage of female students starting courses at educational institutions increased, the rate of mid-course dropouts declined. In 1998, the females’ rate of entrance into elementary schools amounted to 98.9%: this is

1-9 with the advanced industrialized countries. By contrast, only 0.92% of girls failed to graduate from elementary schools.

China has also been actively promoting education for adult female students, as well as vocational and technical training. Chinese girls and women are being provided with more and more opportunities to receive vocational education and to continue their education for longer. There are now over 1,600 vocational middle schools for girls, and three all-female vocational colleges. More than 60 vocational courses specially designed for the needs of women are offered at present. The schools and regional women ’s activities centers involved in these educational efforts are making a valuable contribution to China’s overall efforts to provide lifelong education and practical training for its female population. As of 1998, a larger proportion of the female population, at 51.8%, were taking courses at vocational schools at the junior high school level than of the male population. This figure represents an increase of 8.3 percentage points from 1995. At the same time, the percentage of female students in advanced adult education had reached 46.8%.

In 1989, the Foundation for the Development of Chinese Youth initiated the “Project of Hope ” with the aim of helping children who have had to leave school, for family financial reasons, before completing their education. In these ten years between then and 1999, 7,812 “Elementary Schools of Hope ” were set up, and 2,290,000 children in poor areas of the country who had been forced to stop attending school were assisted in resuming their education. Close to half of these children were girls. Meanwhile, the ChunLei Plan, started by the National Women ’s Federation with the objective of providing help to girls who have had to leave school, has thus far helped over 900,000 girls to go back to school.

19) Japanese residents : 20,517 (October, 1999) (excluding those in Hong Kong and Macao)

As a result of the reform and open door policy pursued since 1978, the Chinese economy has achieved dramatic growth. The economy really began to take off with the start of moves to attract technology and capital from sources such as the Chinese community overseas as part of a policy of encouraging foreign capital inflows adopted in 1980. More specifically, in order to attract capital and technology from Hong Kong,Taiwan and elsewhere, four regions, including Xiamen, were designated as economic development zones.

Subsequently in 1992, Deng Xiaoping announced “Remarks during his inspection tour to Southern China”, and controls on foreign capital were greatly relaxed. As a result of these deregulatory steps, foreign investment in China rose sharply. Economic growth between 1992 and 1995 was 10-14%, but inflation also remained high until 1995.

Fiscal restraint to keep the economy from overheating and the suspension of preferential treatment for foreign firms brought inflation under control, but the slump in inflows of foreign capital also caused the growth rate to dip, and the rate of growth of GDP fell from 9.6% in 1996 to 8.8% in 1997, 7.8% in 1998, and 7.1% in 1999.

In 1998, the slump in demand in Asia and severe flooding in the northeast and south of the country in the summer had some economic impact. The government, however, made every effort to ensure its target of 8% growth was met by expanding demand mainly through investment in infrastructure development, housing, and high-tech industries, and an economic package based on a large-scale government bond issue. In the end, the economy achieved slightly lower than targeted growth of 7.8%.

1-11 GDP growth rate was 7.1% in 1999. The development of the reform of state- owned enterprises and slowdown in exports decreased the tempo of economic expansion

With regard to the economic growth rate in 2000, fundamental problems, such as a delay in economic structure adjustment, has remained unsolved, impeding consistent economic growth. According to estimates of 2000 made in January 2001, however, a great change in economic development has been achieved, and this has contributed to controlling inflation and bringing the economic growth rate back up to 8%. (Fig. 1.1.1-1)

Zhu, Director of the National Bureau of Statistics comments that China’s gross domestic product (GDP) in 2000, which was originally estimated at 8.9 trillion yuan, has topped the US$1 trillion mark for the first time, indicating an 8% increase over 1999, or a 0.9 point growth over the previous year. China’s GDP has attained a yearly average increase of 8.3% during the 9 th five-year plan, which is higher than the originally expected target of 8%.

Meanwhile, China’s industrial output in 2000 also achieved a fast and stable growth, and the figures for the period from January to November 2000 indicated an increase of 2132.7 billion yuan in the large-scale industrial sector. This was an increase of 11.5% over the previous year —2.5point in terms of the growth rate.

It is also claimed that agricultural output has enjoyed stable growth. The annual crop production looks likely to decline by approx. 9% from the previous year due to reduction of the planted area and the serious influence of natural disasters. Cotton, oil, vegetable, stock farming and marine products industries have maintained stable growth.

Investment in fixed assets showed a substantial growth in 2000. The national fixed assets investment value for the period from January to November (excluding investment by groups and individuals) was 1819.1 billion yuan. This was an increase of 11.7% over the previous year, indicating a 4.9 point growth rate.

Foreign trades expanded as well, and the combined total of exports and imports broke the US$400.0 billion mark.

1-12 The total value of import and export for the period from January to November in 2000 was US$430.9 billion, which represents a 33.4% growth rate.

The incomes of residents in both urban and rural areas have continued to grow as well. For the present, the income of residents in urban areas attained a 7% increase over the previous year in 2000, while the net income per resident in rural areas reportedly showed a 2% growth.

1-13 Table 1.1.1-1 Gross National Product and Gross Domestic Product for the 1978-1999 Period

Unit: 100 million yuan Gross Gross Per capita national domestic Primary Secondary Tertiary Year GNP (yuan/ product product industry industry industry person) (GNP) (GDP) 1978 3624.1 3624.1 1018.4 1745.2 8615 379 1979 4038.2 4038.2 1258.9 19115 8618 417 1980 4517.8 4517.8 1359.4 2192 966.4 460 1981 4860.3 4862.4 1545.6 2255.5 1061.3 489 1982 5301.8 5294.7 1761.6 2383 1150.1 526 1983 5957.4 5934.5 1960.8 2646.2 1327.5 582 1984 7206.7 7171 2295.5 3105.7 1769.8 695 1985 8989.1 8964.4 2541.6 3866.6 2556.2 855 1986 10201.4 10202.2 2763.9 4492.7 2945.6 956 1987 11954.5 11962.5 3204.3 5251.6 3506.6 1103 1988 14922.3 14928.3 3831 6587.2 4510.1 1355 1989 16917.8 16909.2 4228 7278 5403.2 1512 1990 18598.4 18547.9 5017 7717.4 5813.5 1638 1991 21662.5 21617.8 5288.6 9102.2 7227 1882 1992 26651.9 26638.1 5800 11699.5 9138.6 2288 1993 34560.5 34634.4 6882.1 16428.5 11323.8 2933 1994 46670 46759.4 9457.2 22372.2 14930 3916 1995 57949.9 58478.1 11993 28537.9 17947.2 4772 1996 67559.7 68593.8 13884.2 33612.9 21096.7 5634 1997 73452.5 74772.4 13968.8 36770.3 24033.3 6079 1998 79552.8 18.00% 49.20% 32.80% 6404 1999 82054 14212 40806 27036 6646 Average for 1965 6463.1 6445.4 2021 2851.4 1573 629 Average for 1975 14518.9 14510 3808.8 6265.4 4435.8 1313 Average for 1985 37408 37625.6 7884.2 17628.1 12113.3 3158 Source: “People ’s Daily Internet Center”

1-14 2) National budget: Revenue: 639.6 billion yuan (1999 settlement of accounts) Expenditure: 819.3 billion yuan (1999 settlement of accounts)

(Unit: 100 million yuan) Index (Previous year = 100) Total Fiscal year Total revenue Balance Total expenditure Total revenue expenditure 1979 1146.4 128E8 -135.4 10E2 114.2 1980 1159.9 12218 -619 101.2 919 1981 1175.8 1138.4. 37.8 101.4 925 1982 1212.3 1230 -17.7 103.1 108 1983 1367 1409.5 -42.6 1128 114.6 1984 1642.9 1701 -512 1212 120.7 1985 2004.8 2004.3 0.6 122 117.8 1986 2122 2204.9 -82.9 1018 110 1987 2199.4 2262.2 -628 103.6 102.6 1988 2357.2 249E2 -134 107.2 110.1 1989 2664.9 2823.8 -158.9 113.1 113.3 1990 2937.1 3083.6 -146.5 110.2 109.2 1991 3149.5 3386.6 -237.1 107.2 109.8 1992 34814 37422 -258.8 110.6 110.5 1993 4349 4642.3 -293.4 124.8 124.1 1994 5218.1 5792.6 -574.5 120 124.8 1995 62422 6823.7 -581.5 1116 117.8 1996 7407.99 7937.55 -529.56 118.7 1113 1997 8651.14 923156 -582.42 1118 116.3 1998 9876 10798.2 -992.2 1999 11377 13136 -1759 Average for 7402.8 7483.2 -80.4 111.6 110.3 1965 Average for 12280.6 12865.7 -5811 107.9 109 1975 Average for 22442.1 24387.5 -1945.4 1113 117.2 1985

1-15 3) China’s foreign currency reserves: US$165.6 billion (as of the end of 2000)

This figure, announced by the Bank of China on January 17, 2001, represents an increase of US$10.9 billion from the figure announced at the beginning of 2000. At the end of last year, there were 178 foreign-owned banks operating on the Chinese mainland. The total assets of these foreign banks amounted to US$34.6 billion, of which foreign currency loans accounted for US$18.8 billion, representing 22.7% of mainland China’s total foreign currency loans. The amount of deposits in foreign currencies held by Chinese financial institutions came toUS$128.3 billion, representing an increase of US$25.1 billion over the previous year. The amount of loans was US$61.1 billion, down US$5.6 billion from the beginning of the year 2000.

5) Foreign debt: US$151.83 billion (as of the end of December 1999) See the next page for Year-on-Year Nation ’s Foreign Debt.

Total 525.45 605 61 693.21 835.73 928.06 1065.9 1162.75 1309.6 1460.4 1518.3 1. By type of debt Government loan 83.9 95.06 114.95 143.15 195.91 220.58 221.64 207.82 International 62.86 70.71 84.15 104.64 129.39 147.99 167.39 192.12 institution loan Commercial loan 291.84 315.9 354.79 410.8 473.35 526.27 569.44 647.68 Others 86.85 123.94 139.32 177.14 129.41 171.06 204.28 261.98 2. By term of redemption Long-term debt 457.79 502.57 584.75 700.27 823.91 946.74 1021.67 1128.2 1287 1366.5 balance Short-term debt 67.66 103.04 108.46 135.46 104.15 119.16 141.08 181.4 173.4 151.8 balance

II Component ratio 100 100 100 100 100 100 100 100 (%) 1. By type of debt Government loan 16 15.7 16.6 17.1 21.1 20.7 19.1 15.9 International 12 11.7 12.1 12.5 14 13.9 14.4 14.7 institution loan Commercial loan 55.5 52.1 51.2 " 49.2 51 49.4 49 49.4 Others 16.5 20.5 20.1 21.2 13.9 16 17.5 20 2. By term of redemption Long-term debt 87.1 83 84.4 83.8 88.8 88.8 87.9 86.1 90 balance Short-term debt 12.9 17 15.6 16.2 11.2 11.2 12.1 13.9 10 balance

1-17 6) Defense : 120.5 billion yuan (2000) expenditure (D Budget 120.5 billion yuan (fiscal 2000); ratio to GDP: 1.32% (fiscal 1999) Military service: both conscription (males and females between 18 and 22 years of age) and volunteer systems (land, sea, and air forces: uniformly 2 years) © Military power: (total) Approx. 2,580,000 (including 100,000 No. 2 artillery troops) (Army personnel: 1,830,000, naval personnel: 230000, air force personnel: 420,000 operational planes: approx. 3520)

8) GDP : US$991.2 billion (based on the average rate for 1999) * According to estimates, China’s GDP exceeded US$1 trillion.

10) Breakdown of : Primary industry 18% GDP by industry Secondary industry 49.2% (industry 42.5%) Tertiary industry 32.8% (1998)

13) Main industries : Iron and steel, shipbuilding, plastics, textiles, agricultural equipment, automobiles, chemical fertilizers, livestock

14) Main resources : Tungsten, antimony, coal, oil, iron, minerals, rice, cereals, cotton, tea, silk

1-18 15) Arable land : 94,970,000 hectares (9.89% of the total land area; 0.075 hectares per person)

17) Allocation of : Agriculture 73%, industry 14%, services, etc. 13% labor by industry (1997)

19) Trades • Trade balance : Exports US$249.2 billion (a 27.8% increase over the (2000) previous year), Imports US$225.1 billion (a 35.8% increase over the previous year)

• Main imports : Crude oil, steel products, paper & board paper, air (1999) planes, chemical fertilizers

According to statistic data from the Customs, the total value of China’s external trade for the last year was US$474.3 billion (up 31.5% from the previous year) and achieved a record high in terms of both value of trade and growth rate since the reform and open door policy was adopted. The value of exports was US$249.2 billion (up 27.8% from the previous year), while that of imports was US$225.1 billion (up 35.8% from the previous year), thus producing a trade surplus of US$24.1 billion.

1-19 China’s trade growth rate has increased to an annual average of 13.4% for 20 years since the reform and open door policy was adopted.

Last year, China’s trade with its major trade partners demonstrated a two- digit growth rate in value terms. China’s main trade partners and areas ranking top ten last year include Japan, the EU, Hong Kong, ASEAN, South Korea, Taiwan, Austria, Russia, and Canada. Of these countries, export market shares of ASEAN countries, South Korea and Russia who made a strong economic recovery all exceeded 40%, and besides the growth rate of exports to Japan also exceeded the average level.

The general trade balance increased significantly in 2000. Exports within the general trade account amounted to US$105.2 billion (up 32.9% from the previous year) and imports to US$100.1 billion (up 49.3% from the previous year). Meantime, the trade balance in finished goods also gradually increased, registering US$137.7 billion in exports (up 24.1% from the previous year) and US$92.6 billion in imports (25.8% up from the previous year).

Among products exported last year, the exports of mechanical and electrical equipment in particular showed a steady upturn, and the export figure was US$ 105.3 billion (up 36.9% from the previous year), which exceeded the growth rate of total exports by 9.1% , accounting for 42.3% of the total. Also, exports of high-tech products came to US$37.0 billion (up 50% from the previous year) and exceeded the growth rate of total exports by as much as 22%, thus helping promote the structural adjustment of China’s export products. On the other hand, imports of primary industry products increased to US$ 46.7 billion (up 74.1% from the previous year. Particularly large shares in total imports were registered by crude oil (up 91% from the previous year) and beans (up 140% from the previous year). Additionally, imports of mechanical and electrical products also increased by as much as 30% over the same period of the previous year.

China boasts some of the largest reserves of fuels in the world and one of the largest volumes of energy consumption. In 1997, the country was No. 1 in the world in terms of production of coal, at 1,373 million tons, and its total electric power generation, at 1,134.5 billion kWh, was second only to the United States. China was fifth in the world in crude oil output, with 161 million tons, and 18 th in output of natural gas, with 2270 million m3.

Although China produces large amounts of energy every year, it is faced with many problems in the area of consumption. Some problems arise from the nature of the energy resources or the uneven distribution of fuel reserves, while others stem from such social factors as the huge size of the country ’s population. This report attempts to analyze the energy demand situation in China and pinpoint problems, and to describe the steps taken by the Chinese authorities to solve these problems.

Regarding the Structure of Energy, as shown in Table 1.1.2-10, coal accounts for approximately 70% of both energy production and consumption in China. This is followed by crude oil, at 20%, with hydroelectric power and natural gas accounting for the remaining 10%. The country is thus over-dependent on coal, which gives rise to inefficiency in energy utilization as well as pollution problems. For this reason, China needs to reduce its reliance on coal.

In view of this situation, China is promoting the conversion from coal to fuels that can be more efficiently utilized, such as oil and natural gas. At the same time, with the goal of preserving the environment, it is promoting the development of new forms of energy including renewable energy sources such as solar power and wind power, as well as coal liquefaction and gasification technologies, together with the implementation of energy conservation measures.

1-21 Long-term forecasts indicate that although, under the basic scenario, coal will account for only 20% of final energy consumption by 2010, it will continue to account for 64% of primary energy resources. It will prove rather difficult for China to change the primacy of coal in its energy supply and demand structure and to correspondingly raise the proportion of primary energy resources occupied by oil compared with coal. It is expected to take many years for the country to achieve this objective.

Coal accounts for over 70% of all energy consumed in China. Coal is projected to gradually account for less and less of total energy consumption, in view of the growth of oil consumption and the need to preserve the environment. Nevertheless, it will still remain the primary source of energy for many years to come. Be that as it may, the slowdown of the Chinese economy ’s growth from its frenetic pace several years ago, coupled with the advance in the awareness of the necessity of energy conservation and competition from other forms of fuel, has restrained the growth of coal consumption and led to an excess inventory situation. In order to resolve this gap between coal supply and demand while simultaneously improving the competitiveness of the Chinese coal industry, the government has taken a number of steps to hold down total coal output, such as closing mines in areas of the country where the small scale of the mines made efficient production impossible. As a result, Chinese coal output declined year by year from its peak of 1,370 million tons in 1997 to 1,250 million tons in 1998, 1,045 million tons in 1999, and 950 million tons in 2000.

In response to this situation, the Chinese government is taking active steps to expand exports. Chinese exports of coal in 1998 amounted to 32 million tons. The figure rose to 39 million tons in 1999 and further to 59 million tons in 2000. By this means, China aims to reduce its over-dependence on coal by simultaneously holding down total output and increasing exports, thereby reducing domestic coal consumption and promoting energy conservation and conversion to other forms of energy. At the same time, by boosting coal exports, the country will be able to obtain more foreign currency.

China is currently pursuing a policy for the oil industry that involves maintaining stable operations in the east of the country while actively developing oil extraction and refining in the west. This policy is predicated on the fact that production at its eastern operations —notably at major oil fields such as Daqing and Sengli —have peaked out, and no further significant increases in production can be hoped for. Because of this, the authorities intend to maintain production at present levels through the use of such methods as secondary and tertiary recovery. Meanwhile, in such areas in the west of the country such as the Tarim and Dzungaria Basins, reserves of crude oil and natural gas are believed to be very large. Thus, they plan to emphasize exploration and drilling in these areas in order to increase total national production.

Approximately 75% of China’s oil production currently comes from its main oil fields in the eastern part of the country, while the western regions account for only 15% or so, the remaining 10% being produced by offshore oil fields. From here onward, however, production by the eastern oil fields is projected to decline gradually, and while there are oil fields in the west that are believed to possess large reserves, exploitation of these faces various problems. Not only are the natural geographical conditions severe, these fields are located at a great distance from the principal consumption areas on China’s coast. Thus, even if huge amounts of oil or natural gas are discovered, the country will be faced with the necessity of constructing a transport infrastructure across difficult terrain and at great cost.

The Chinese authorities are now actively engaged in building a transport infrastructure to bring natural gas extracted in the west to the main consumption areas in the east, and a large number of pipelines are under construction. Considering the cost of construction of such pipelines, however, it seems clear that either an extremely large-scale natural gas field will have to be discovered, or the pipelines will have to be built in stages, over a longer period of time, so as to connect a number of gas production sites. Even though construction of pipelines is proceeding steadily, it will still be quite some time before any of them reach the coastal areas.

1-23 In view of the fact that China faces great difficulties in prospecting for oil and natural gas fields, developing them, and constructing the necessary transport facilities, and that no significant increase in production can be expected in the near future, it follows that the country will have no choice but to rely on fuel imports to make up the shortfall. In fact, China became a net importer of oil in 1993, since when the volume of net oil imports has been rising year after year, with the surplus of crude oil imports reaching 75 million tons in 2000. This trend is projected to persist, and the country ’s domestic production shortfall of oil is predicted to reach approximately 100 million tons by 2005.

The power generation capacity of China’s electric power facilities in 1998 was 280 million kilowatts, while the actual power generated was 1,166.2 billion kilowatts. This puts China in second place in the world in terms of power generation. Thermal power stations accounted for 81 % of total power generated, followed by hydroelectric power stations with 18% and nuclear power with 1%. These figures follow naturally from the fact that China is the world ’s leading producer of coal. Although there has recently been a slight oversupply of power, the fact that over 80% of power generated is used by industry and that electricity accounts for about half the proportion of final energy consumption that is found in Japan and other industrialized countries indicates that demand for electric power will continue to grow.

The Chinese government has put forward a strategic development plan involving the generation of electric power in the west of China for transmission to eastern regions. In April 2000, at a symposium held to lay down the major strategic development plan for the western part of the country and to decide on the 10th 5-year electric power plan and a long-term development plan, Zhang Guobao, vice-chairman of the State Development Planning Commission, had this to say: “The western part of China appears to possess over 70% of the whole country ’s usable hydroelectric power resources. Thus, by implementing the policy of generating power in the west and transmitting it to the east, we will be able to stimulate the economies of western regions while simultaneously supplying the power that the east needs to achieve its own development. ”

1-24 A plan for the construction of three principal power transmission routes has been already drawn up. First is (D the Northern Transmission Route, from north Shanxi Province via the western part of the Inner Mongolia Autonomous Region to Beijing, Tianjin, and Tangshan; this route carries 2.5 million kilowatts. Second is © the Central Route from the Gezhouba at Yicang in Hubei Province to Shanghai with a transmission capacity of 1.2 million kilowatts. Third is (D the Southern Route from the Tianshengqiao hydroelectric power station on the upper reaches of the Hongshui River to Guangdong at an estimated transmission capacity of 3 million kilowatts. Moreover, once the Three Gorges dam on the Yangzi River comes into operation, another central route will come into being from Chuanyu at Chongqing in Sichuan Province through the central region to the central east region.

According to Zhou Fengqi of the China Energy Resources Research Institute in “Urgent Issues Facing China’s Energy Sector in the 21st Century ’’(China’s Energy Resources; the 12th term 1999), although China is one of the leading countries in the world in terms both of energy production and consumption, there are four major problems that must be solved: (D energy consumption per capita is low; © energy efficiency is low; © energy resources on a per capita basis are insufficient; and © the over-reliance on coal must be addressed.

China is currently the second-largest consumer of energy in the world, after the United States, but because of its large population, consumption per capita is low. Compared with a world average per capita energy consumption of 1.4 toe in 1995, China’s figure was only half the average, at 0.7 toe.

According to Mr. Zhou Fengqi, a survey of the world as a whole reveals that per capita energy consumption is rising in parallel with economic development, and that for China to achieve further economic development, it must, in the same way, greatly increase energy consumption per capita. Moreover, although energy consumption is

1-25 projected to rise to between 2 and 2.5 toe by 2050, this would only be equivalent to the current lowest level among the OECD nations and would be less than half the per capita energy consumption in such countries

Energy efficiency refers to the ratio of energy supply capacity to a specified amount of final energy consumption. Energy efficiency is composed of three elements — the efficiency of the conversion of energy, the efficiency of transportation or transmission, and the efficiency of final energy use. China’s overall energy efficiency rate in 1995 was 34%, which is the level of the OECD countries in the late 1970s. The efficiency of final energy utilization in industry, however, is 5% lower than the OECD average for the start of the 1970s, according to Mr. Zhou Fengqi. In order to realize a modem standard of living for the Chinese people with a comparatively low level of energy consumption per capita, therefore, China must achieve a higher level of energy efficiency than the industrialized nations. In fact, however, the level of efficiency is considerably lower than in the industrialized nations.

China possesses one of the largest amounts of energy reserves in the world. Currently confirmed commercially usable energy resources total 155 billion tee/year, equivalent to 10.7% of the world total. Despite this fact, because of its huge population, the amount of energy resources per capita is small, at a mere 135 tee/year, not much more than half the world average of 208 tce/year.

To repeat, the most significant feature of China’s energy use is its excessive reliance on coal. In 1998, coal accounted for over 70% of total energy supply and consumption. As shown in the attached data, most countries in the world rely principally on oil.

1-26 This heavily coal-dependent energy structure gives rise to numerous problems, such as environmental pollution, low energy efficiency, and transportation difficulties. The mass combustion of coal causes atmospheric pollution by nitrogenous compounds, S02 and so on, which fall back to earth as so- called acid rain. Moreover large amounts of C02 are also released, contributing to global warming. From the viewpoint of environmental protection, efforts are necessary to reduce the proportion of primary energy occupied by coal. Moreover, solid fuels like coal have a lower energy efficiency than liquid or gaseous fuels such as oil and natural gas, as well as requiring more time and effort in transportation infrastructure. This is particularly so in the case of China, where the main coal fields are concentrated in the west and north of the country, whereas the main consumption areas are far away in the coastal regions of the east and south. Coal is transported by rail, river, and truck, and undeniably, this places a great burden on the country ’s transportation resources. China’s over-reliance on coal is not likely to change significantly for quite some time, but due to the long reliance on coal, energy development technology in China is lagging behind that of other countries. This brings with it a low level of energy efficiency. In addition, it should be fully recognized that the environmental problems accompanying the development of coal fields and the widespread use of coal are hampering the country ’s healthy economic and social development.

For China, which faces a wide range of energy-related problems, it is of particular importance to draw up a medium-to-long-term energy policy. As mentioned in the previous section, it would be impossible to change the country ’s energy supply-and-demand structure over the short term. Thus, Mr. Zhang Fengqi has proposed five measures as part of a medium-to-long-term energy development strategy. These are (D priority on energy conservation; © improvement of the country ’s energy structure; © the promotion of “clean coal technologies; ” © ensuring a secure supply of energy; and © promotion of the use of renewable energy resources.

If China’s huge population, which is expected to surpass 1.5 billion by the mid-21st century, were to consume as much energy per capita as the leading industrialized nations, this would have a major impact on the country ’s balance of energy supply and demand. For this reason, energy conservation measures would assume great significance. The first step in promoting an energy conservation policy must be to replace superannuated equipment with modem equipment in order to achieve higher rates of energy efficiency.

In many of the world ’s countries, oil occupies the largest proportion of primary energy. These countries have spent the last fifty years switching over from coal to oil, and they are now planning, in the future, to convert from oil to natural gas and other oil-alternative energy sources.

Not only are such fuels in liquid or gas form more energy efficient than coal, but also they can be transported by pipeline, and transport costs are thus much lower than for coal. Moreover, the deleterious environmental effects of such fuels are less than those of coal. This is another significant factor that has prompted these countries to convert from coal to oil or gas.

The proportion of coal to total primary energy resources in China has been declining, although a very slow pace, while simultaneously the proportions of oil and natural gas have been rising, also slowly. Even so, coal still accounts for 70%, and it is expected to take several decades to markedly alter the country ’s energy structure. Consequently, China cannot rest its hopes simply on conversion to better forms of energy, but must approach the problem of switching to cleaner forms of energy from many different angles simultaneously.

In view of China’s reserves of resources, coal will definitely remain the country ’s principal energy source for some time to come. It is therefore essential to promote technologies for the cleaner use of coal.

This is rather difficult to achieve at the practical level at present mainly due to cost considerations, but in the future, China will have to develop and put into practical use technologies for the liquefaction or gasification of coal, which will allow it to be burned as a cleaner fuel.

Ensuring the security of China’s energy supply principally entails taking measures to reduce the risks inherent in importing fuel, particularly oil. One method would be to diversify the country ’s oil import sources and the forms in which oil reaches the Chinese market, and to develop an oil stockpile system. Another method would involve finding alternatives to oil.

Diversification of oil imports involves not merely importing crude oil from different countries, but also importing a variety of refined oil and gas products. It also means not relying simply on the direct importation of oil, but setting up joint oil field development and refining projects overseas to secure a steady supply.

Up to now, China has not placed much importance on maintaining large oil reserves, because of the massive scale of its own oil production. These days, however, when the country ’s net imports of oil are rising year by year, both the country as a whole and each separate region needs to establish a system of oil stockpiling in order to ensure a secure supply of oil in any contingency.

Meanwhile, promising candidates for oil-alternative fuels include liquefied coal, liquefied biological material, and natural gas. The development of oil-alternative fuels would contribute greatly to reducing the risks involved in the import of oil.

Renewable forms of energy, such as wind power, solar power, and geothermal power, have little adverse impact on the environment, and, as the name implies, these resources will never dry up. Theoretically, therefore, they are ideal forms of energy. All over the world, the technological and cost-related problems associated with the exploitation of such energy resources are gradually being solved, and they are coming ever closer to practical realization with each year. China, too, will at some time in the future have to make serious efforts to develop renewable energy. For this purpose, the government will surely have to provide support and preferential treatment in the form of loans and special taxation systems to stimulate research into and development of renewable energy resources with a view to eventual practical utilization.

From the foregoing, we can see that although coal will continue to dominate the Chinese energy scene for quite some time to come, the Chinese authorities are fully aware of the apparent negative effects of excessive coal- reliance on the country ’s economy and society. If China continues to pursue short-sighted economic development goals without reforming the structure of its energy supply and demand, the medium-to-long-term effects will certainly not be favorable. With a view to the longer-term benefits, China should now start to tackle the issue of energy structure reform despite the undeniable costs in the short term.

In fact, China is gradually making progress in measures to restrain consumption of coal by promoting a switch-over to more desirable fuels such as oil and natural gas. Progress is also being seen in the discussion and examination of measures to minimize the risks inherent in importing oil to satisfy the country ’s growing oil consumption. The authorities and industry have also begun to take a serious look at possibilities for the development of renewable energy sources.

For China, with its enormous population, over-dependence on one form of energy bodes ill for the future. From all standpoints —economic efficiency, the limited nature of energy resources, and the impact on the environment — the diversification of fuels and sources of energy is the logical course for China to take over the medium-to-long term.

1-30 The following is a more detailed examination of the energy situation in China.

As a result of the reform and open door policy adopted by China since 1978 and the policy of encouraging inflows of foreign capital since 1980, the Chinese economy has continued to grow dramatically. This high economic growth, which in the 1990 especially has been on the verge of overheating, has in turn fuelled sharp growth in domestic energy consumption and total energy production Table 1.1.2-1 ~ 1.1.2-4. With regard to crude oil in particular, imports have exceeded exports in volume terms by an ever increasing margin since 1996, turning China into a net oil importer Table 1.1.2-2.

Production Component ratio % Consumption of volume of Hydro standard coal Natural standard coal Coal Crude oil electric (10,000 tons) gas Year \ (10,000 tons) power 1978 62,770 57,144 70.7 22.7 3.2 3.4 1980 63,735 60,275 72.2 20.7 3.1 4.0 1985 85,546 76,682 75.8 17.1 2.2 4.9 1987 91,266 86,632 76.2 17.0 2.1 4.7 1988 95,801 92,997 76.2 17.0 2.1 4.7 1989 101,639 96,934 76.0 17.1 2.0 4.9 1990 103,922 98,703 76.2 16.6 2.1 5.1 1991 104,844 103,783 76.1 17.1 2.0 4.8 1992 107,256 109,170 75.7 17.5 1.9 4.9 1993 111,059 115,993 74.7 18.2 1.9 5.2 1994 118,729 122,737 75.0 17.4 1.9 5.7 1995 129,034 131,176 74.6 17.5 1.8 6.1 1996 132,616 138,948 74.6 18.0 1.8 5.5 1997 132,410 138,173 71.5 20.4 1.7 6.2 1998 124,000 136,000 71.6 19.8 2.1 6.5 Source: “Statistical Overview of China”; 1999 edition

1-31 Table 1.1.2-2 Changes in China ’s Total Energy Production and Breakdown by Type

10,000 tons SCE Production by Type of Energy Total production Crude oil Hydroelectric Coal Natural gas production power generation 1985 85,546 62,277 17,879 1,711 3,678 1986 88,124 63,802 18,682 1,851 3,789 1987 91,266 66,259 19,166 1,825 4,016 1988 95,801 70,031 19,543 1,916 4,311 1989 101,639 75,315 19,616 2,033 4,675 1990 103,922 77,110 19,745 2,078 4,988 1991 104,844 77,689 20,130 2,097 4,928 1992 107,256 79,691 20,271 2,145 5,148 1993 111,059 82,184 20,768 2,221 5,886 1994 118,729 88,572 20,896 2,256 7,005 1995 129,034 97,163 21,420 2,452 8,000 1996 132,616 99,727 22,545 2,652 7,692 1997 132,410 98,116 22,907 2,781 8,607 1998 124,000 89,280 22,940 2,976 8,804

Table 1.1.2-3 Changes in China ’s Total Energy Consumption and Breakdown by Type

10,000 tons Consumption by Type of Energy Total Petroleum Hydroelectric consumption Coal Natural gas consumption power generation 1985 76,682 58,125 13,113 1,687 3,757 1986 80,850 61,284 13,906 1,860 3,800 1987 86,632 66,014 14,727 1,819 4,072 1988 92,997 70,864 15,809 1,953 4,371 1989 96,934 73,670 16,576 1,939 4,750 1990 98,703 75,212 16,385 2,073 5,034 1991 103,783 78,979 17,747 2,076 4,982 1992 109,170 82,642 19,105 2,074 5,349 1993 115,993 86,647 21,111 2,204 6,032 1994 122,737 92,053 21,356 2,332 6,996 1995 131,176 97,857 22,956 2,361 8,002 1996 138,948 103,794 25,011 2,501 7,642 1997 137,897 98,794 28,187 2,349 8,567 1998 136,000 97,376 26,928 2,856 8,840 Source: extracted from “Balance Sheet” for each form of energy in “China’s Statistical Year Book, 2000 edition ”

1-32 Table 1.1.2-4 Breakdown of Primary Energy Sources by Type in Major Countries (1997)

Hydro-electric Primary energy Petroleum Coal Natural gas Nuclear power power consumption World ’s total 39.9% 26.9% 23.2% 7.3% 2.7% 8.51 billion toe U. S. 39.5% 24.6% 26.6% 8.0% 1.4% 2.14 billion toe China 20.5% 75.4% 1.9% 0.4% 1.8% 0.9 billion toe Russia 22.0% 19.5% 51.3% 4.8% 2.3% 0.58 billion toe Japan 52.6% 17.7% 11.6% 16.5% 1.6% 0.51 billion toe Germany 40.1% 25.5% 20.9% 12.9% 0.5% 0.34 billion toe France 37.6% 5.4% 12.8% 41.8% 2.4% 0.24 billion toe UK 36.1% 18.0% 34.3% 11.3% 0.2% 0.23 billion toe Canada 36.1% 11.7% 29.7% 9.4% 13.2% 0.23 billion toe Italy 59.8% 7.1% 30.7% 0.0% 2.5% 0.16 billion toe Source: extracted from “Balance Sheet” for each form of energy in “China’s Statistical Year Book, 2000 edition ”

Crude oil 14,099 14,210 14,524 14,680 14,900 15,642 15,940 15,986 15,930 — production Crude oil 2,260 2,151 1,944 1,849 1,885 2,033 1,983 1,560 7,166 10,437 exports Crude oil 597 1,136 1,564 1,235 1,709 2,262 3,547 2,732 2.740 7,000 imports Volume of refined crude 11,364 12,114 12,796 12,686 13,501 14,232 15,357 15,102 — — oil Source: “PETROTECH”; Vol. 22; No. 10, 1999 SfNOPEC; February 2000

Unit: million tons Coal 1985 1990 1995 1997 1998 Production 872 1,080 1,361 1,373 1,250 Imports 2 2 2 2 2 Exports 8 17 29 31 32 Consumption 816 1,055 1,377 1,392 1,295 Source: BP Statistics

China’s total energy consumption has thus increased as the economy has grown rapidly following the introduction of the reform and open door policy, and the country now accounts for some 10% of world energy consumption, or about 1.7 times Japan ’s energy consumption or 40% of that of the US. In other words, China has become the world ’s second largest energy consumer after the US. At just 1 ton (standard coal equivalent), however, China’s energy consumption per person is far below the world average, being only a fifth of Japan’s and a tenth of the US’s. Moreover, use of commercialized energy has yet to spread to most large rural areas, and at the end of 1997, 50 million people did not have access to electricity.

Viewed optimistically, these figures suggest that China has managed to avoid the conventional energy-intensive profile of developed industrial countries, and has the potential to develop economically without depending on excessive energy consumption. Seen in a more pessimistic light, though, these figures indicate just how enormous China’s latent energy demand is.

As Table 1.1.2-7 shows, China’s GDP grew by an average of 10.8 % over the eight year period from 1991 to 1998. At the same time, however, primary energy consumption grew by an annual average of only 3.9%, yielding a GDP elasticity of energy consumption of only 0.36.

This increase in energy consumption with high growth has not only raised the question of whether China has the necessary infrastructure in place to prevent supply shortages, but has also given rise to concerns about the environment.

1-34 Table 1.1.2-7 GDP Elasticity of Primary Energy Consumption during the 1991-1999 Period

‘91 -’98 Average 1991 1992 1993 1994 1995 1996 1997 1998 growth rate (%) Increase rate of primary energy consumption 5.1 5.2 6.2 5.8 6.9 5.9 -0.6 -1.6 3.9 (over previous year %) GDP growth rate 9.2 14.2 13.5 12.6 10.5 9.6 8.8 7.8 10.8 (over previous year %) GDP elasticity of primary energy 0.55 0.37 0.46 0.46 0.66 0.61 -0.07 -0.21 0.36 consumption

The rate of growth of energy consumption is, however, substantially below the economic growth rate, and the fact that GDP elasticity of energy consumption has plummeted since 1997 is due in large part to © systematic efforts to conserve energy, and © energy savings achieved through technical innovation.

Next, let us look at the breakdown of energy consumption in China by sector, which is shown in Table 1.1.2-8.

Since 1980, there has been no major change in each sector’ s share of energy consumption. Industry ’s share is particularly large, and has remained at around 70%. This is a higher proportion than in other Asian countries. A characteristic feature of the pattern of energy consumption in China is that approximately 70% of energy consumed comes from coal (Table 1.1.2-1), and industry (including the electric power industry) accounts for over 70% of primary energy consumption.

Over 80% of coal consumption is for direct combustion in boilers and similar equipment. Economically and technically speaking, therefore, it cannot be claimed that appropriate steps are being taken to protect the environment. China is in addition the world ’s largest coal producer, and ecological destruction and environmental pollution caused by waste generated by mining have constituted serious problems.

"—------1980 1985 1990 1995 1996 Energy consumption (10,000 tee) 603 767 987 1,312 1,390 © Manufacturing sector (%) 81.1 79.4 80.5 84.5 83.3 Agriculture, forestry and (%) 5.8 5.3 4.9 4.2 4.1 fisheries Industries (%) 68.0 66.6 68.5 73.3 72.2 Construction (%) 1.6 1.7 1.2 1.0 1.0 Transportation and (%) 4.8 4.8 4.6 4.5 4.3 communications Commerce and services (%) 0.9 1.0 1.3 1.5 1.6 © Non-manufacturing (%) 3.0 3.2 3.5 3.4 3.9 sector ® Residential/consumer (%) 15.9 17.4 16.0 12.0 12.7 sector Source: “Energy Economy ”, Vol. 25; No. 11

As Table 1.1.2-8 shows, per capita primary energy consumption in China was 734kg in 1985 (standard coal equivalent). This grew 1.6-fold in the space of a decade to 1,141kg in 1996. However, this figure is no more than the world average at the start of the 1950s.

China’s average electricity consumption per person in 1996 was 884kWh, and average residential electricity consumption was still below lOOkWh, which is far below the world average.

Forecasts for future energy consumption in China taken from “China’s Medium to Long-Term Energy Strategy ” produced by the China Energy Resources Institute are shown in Table 1.1.2-9. China’s demand for primary energy (standard coal equivalent) is forecast to increase by an average of around 4% in the ten years from 1995 to 2005, and' approximately 2% thereafter.

Coal ’s share of domestic demand is, as shown in Table 1.1.2-9, expected to fall from 72% in 1998 to 58% in 2010 and 41% in 2030, while demand for oil and natural gas is forecast to increase significantly. Hydroelectric and nuclear power are also expected to undergo development.

Result Forecasts 1995 2005 2010 2020 2030 Primary energy demand Total 1,312 1,970 2,210 2,810 3,570 (Component ratio %) 100 100 100 100 100 Coal MICE 983 1,213 1,287 1,436 1,451 (Component ratio %) 74.9 61.6 58.2 51.1 40.6 Petroleum MTCE 230 339 397 521 620 (Component ratio %) 17.5 17.2 18.0 18.5 17.4 Natural gas MTCE 24 67 133 239 266 (Component ratio %) 1.8 3.4 6.0 8.5 7.5 Hydroelectric power MTCE 71 130 160 219 318 (Component ratio %) 5.4 6.6 7.2 7.8 8.9 Nuclear power MTCE 5 16 38 76 114 (Component ratio %) 0.4 0.8 1.7 2.7 3.2 Source: “Energy Economy ”, Vol. 25 ; No. 11

In recognition that it is imperative to solve energy problems in order to support consistent economic growth, the Chinese government has announced the policy framework concerning technologies involved in rational use of energy from the medium- and long-term standpoint for national living and all industrial sectors so as to achieve compositional optimization and rational use of energy resources.

Unit: 100 million kwh Electric power 1985 1990 1995 1997 1998 Generation 4,107 6,212 10,077 11,345 11,662 Hydroelectric 924 1,267 1,906 1,960 2,080 Thermal 3,183 4,945 8,043 9,241 9,441 Nuclear 128 144 141 Imports 11 19 6 1 0 Exports 0 1 60 72 72 Consumption 4,118 6,230 10,023 11,284 11,598 Source: extracted from “Balance Sheet” for each form of energy in “China’s Statistical Year Book, 2000 edition ”

1-37 Table 1.1.2-11 Changes in Total Energy Production in China and Vreakdown by Type Production by Type

10,000 tons SCE Total Production by type of energy production Coal Crude oil Natural gas Hydroelectric production power generation 1985 85,546 62,277 17,879 1,711 3,678 1986 88,124 63,802 18,682 1,851 3,789 1987 91,266 66,259 19,166 1,825 4,016 1988 95,801 70,031 19,543 1,916 4,311 1989 101,639 75,315 19,616 2,033 4,675 1990 103,922 77,110 19,745 2,078 4,988 1991 104,844 77,689 20,130 2,097 4,928 1992 107,256 79,691 20,271 2,145 5,148 1993 111,059 82,184 20,768 2,221 5,886 1994 118,729 88,572 20,896 2,256 7,005 1995 129,034 97,163 21,420 2,452 8,000 1996 132,616 99,727 22,545 2,652 7,692 1997 132,410 98,116 22,907 2,781 8,607 1998 124,000 89,280 22,940 2,976 8,804

10,000 tons SCE Total Consumption by type of energy production Coal Crude oil Natural gas Hydroelectric production power generation 1985 76,682 58,125 13,113 1,687 3,757 1986 80,850 61,284 13,906 1,860 3,800 1987 86,632 66,014 14,727 1,819 4,072 1988 92,997 70,864 15,809 1,953 4,371 1989 96,934 73,670 16,576 1,939 4,750 1990 98,703 75,212 16,685 1,073 5,034 1991 103,783 78,979 17,747 2,076 4,982 1992 109,170 82,642 19,105 2,074 5,349 1993 115,993 86,647 21,111 2,204 6,032 1994 122,737 92,053 21,356 2,332 6,996 1995 131,176 97,857 22,956 2,361 8,002 1996 138,948 103,794 25,011 2,501 7,642 1997 137,897 98,794 28,187 2,349 8,567 1998 136,000 97,376 26,928 2,856 8,840

1-39 7) Objectives of China’s Policy Framework for Energy Conservation Technology:

Energy, population growth, and the environment are crucial issues facing the whole world, and China is no exception. Looking at the matter from the viewpoint of strategies for attaining sustainable development, governments must effectively address the tasks of ensuring a balance between economic development and the ecosystem, and protecting the environment.

The Ninth Five-Year Plan for the Development of the National Economy and Society, approved at the 8 th National People ’s Congress and two basic policy shifts must be realized. The first of these shifts is the adoption of an aggressive economic growth policy and the positioning of economic measures at the center of efforts to obtain economic effect.

It is essential to effect a transition from a lax method of promoting economic growth to an intensive method, to maintain a policy of “pursuing development hand-in-hand with the saving of resources, and to position the concept of conservation at the very heart of economic policy ” in order to conserve resources, reduce energy consumption, and realize an effective corporate management mechanism.

Energy is the cornerstone of national economic development. According to long-term forecasts, there are marked imbalances in supply and demand, and the consumption of energy is causing the “Greenhouse Effect” that is the root cause of changes in global climate patterns. China is faced with a new problem in the form of the environment.

For this reason, the promotion of the efficient and effective use of energy is of paramount strategic significance in the country ’s efforts to develop its economy and protect the environment.

Under the Ninth Five-year Plan for the Development of the National Economy and Society, China’s GDP will grow at a steady pace of around 8% per annum. As energy is the engine of economic growth, demand for energy will rise in parallel with that growth. If we take the level of energy consumption in China in 1995 as the standard — without taking account of the factor of energy conservation — energy consumption in the year 2000 is

1-42 calculated to reach 1,900 million tons (standard coal equivalent; hereinafter the same to apply).

However, the country ’s energy supply capacity for 2000 is only approximately 1,500 million tons, leaving a shortfall of 400 million tons. In order for China to attain its economic development goals, the country must place high priority on energy conservation projects, take measures to promote the efficient use of energy, and achieve an energy saving of 340 million tons in 1995 compared with the previous year.

Reducing energy consumption by technical means, made increasingly possible by the constant advance of technology, is the basic method for “energy conservation measures”, and in 1984, a policy framework for energy conservation technology was adopted by the State Planning Commission, the State Economic Commission, and the State Science Commission. Over the past ten years, China’s energy conservation projects have focused on raising heat efficiency and electricity efficiency. Cogeneration systems, centralized heat supply systems, improvements in the efficiency of industrial boilers and furnaces, the recovery of surplus heat, the dissemination of energy-saving equipment, and the promotion of energy-saving building have constituted the core of the country ’s energy conservation policy.

The authorities have devoted considerable effort to promoting energy conservation, including the retrofitting of various energy-consuming facilities and the implementation of energy conservation model projects in the iron & steel, chemicals, construction materials, and energy industries, among others. In addition, scientific management has been strengthened, laws and regulations have been enacted, and an energy conservation system has been set up: these efforts have borne considerable fruit.

The energy intensity of two-thirds of the country ’s principal energy consuming products has been lowered since 1980, and the amount of energy directly saved has reached 100 million tons per year. For example, the total energy consumption of the steel industry declined 25%, from 2.04 tons per year in 1980 to 1.519 tons per year in 1994. Similarly, the total energy consumption of small-scale ammonia plants fell from 3,021 kg per ton to 2,089 kg per ton. The country has been tirelessly working to increase the economic effect of energy, and the amount of energy consumed as a

Within GNP, energy consumption per 10,000 yuan has fallen 48% from 7.64 tons in 1980 to 3.94 tons in 1995.

While there is no gainsaying the great success of China’s energy conservation activities, the efficiency of energy utilization in the country as a whole remains low, the economic effect is poor, and energy utilization and management systems have failed to make sufficient progress.

In 1994, for instance, electric power generators with an output of 300,000 kW or higher accounted for only 25% of total power generation facilities, while cogeneration systems accounted for a mere 11%. In the ammonia sector, large-scale and medium-scale plants account for only 41% or so of the country ’s total production in value terms, and among industrial boilers, those consuming 2-4 tons of energy (standard coal equivalents) per hour accounted for more than 40% of the total.

In light of these facts, it is clear that China’s economic efficiency is inferior to that of the advanced industrial nations. There is a wide gap between the energy intensity of a very high proportion of China’s manufactured products and those in the advanced industrialized countries: the energy intensity in such major industries as steel, power generation, construction materials, and chemicals is between 20% and 80% higher, and there thus remains much room for improvement in the field of energy conservation..

To sum up China’s experience in energy conservation in the changed circumstances of the past ten years, and the lessons learned from this, it is clear that China must thoroughly enforce the Energy-Saving Law of the People ’s Republic of China (hereinafter, the “Energy Conservation Law”), which went into effect from January 1998. This will involve the widespread introduction of new energy conservation technologies, and the appropriate amendment and improvement of the country ’s energy conservation technology policy framework, by means of which progress in energy conservation technology will be fostered. Intensive efforts must be made to effect changes in the main methods of energy consumption and the necessary

1-44 equipment, and the system must be adjusted to allow the rational and effective utilization of financing for energy conservation purposes.

The plans for the future direction of energy conservation technology contained in the above-mentioned policy framework combine long-term and short-term outlooks. The short-term outlook focuses on the promotion of energy conservation technology and equipment up to the year 2000, and depending on the results of this, it is planned to accumulate a fund of technical know-how relating to energy conservation technology over the medium and long terms.

The framework is based on China’s present industrial technology policies, and encompasses the reinforcement of energy conservation technology, the provision of detailed explanations, and the clarification of China’s goals in the field of energy conservation technology within a specified period, as well as the methods to be employed.

Under the framework, efforts will be put into encouraging the widespread use of energy conservation technology that has reached maturity in the course of energy conservation activities over the past ten years and that has been proved to be efficient and fast-acting. On the other hand, techniques and equipment that have proved to be less efficient and behind the times will be discouraged and weeded out.

The authorities are also promoting the use of cutting-edge technologies from overseas as long as they are consistent to China’s particular circumstances. The goals of the framework are to achieve further energy saving and lower energy consumption with the ultimate aim of gradually shifting the Chinese economy to a resource-thrifty pattern. The economy is to be moved in the direction of intensive management, and a basis is to be provided on which yearly plans for each sector and medium-to-long-term plans can be effectively drawn up. In addition, the government will direct and supervise basic investment in energy conservation in each industrial sector and each geographical area, as well as technological improvement and scientific research.

1-45 9) The goals of preserving and overall utilization of natural resources for 2001

China has decided on the goals of preserving natural resources and the overall utilization of such resources for the year 2001 with the immediate objective of protecting the environment. The outline is as shown below.

[State Economic and Trade Commission has decided on the following work targets for saving and overall utilization of natural resources for 2001.]

(a) To standardize and promote water saving, petroleum-alternative energy sources, and clean coal technologies in the industrial sector, as well as to attempt the comprehensive use of natural resources.

(b) To develop industries engaged in environmental protection and new energy industries.

(d) To place priority on the harmonious development of the economy, resources and the environment.

According to the State Economic and Trade Commission, energy consumption per 10,000 yuan GDP (gross domestic product) will be reduced from 2.77 tons of standard coal to 2.65 tons, thus saving 70 million tons of standard coal in the whole country (a 4.3 % rate of energy-saving). Energy saving of 40 million tons of standard coil equivalent is expected to be achieved by developing and utilizing new forms of energy and renewable energy resources,

China has suffered a serious lack of rainfall, and the amount of water resource per person is as small as 2200 cubic meters, which is only 1/4 the world ’s average. China has also a serious shortage of petroleum as evidenced by the imports of crude oil in last year amounting to as much as 60 million tons, relying for crude oil largely on imports.

1-46 Saving water and petroleum is a very important issue for China’s future development.

The Chinese government has identified industries that should be fully committed to saving water and petroleum in the coming 5 years. Five industries are targeted for water saving — electric power, spinning, petrochemical, paper manufacturing, and iron & steel industries. Saving of 18.0 billion cubic meters is planned in the coming 5 years.

Five industries are targeted for petroleum saving — electric power, petrochemical, iron & steel, construction material, and chemical industries. These 5 industries are to aim at saving 15 million tons of petroleum. This plan could lead to savings of US$2700 million.

Table 1.1.2-13 shows the changes in the energy intensity of energy-intensive products.

1-47 Table 1.1.2-13 Changes in Energy Intensity of China ’s Energy-intensive Products

Values for Values Values Values Values Values most to be Unit in 1980 in 1985 in 1990 in 1995 advanced planned Industries facilities in 2000

Rate of electricity for thermal power c/c 7.65 7.78 8.21 7.95 plants Transmission loss c/c 8.93 8.18 806 7.88 <6 88 Total energy consumption by steel kgce/t 2,040 1,746 1,611 1,516 <1,400 making

Total energy consumption by tce/t 11.48 10.35 11.53 11.02 1.423 aluminum 10.8 Total energy consumption by tce/t 1.518 1.622 1.916 1.767 aluminum oxide

Total energy consumption by tce/t 7.455 6.928 6.915 6.667 electrolytic aluminum 5.60 AC electricity consumption by 21315 14530 electrolytic aluminum kwh/t 20342 16223 Total energy consumption by copper tce/t 8.316 6.32 5.338 7.863 Total energy consumption by synthetic ammonium (large-scale kgce/t 1,431 1,368 1,343 1,368 1,268 natural gas)

Total energy consumption by synthetic ammonium (medium- kgce/t 2,439 2,270 2,176 2,252 1,973 scale, coal material)

Total energy consumption by synthetic ammonium (small-scale, kgce/t 3,021 2,358 2,263 2,043 1,627 coal material)

Total energy consumption by caustic soda :membrane separation kwh/t 2,449 2,359 2,331 2,383 2,315 method (30%) Fuel consumption by cement clinker kgce/t 206.5 201.1 185.3 175.0 Total electricity consumption by kwh/t 96.65 103.9 109.9 113.4 cement manufacture

Total energy consumption by sheet kgce/t 32.48 3189 31.53 27.74 26 glass Total energy consumption by paper tce/t 0.93 0.87 1.55 1.5 making

Oil consumption by trucks L/lOOt • 8.7 7.7 7.1 6.3 (gasoline-fueled, diesel-fueled) km 6.2 5.8 4.8 4.4 Total energy consumption by coal kwh/t 34.34 37.45 4198 54.35 production

Electricity consumption by coal kwh/t 24.27 26.46 25.81 3197 production Source: “Energy Resources in China”: 1997 White Paper issued by the State Planning Commission of the People ’s Republic of China, published by Chugoku Bukka Shuppansha

1-48 Under China’s 9th 5-year plan (1995-2000), average annual growth in GDP was set at around 8%. Calculating the country ’s energy requirements in 2000 based on the production figures for 1995, we obtain a figure of approximately 1.89 billion tons of standard coal. Not only will it be difficult to find the funds needed to finance such consumption, the country also runs the risk of digging and using too much of its resources.

11) Occurrence of problems such as environmental pollution and destruction of the ecological balance.

Moreover such situation would cause great damage to the environment and the ecology due to the resultant pollution. It is estimated that China’s coal production in 2000 will reach between 1.45 and 1.48 billion tons, oil production will be between 155 million and 165 million tons, and natural gas production will be 25-30 billion cubic meters. Generation of primary electric power will reach 240 billion kilowatts per hour.

To sum up, the country ’s supply capacity of primary energy will be equivalent to 1.43 billion tons of standard coal, which will leave it between 460 and 540 million tons short of its requirement. If we assume that the modulus of energy consumption elasticity during the period of the 9th 5-year plan is in the range of 0.33-0.4 and the average annual energy conservation rate is 4.4%-5.0%, the total energy conservation volume will come to between 330 million and 360 million tons of standard coal equivalent.

This still leaves the country slightly short of energy, and it will be forced to import energy to make up this shortfall. Moreover, if this energy conservation target is achieved, C02 emissions in 2000 will be reduced by 220 million tons, while S02 emissions will be cut by 7.5 million tons and soot emissions by 8.5 million tons.

Energy conservation activities extend across the whole of society to all industries and fields of endeavor, and the whole of society bears the responsibility to participate in these efforts. To achieve the goals of China’s 9th 5-year plan and its energy conservation targets for the year 2010, as well as to realize sustainable economic and social development, the Chinese authorities have drafted a policy under which the following measures are to be implemented.

(a) To Strengthen Guidance and Achieve a Change in Attitude Toward Energy Conservation

The government will strive to educate the population in the need for energy conservation and its great importance by inculcating a thorough understanding of its energy policy, encapsulated by the slogan “Pursuing conservation and development simultaneously, with the principal emphasis on conservation, ” and on the basis of this, by eradicating the mistaken concepts of emphasizing development at the expense of energy conservation and placing priority on production figures while neglecting cost-benefit.

The government plans to put energy conservation activities on a legal basis by energetically proclaiming related laws and regulations, and enforcing them. Under the principle of providing encouragement for energy conservation efforts and penalizing the lack of such efforts, the authorities plan to strengthen their system of energy conservation- related legislation and supervision. To this end, it will deploy a system of energy conservation surveys and assessments by which energy usage can be regularly monitored and supervised.

Increasing technological mastery is the most direct route to energy conservation. The Chinese authorities intend to actively promote the development of high-efficiency, energy-saving products and make them widely known; to draw up energy conservation technology policies; and to publish a guidebook. They aim to create a market for energy conservation technology, to set standards, and to introduce regulations on competition. Energy conservation technology service centers will be set up as commercial enterprises. By these means, an energy conservation industry will gradually come into being.

The Chinese government plans to continually strengthen its management of energy conservation operations, to micro-manage and control energy consumption and energy-saving activities, and to conduct administrative guidance. By bolstering the ability of companies and individuals to conserve energy, it hopes to effect a change of attitude among the public and foster the concept of doing one ’s best to save energy. In this way, it aims gradually to devise a corporate energy management system that is effective in saving energy and achieving efficient energy use, and that is also suited to the needs of a market economy in a socialist society.

Preferential measures to encourage energy conservation are to be examined and established, and scientific research in the field of energy conservation is to be promoted. The nation is to increase the funding of energy conservation efforts, the scope of application of foreign investment is to be enlarged, and multitype cash flow is to be utilized.

1-51 (f) More Radical Reform of State-Owned Enterprises; Industrial Restructuring; Improvement of Corporate Earnings

Reform of nationally owned companies is to be intensified, restructuring of industries and products implemented, the efficiency of energy utilization raised, market competitiveness improved, and the earnings of companies increased.

(g) Promotion of Energy Conservation in High-Priority Energy Consuming Industries

The steel, non-ferrous metals, chemicals, transport, construction materials, and construction industries are all energy intensive. As the energy conservation potential in these sectors is large, efforts are to be made to reduce losses in the energy consumption process through the use of leading-edge technology and equipment. A number of energy conservation model factories on the international level should be constructed in priority energy-intensive industries.

The efficiency of energy utilization in rural villages is to be raised and the service system improved.

Energy conservation is a new branch of science: through planned, phased training, knowledge and awareness regarding energy conservation is to be disseminated throughout the population, and a corps of energy conservation specialists produced.

Through the international exchange of information, the dispatch of personnel, visits, and training, China will adopt the most advanced energy conservation policies, management methods, and standards from other countries. The introduction of energy conservation technologies and equipment, as well as the export of the same, will be energetically

1-52 promoted. Grants and low-interest loans from foreign governments and international financial bodies, as well as direct private-sector foreign investment will be used to finance the introduction of the latest energy conservation technologies and products from other countries, thus speeding up the progress of energy conservation technology and the improvement of equipment within China.

Chinese crude oil output in 1999 was 157.878million tons , making it the world ’s seventh largest oil producer. Production increased dramatically during the mid-1980s, but the rate of growth has since slowed, as Table 1.1.2-2 shows, and average growth over the nine years from 1991 to 2000 was only 2 %. The state of crude oil production by oil-producing region in 1991 and 1999 is shown in Table 1.1.2-14. Total output by the Daqing, Shengli and Liaohe oil fields in 1991 accounted for over 70% of total Chinese output in volume terms, but this figure had shrunk to around 60% by 1999 In their place, noticeably, output from offshore oil fields such as Bo hai increased to 10%. In order to maintain and expand crude oil production, the Chinese government has come up with the policy of “maintaining in the east, increasing in the west”, i.e. maintaining output from the old oil fields in the east of the country (such as Daqing, Shengli and Liaohe) and pushing ahead with development of oil fields in the west—which began in earnest in recent years —so as to increase crude oil production. In order to introduce improved oil recovery methods in the eastern oil fields and develop oil fields in the west where natural conditions are so harsh, however, is required state-of-the-art technology and vast financial investment which, technically and financially, China does not have at its disposal. The Chinese government has therefore switched from a policy of “self-reliance” to “open door ”, and is actively encouraging inflows of foreign capital to develop land oil fields that were previously off limits to foreign investors.

1-53 Table 1.1.2-14 China ’s Current State of Crude Oil Production by Oil-producing Region

Oil field 1994 1995 1996 1997 1998 1999 Crude oil Crude oil Crude oil Crude oil Crude oil Crude oil 10,000 tons 10,000 tons 10,000 tons 10,000 tons 10,000 tons 10,000 tons All China 14607.20 14906.40 15729.20 16011.10 16017.61 15878.58

Daqing 5600.50 5600.70 5600.90 5600.90 5570.38 5450.19 Shengli 3090.20 3000.30 2911.60 2801.20 2731.00 2665.23 Liaohe 1502.30 1552.30 1504.30 1504.10 1452.08 1430.35 Xinjiang 790.20 790.30 830.10 870.20 871.01 898.52 Huabei 464.00 466.00 467.00 468.10 473.02 468.09 Dagang 425.00 430.00 434.00 435.00 430.00 410.02 Tarim 195.20 253.10 310.50 420.30 385.01 418.64 Turfan Kami 141.40 220.80 292.20 300.10 295.08 295.08 Jilin 330.10 340.00 370.00 400.30 397.07 380.05 Sichuan 15.60 17.20 21.30 23.30 21.82 20.04 Changqing 196.00 220.00 275.20 330.00 400.02 430.09 Nanhai 113.10 121.70 140.10 160.20 176.12 190.03 Yanchang 62.20 73.50 88.10 107.27 162.55 211.90 Yumen 184.60 40.40 43.20 40.00 40.00 40.12 Funle 46.00 51.00 57.00 61.10 63.81 63.22 Zhongyuan 483.10 410.30 400.30 402.10 400.17 375.40 Henan 205.10 191.60 186.90 185.10 185.99 183.03 Wuhan 87.00 85.00 86.50 82.10 75.71 84.11 Jiangsu 92.00 101.40 107.20 117.20 125.82 145.27 Others 12.10 10.20 7.00 4.90 5.04 3.44 Anqing 4.60 5.00 8.00 9.00 8.01 -

CNPC 13900.20 13981.20 14141.40 14322.30 10737.96 10706.69 SINOPEC 0 0.00 0.00 0.00 3531.74 3455.49 CNOOC 647.70 841.60 1501.10 1628.70 1631.90 1617.39 China National State 59.30 83.60 86.30 93.10 Petroleum Corporation (CNSPC) and others Source: SINOPEC; February 2001

Due to flat domestic crude oil production and domestic oil refineries’ growing demand for crude oil, crude oil imports from overseas are increasing by the year. Up until around 1995, Southeast Asian crude oil and West African crude, which have similar properties to domestic crude, comprised the bulk of crude oil imports, but in recent years, the proportion of imports of crude oil from the Middle East, which has a higher sulfur content, has been increasing. In 1998, imports of crude oil decreased in terms of absolute volume as a result of the introduction of measures to curb imports, but the proportion of Middle Eastern crude has nevertheless climbed to around 60%.

Table 1.1.2-15 Volumes of Crude Oil Imported in China over the Period of the past 10 years (10,000 tons)

Due to the problem of insufficient equipment capacity at domestic oil refineries, however, imports of high-sulfur crude have yet to begin in earnest, and imports are increasing of crude oil with comparatively low sulfur content (under 1%) from countries in the Middle East such as Oman, Yemen and Iran.

1-55 According to the latest information, the total imports of crude oil exceeded 70 million tons at the end of 2000 at a stroke (Table 1.1.2-15).

Crude oil exports, meanwhile, which are a valuable foreign currency earner for China, remained steady at around 300,000-350,000 b/d. However, the fact that foreign currency earnings from oil exports have fallen due to an increase in domestic consumption of domestically produced crude oifdue to measures to curb crude oil imports as well as a slump in production of domestic crude oil is seen as one reason why exports have fallen since 1998 (Table 1.1.2-14).

Table 1.1.2-16 China ’s Oil Refining Capacity (as of the end of 1999) Unit: 1,000 b/d Normal Thermal Catalytic Hydrogena Desulfuriza- pressure FCC cracking cracking tion cracking Tion distillation CNPC 11,123 3,957.5 316 200 11.92 SINOPEC 13,522 30 4,673 976 320 58.14 Others 2,586 0 135 0 0 0 Total 27,231 30 8,765.5 1,292 520- 70.06 Source: SINOPEC; February 2001

The emphasis in China is on raising operating rates and modifying and expanding existing refineries rather than building new plants. It is within this context that the Chinese government has decided to mainly process imported crude in the coastal regions and supply domestic crude inland, and to eliminate the 60 to 70 unprofitable small-scale refineries producing petroleum products that do not meet domestic quality standards and the 50 or so illegal refineries that do not have government approval.

In China, there are 160 small-scale refineries producing under 1 million tons of oil per year (20,000 b/d), which is equivalent to approximately 12% of total Chinese refining capacity, and the 110-120 refineries that are to be closed down are those with particularly low operating ratios of around 30%.

1-56 In order to cope with the increased import of high-sulfur Middle Eastern crude, the plan at present is to initially concentrate processing at the Zhenhai, Maoming and Qilu refineries, where the import infrastructure is more developed. Should Middle Eastern crude processing capacity prove insufficient, the Chinese government is looking at ways to expand processing capacity by modifying refineries in the coastal region.

Foreign investment in China’s refining sector has been limited. Arco is investing in expanding capacity at the Zhenhai refinery, and Total is involved in the Dalian refinery. In addition, Saudi Aramco and Exxon signed joint venture agreements in 1997 to expand capacity at the Fujian refinery from 80,000 to 240,000 b/d. However, talks on other projects, including a joint venture planned with Saudi Aramco and others to construct a refinery in Qingdao, have come to a standstill, thus narrowing the way for foreign enterprises to enter China’s refining sector.

There are a number of plans to boost China’s refinery capacity up to 2000 and from the beginning of the 2000s. Table 1.1.2-17 summarizes the targets under these plans at three points in time: 2000, 2005 and 2010. The capacity of distillation units is to be raised by 700,000 b/d by 2000 and by a further 440,000 b/d between then and 2005.

1-57 Table 1.1.2-17 Plans to Boost China ’s Refining Capacity Unit: 1,000 b/d Desulfurizing Cracking facilities Distil- facilities Catalytic Lation Hydro Inter reforming Residual units FCC crack Coker Naphtha mediate oil FCC ing distillates CNCP Northeastern district 1996 1,417 94.4 175.8 117.0 28.0 116.0 66.0 125.3 2000 1,499 101.0 199.8 229.0 48.0 116.0 68.5 132.3 2005 1,499 101.0 199.8 229.0 48.0 116.0 68.5 132.3 2010 1,499 101.0 199.8 229.0 48.0 116.0 68.5 132.3 CNCP inland district 1996 629 11.4 88.0 24.0 0.0 26.0 0.0 16.0 2000 729 19.4 88.0 48.0 0.0 26.0 0.0 16.0 2005 729 19.4 88.0 48.0 0.0 26.0 0.0 16.0 2010 729 19.4 88.0 48.0 0.0 26.0 0.0 16.0 SINOPEC coastal district 1996 1,891 137.0 204.0 186.4 160.4 169.0 43.3 171.0 2000 2,381 169.0 240.0 352.4 224.4 209.0 59.3 215.0 2005 2,809 169.0 240.0 412.4 224.4 209.0 59.3 215.0 2010 2,809 169.0 240.0 412.4 224.4 209.0 59.3 215.0 SINOPEC inland district 1996 569 29.0 110.0 116.0 13.0 38.0 18.7 30.0 2000 599 101.0 110.0 192.0 13.0 44.0 26.7 30.0 2005 599 101.0 110.0 192.0 13.0 44.0 26.7 30.0 2010 599 101.0 110.0 192.0 13.0 44.0 26.7 30.0 Whole of China 1996 4,506 271.4 577.8 443.4 201.4 349.0 128.0 342.3 2000 5,208 390.4 637.8 821.4 285.4 395.0 154.5 393.3 2005 5,636 390.4 637.8 881.4 285.4 395.0 154.5 393.3 2010 5,636 390.4 637.8 881.4 285.4 395.0 154.5 393.3 Source: “Energy Economy ”, Vol. 25; No. 4 (Apr. 1999)

Following the approval of three key areas of reform —of state-owned enterprises, finance and the administration —at the 9th National People ’s Congress, the Chinese government undertook two major reforms in March 1998 intended to streamline and raise the efficiency of the oil industry as a whole.

The specific objectives of the reforms include (D speeding up policymaking by consolidating and streamlining administrative bodies, © completely separating administrative and commercial functions, and (D stabilizing revenues in the oil industry by consolidating and reorganizing state-owned enterprises. The first area of reform concerns the governmental setup covering the oil industry. There was in the past no organization with overall control of China’s oil industry, which was instead administered by the Ministry of Science and Technology, the State Economic and Trade Commission, and the Ministry of Land and Mines under the State Council. Authority for oil development was invested in the state-owned China National Petroleum Corporation (CNPC), and administrative authority over refineries lay with the state-owned China Petrochemical Corporation (SINOPEC).

This system of administration by a number of organizations resulted in a complex web of jurisdictions and authorities, however, resulting in inefficiency and delays in policymaking. It was in order to remedy this situation and unify administration of the oil industry under one body responsible for overall control of the industry so as to implement a consistent oil industry policy that the government established the State Petrochemical Industry Bureau under the aegis of the State Economic and Trade Commission (Fig. 1.1.2-1).

1-59 Figure 1.1.2-1 China ’s New Governmental Organizations Involved in the Petrochemical Industry

State Development State Economic and Ministry of Land and Planning Commission Trade Commission Natural Resources

China China China China Large-scale National Petrochemical National National petro-giants Petroleum Corporation Offshore Oil Star under planning Corporation (SINOPEC) Corporation Petroleum by the Ministry (CNPC) Group (CNOOC) Corporation of Science and Group (CNSPC) Technology

Source: “China’s Petroleum Industry and Petrochemical Industry ”; 1998-99 edition compiled by Shojiro Mori, SRI consultant, Editing Department, Tozai Boeki Tsushinsha Co. Ltd., 1998-1999

The second area of reform concerned the reorganization of the oil industry. With respect to the state-owned enterprises, CNPC, which was responsible for the upstream sector (with a 90% share of China’s crude oil production) and SINOPEC, which was responsible for the downstream sector (with a 77% share of China’s refining capacity) underwent consolidation and restructuring with the objective of:

1-60 (D stabilizing revenues in the oil industry —the mainstay of domestic industry —by improving the efficiency of corporate management (D stimulating the oil industry by introducing market economy principles and a system of competition between a number of companies, and CD establishing globally competitive oil conglomerates to raise international competitiveness. The result was the official launch in July 1998 of two petro-giants involved in everything from upstream to downstream operations: China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (SINOPEC). The distribution of oil refineries with a crude oil processing capacity of at least 1 million tons belonging to CNPC and SINOPEC is shown in Fig. 1.1.2-2.

In addition to these two groups, there are also the China National Offshore Oil Corporation (CNOOC), which as its name suggests is involved in development of offshore oil resources, the China National Star Petroleum Corporation (CNSPC), which is an oil developer affiliated to the National Resources Department, and the China National Chemicals Import and Export Corporation (SINOCHEM), which handles foreign trade. These companies are small in size and the range of their activities limited compared with CNPC and SINOPEC, though, and so their impact is slight. Consolidation and liquidation of these oil companies will likely become an issue, however, as further moves are made to raise efficiency in the industry.

As a result of this reform, the regions controlled by CNPC and SINPEC were basically divided into provinces and the cities under direct central government control. CNPC controls 11 provinces and the city of Chongqing in the north, and SINOPEC controls the nine provinces in the south and the three cities of Beijing, Tianjin and Shanghai. Sales operations come under the jurisdiction of each province. 86% of China’s 90,000 service stations have long been in the hands of independent distributors, and so the two groups ’ share of the retail market is extremely low.

1-61 In order to increase the two groups ’ dominance of the retail sector as part of the package of reforms, each refinery has been prohibited from selling oil products directly to independent distributors, and distribution of oil products has been brought mainly under the control of CNPC and SINOPEC. The remaining 40-50 small-scale refineries are in addition to be merged with either CNPC or SINPEC, and so the two groups ’ dominance of the downstream sector looks likely to increase further in the future.

As part of the reform of China’s oil industry, shares in CNPC and SINOPEC were listed on the New York, London and Hong Kong Stock Exchanges in September 2000. CNOOC, which is engaged in offshore development of oil resources, is also to be listed in the above-mentioned stock exchanges in 2001. As part of moves to improve investment conditions in order to list their shares, these companies plan to reorganize their assets by, for example, selling off high-cost oil fields and unprofitable operations.

1-62 Distribution of refineries belonging to two major groups (1 million tons or more) ■Refineries belonging to CNPC 14 xieeaftx^sn i **5*

Source: “China’s Petroleum Industry and Petrochemical Industry ”, Tozai Boeki Tsushinsha Co. Ltd.

Figure 1.1.2-2 Distribution of Oil Refineries with a Crude Oil Capacity of 1 Million Ton or More Belonging to CNPC or SINOPEC

Forecasts based on the rates of growth of demand for oil given in “China’s Energy Demand Outlook ” shown in Table 1.1.2-9 indicate that demand for crude will be as shown in Table 1.1.2-21.

Actual figures Forecasts 1995 1998 2005 2010 2020 2030 Crude oil demand (10,000 tons) 14,724 17,158 21,702 25,415 33,353 39,691 (10,000 tons) 294 343 434 508 667 794 (Annual average growth rate %) 4.7 5.2 3.4 3.2 2.8 1.8

As a result of the sustained development of electricity resources in China in order to eliminate the acute electricity shortage from the mid-1980s, China’s power generating plant capacity at the end of 1997 was expanded to 250 million kW. Total electricity output in that year was 1.356 trillion kWh, making China the world ’s second largest power generator. The Chinese government forecasts that demand for electricity will continue to grow steadily, and has long-term plans to raise generating facility capacity and output in 2010 to 550 million kW and 2.8 trillion kWh respectively. In the decade from 1985 to 1995, China’s GDP growth rate averaged 9.9% per year, electricity consumption grew by 9.3%, and elasticity of electricity consumption was 0.9. The rate of growth of electricity output and GDP elasticity have fallen since 1996, and this is believed by some to have been due to the introduction of energy saving measures in industry as a whole. Others, however, have argued that structural changes such as the falling importance of energy intensive industries and the slump in economic activity have also played a part. The rate of growth of electricity consumption declined from 7.4% in 1996 to 5.0% in 1997 and 2.8% in 1998 (Table 1.1.2- 20).

1-64 In 1997, coal-fired thermal power accounted for 82% of China’s power output, hydroelectric power for 17%, and nuclear power for just 1%. The Chinese government places considerable importance on hydroelectric power as a clean and renewable source of energy, and intends to increase its share of power generating capacity to over 30% in the future

From these figures, it can be seen that demand growth/economic growth elasticity will work out at under around 0.5, and the demand forecasts anticipate greater energy savings.

Total electricity output 6,775 7,539 8,395 9,281 10,070 10,813 11,356 11,670 12,300 (100 million kWh) Rate of increase over previous year 9.1 11.3 11.4 10.6 8.5 7.4 5.0 2.8 6.2 (%) GDP growth rate 9.2 14.2 13.5 12.6 10.5 9.6 8.8 7.8 (%) GDP elasticity of total electricity 0.9 0.8 0.8 0.8 0.8 0.8 0.6 0.4 output Hydroelectric power output (100 1,247 1,307 1,518 1,674 1,906 1,880 1,960 2,080 2,112 million kWh) Rate of increase —1.6 4.8 16.1 10.3 13.9 -1.4 4.3 6.1 3.4 over previous year Source: “Handbook on China”, Mitsubishi Research Institute; 1999 edition NEDO Overseas Report No. 828 April 17, 2000

The demand for electricity is registering satisfactory growth this year along with the improvement in macro-economic condition. According to a recently published report on electricity output in each province, autonomous region and city under direct control for the period from January to September in 2000, this trend is still continuing. The actual figure of power generation in the whole of China for the period from January to September in 2000 indicates a high growth rate, which is up 10.5% from the same period of the previous year. Specialists claim, on the other hand, that this growing demand for electricity seems to have reached the limit, citing the fact that the growth rate on the country basis for the second quarter (April to June) was up 11.0% over the same period of the previous year, whereas that of the third quarter (July to September) was up 10.5% from the same period of the previous year. They point out , however, that demand for electricity on a quarterly basis continues to grow, and its growth rate is still by far higher than that of GDP in real terms. (See “China’s Electric Power ” published by China’s Electric Power Information Center.)

Electricity output last year: 1.3500 trillion kWh China’s output of electricity was 1.3500 trillion kWh, presenting a 9.5% growth over the year before last.

Power consumption: 1.3260 trillion kWh Power consumption increased 9.7% over the year before last. Of this figure, the amount of electricity generated by the National Electric Power Corporation was 670 billion kWh, and the amount of electricity sold was 870 billion kWh, producing a profit of 9.2 billion yuan.

1-66 (c) China’s electricity consumption in each industrial sector is sharply increasing

[December, 6, Beijing] With an upturn in economic conditions, China’s electricity consumption is sharply increasing in many industries. According to the statistics, electricity output was 1.843 trillion kWh for the period from January to October in 2000, registering a year-on-year increase of 10.3%. Thus, electric consumption has increased by as much as 10% or more in nearly all industries

Increased electricity consumption is a significant indicator of economic and social development. Electricity consumption by individual consumer has also increased: electricity consumption by residents of rural areas has increased by 13% over the same period of the previous year, while that by residents in urban areas was 132.5 billion kWh, up 14.2%. This is said to indicate that public living standards have significantly improved. According to a breakdown by industry, electricity consumption by the primary industry, including agriculture, forestry, stock farming and fisheries, was 44.7 billion kWh, up 2.7% from the same period of the previous year, that in the secondary industry was 788.4 billion kWh. up 11.3%, and that in the tertiary industry was 119.0 billion kWh, up 13.1%. Priority is thus being placed on investment in the construction of an electric power network. Funds used for developing electric power generating stations and an electric power network in urban and rural districts amounted to 132.16800 billion yuan in the period from January to October in 2000. Of this amount, 67.29100 billion yuan, up 169.5% up from the same period of the previous year, was invested in the development of an electric power network in urban and rural areas. This provided an electric power network of 663,185 km for urban and rural districts.

The government is making the strenuous and sustained effort to strengthen the electric power supply structure, thus shifting the focus of the development of the electric power industry from the conventional

1-67 pattern of developing electricity resources to building up a wider- reaching electric power network. The breakdown of investment costs for fixed assets in the electric power sector, in the period from January to October, was 46.78700 billion yuan for the development of electric generation and 83.41800 billion yuan for the development of electric power networks, which accounted for 63.12% of the total investment in fixed assets.

Thus far, 7 regional power networks covering provinces and autonomous regions and 5 independent provincial power networks have been completed.

The seven regional power networks cover Huabei (North China), Northeast, Hundong (East China), Huazhong (Central China), Northwest, Chuanyu and southern districts. In order to make the most of a combination of transmission effect and the integrated power network effect, China is making a full-fledged effort to integrate power networks covering large areas, provinces and autonomous regions in line with the implementation of the Three Gorges Dam construction and power transmission project, as well as of power network integration projects for Northeast and Huabei [North China] districts.

According to the latest data, investment in the construction of power networks constitutes the mainstay of electric power projects in China. Over the past 10 months, 132.16800 billion yuan has been invested in electric power supply projects, such as construction of power generating stations and power networks, and improvement work across the country. 67.29100 billion yuan (up 169.5% from the same period of the previous year) of this amount was spent for construction and improvement of electric power networks, thus providing nation ’s electric power network of 663,185 km in length.

The focus of China’s electric power projects has thus shifted from those mainly intended for the construction of power generating plants to construction of electric power networks. Of the total investment in fixed assets concerning electricity, investment in construction of power generating stations was 46.78700 billion yuan, while that in development of electric power networks amounted to 83.41800 billion,

In order to expand the electricity market, the Chinese government has been constructing and improving nation ’s electric power networks since 1998. This has now resulted in the establishment of an electric power network covering seven provinces (autonomous regions) including the Huabei (North China), Northeast, Huadong (East China), Huazhong (Central China), Northwest, Chuanyu and southern districts, in addition to which there are 5 independent provincial-level power networks. In conjunction with construction of the Three Gorges Dam and Three Gorges power transmission, power transformation project, and the project for a network linking the Northeast and Huabei districts currently underway, China is making an all-out effort to push forward with the construction of the following networks covering the provinces (autonomous regions and cities under the direct control of the government) with the aim of enhancing the economic effect of power transmission and linking networks.

(D Huabei (North China) Electric Power Network: City of Beijing, City of Tianjin, Hebei Province, Shanxi Province, The Inner Mongolia Autonomous Region © Northeast Electric Power Network: Liaoning Province, Jilin Province, Heilongjiang Province © Huadong (East China) Electric Power Network: City of Shanghai, Jiangsu Province, Zhejiang Province, Anhui Province ® Huazhong (Central China) Electric Power Network: Jiangxi Province, Henan Province, Hubei Province, Hunan Province © Huanan (South China) Electric Power Network: Guangdong Province, The Guangxi Zhuang Autonomous Region, Guizhou Province, Yunnan Province © Northwest Electric Power Network: Shanxi Province, Gansu Province, Qinghai Province, The Ninxia Hui Autonomous Region

1-69 (!) Independent electric power networks on a provincial/autonomous region basis: Shandong Province Fujian Province Hainan Province The Tibet Autonomous Region The Xinjiang-Uygul Autonomous Region

Main factors contributing to this remarkable growth in demand for electricity are said to be an increase in industrial production backed by public works and exports and a growth in demand for electricity for the residential and commercial sector due to rising wage levels. The general view is, however, that this growth in demand is attributable to “temporary factors ”.

Summing up these factors, the growth in demand for electricity may well be said to superficially maintain a high growth rate because of the intense summer heat in some regions (specifically in the central east and central south) in spite of a general tendency to peak out in the latter half of 2000.Thus, in the fourth quarter, the rate of growth of electric power demand on a national basis has remained below 10%, and the growth rate on an annual basis is forecast to increase by around 9% over the previous year.

Source: Internet home page of Beijing Office of the Japan-China Economic Association; on electric and nuclear power

China is attempting to introduce and disseminate the latest energy conservation policies, management methods, and standards from around the world by promoting international exchange of information, dispatch of personnel, study visits, and training schemes. In the area of international trade, the country is expected to be officially admitted to the World Trade Organization (WTO) in the near future, which will lead to an accelerated pace of economic interaction between China and other countries throughout the world. In view of this prospect, environmental issues will become an important element in the authorities ’ promotion of foreign trade, and they are therefore actively encouraging the introduction of energy conservation know-how and equipment as a means of stimulating exports.

The Chinese authorities aim to utilize grants and low-interest loans from foreign governments and international financial institutions, as well as direct investment by overseas corporations to finance the introduction of high-level, state-of-the art energy conservation technologies and the requisite equipment. Through this, they plan to raise the country ’s technological level in the field of energy conservation and to facilitate the speedy upgrading of the country ’s energy conservation facilities.

It follows from the above that there is a strong need for the implementation of projects through the Clean Development Mechanism.

The Chinese government has made clear at the International Conference of the Parties to the Framework Convention on Climate Change (COP) its commitment to actively promoting the Clean Development Mechanism. Unfortunately, however, the participating countries at last year ’s COP 6 session failed to reach agreement on methodological problems involved in the Clean Development Mechanism (the handling of C02 reduction and emission rights). Thus, the determination of these matters has been postponed to the COP 7 meeting scheduled for May 2001. Since COP has not decided on any specific arrangements, at the direction of the Chinese government, Chinese companies maintain that it is extremely difficult for them to make any statement regarding their needs, i.e. specific matters that have to be arranged to make the Clean Development Mechanism reality.

1-71 This is where matters stand at present, but nonetheless the Chinese government has since last year been making progress toward the goal of environmental protection, with the passing of an environmental protection law and an atmospheric pollution prevention law, among other measures. Moreover, in view of the necessity for the various countries involved to act in cooperation with one another, once specific measures have been agreed on at the COP, we can expect CDM project needs, including jointly implemented projects, to be quickly addressed in the form of concrete proposals.

In a television broadcast prior to World Environment Day June 5th last year. Prime Minister Zhu Rongji made the following statements regarding the importance of environmental protection.

“In the 20th century, mankind has achieved unprecedented development stemming from the Industrial Revolution. At the same time, however, we have had to pay the price of an extremely harmful impact on the environment. The human race is faced with a large number of problems to solve, including the destruction of natural ecosystems and the pollution of our own living environment. It is already too late for individual countries to solve these problems on their own: all the nations of the world must join hands in finding a solution. For its part, the Government of China regards the environmental issue as one of great importance. A wide variety of laws and regulations designed to protect the environment have been enacted, and a certain degree of success has been achieved thanks to enormous efforts. Now, as we stand on the threshold of the 21st century, we are faced with the need to boldly take up the challenge of protecting the environment, which will constitute the third phase of modernization. We must abide by the regulations that have been laid down for the protection of the environment, and make use of the constant advance of scientific and technological knowledge by investing funds in measures to prevent environmental degradation and preserve the natural beauty of China.”

From Prime Minister Zhu’s statements, we can clearly discern the hopes that the Chinese government is placing on the promotion of environmental protection projects with international cooperation following the early conclusion of an agreement on the Clean Development Mechanism at the COP.

On December 8. 2000. Mr. Zhang Shigang. assistant director of the International Cooperation Office of the National Environmental Protection Bureau announced his views on the need for international cooperation in tackling environmental protection issues. Mr. Zhang made it clear that international cooperation in the field of environmental preservation technology is a matter of urgency if China is to successfully solve its environmental problems.

The field of environmental protection technology to which Mr. Zhang referred includes: information technology; research into biotechnology and the development of practical applications; technology aimed at reducing atmospheric pollution; methods of reducing water pollution; methods of disposing of dangerous waste substances; techniques for the environmental management of chemical substances; environmental measurement and monitoring techniques; and know-how in the areas of environmental policy making and environmental economics. According to Mr. Zhang, “From here onward, we intend to take measures to introduce foreign currency to help finance China’s environmental protection efforts by strongly urging the participation of international financial institutions, foreign governments, and private-sector enterprises. At the same time, we plan to introduce leading-edge technology, equipment, and management know-how from overseas and to promote sustainable economic and social development. ”

Finally, an examination of investments in the environmental field in China shows a marked upward trend. Hereunder, we give an outline of these developments.

- 1999: Total investment in anti-pollution measures amounted to 82,320 million yuan, equivalent to approximately 1% of GDP. Investment in environmental preservation in China has been rising for the past several years. - 2000: The figure for the year 2000 is expected to be approximately the same percentage of GDP.

1-73 Investment in environmental improvement measures in China has been on the increase since the early 1980s. The Chinese government has announced the following percentages to GDP for environment-related investment in its 5-year plans:

- Seventh 5-Year Plan : 0.72% - Eighth 5-Year Plan : 0.8% - Ninth 5-Year Plan : 1.0% (up to the 4th year of the plan)

China’s investment in environmental protection during the period of the “Eighth 5-Year Plan” is 2.7 times that during the “Seventh 5-Year Plan”. Investment made up to the 4th year in the “Ninth 5-Year Plan” is said to have increased by 100 billion yuan or more in comparison with that in the “Eighth 5- Year Plan”. The focus of such investment in environmental protection is placed on the prevention of industrial pollution, environmental improvement, and development of the environmental infrastructure in urban areas.

This data indicates that China is taking a very positive attitude toward environmental protection and shows how keenly China needs international cooperation.

(d) Clean development mechanism project needs to implement Chinese government policy on combating global warming

Systematic, structural steps to raise efficiency of energy use, mainly in energy intensive industries, began to be taken from around the start of the 1980s. In 1986, the State Council announced the introduction of the “Temporary Ordinance on Control and Conservation of Energy Resources ”, and the promotion of energy conservation measures brought down energy intensity in energy intensive industries year by year. Average annual growth in China’s GDP from 1980 to 1990 was 8.98% and average annual growth in energy consumption was 5.05%, yielding an elasticity of energy consumption of 0.56. (Elasticity of energy consumption between 1953 and 1980 was 2.09). Average annual growth rate in China’s GDP from 1991 to 1995 was 12% and average annual growth rate in energy consumption was 5.5%, making the elasticity of energy consumption 0.46. Moreover, economic growth has been maintained since 1996 while keeping elasticity of energy consumption at around 0.5.

1-74 The Chinese government has refrained from expressing an official view on the “Kyoto Protocol ” agreed at COP, the Conference on Global Warming held in Kyoto in 1997. However, the government has announced a policy of prioritizing energy conservation as a means of averting an energy crisis and combating ecological destruction and environmental pollution caused by over-mining of fossil fuels (especially coal) as the economy continues to grow.

Use of fossil fuels in China will undoubtedly continue, but efforts will also be made to further reduce energy intensity. As a consequence, China can be expected to cooperate indirectly in combating global warming by reducing CO? emissions.

In order to raise the public ’s environmental awareness, the State Environmental Protection Bureau is currently making strenuous effort to direct people ’s attention to environmental protection by providing daily information on the environment in each district.

Air pollution in China is mainly caused by SO? and dust and soot, and pollution generated by industry accounts for some 79% of the total. The proportion of acid rainfall (rain with a pH of 5.6 or under) across the country has risen steeply from 18% in 1985 to 40% in 1998, and as in developed countries, air pollution caused by mobile emission sources has also arisen.

In order to solve this problem, the Chinese government is promoting the use of clean coal and the introduction of energy saving and desulfurization technologies, and in addition levies an “emission tax” to cover emission costs. As well as central government legislation and controls, individual regions have also introduced their own controls to combat environmental pollution.

CNPC and SINOPEC have also established and implemented concrete, quantitative guidelines on environment protection and energy conservation for the refining sector. Rules were first laid down in 1995, and revised in 1999. These rules are tougher than regulations laid down by the Chinese government and provincial governments, and include requirements such as the following:

1-75 - Processing loss should not exceed 1%. - The concentration of S02 in smoke stack emissions should not exceed 120 ppm (also controls on absolute volume of emissions). - Strict standards on drainage.

The limits differ slightly from region to region, and penalties are imposed if they are exceeded. In addition, financial subsidies funded by contributions levied from companies are provided to enable businesses to meet these standards. For instance, 200,000 yuan was made available for subsidies from the 2.4 million yuan levied as pollution charges last year.

As part of the structural reform of electric power generation, a program to eliminate small power generation stations was launched in 1997, and a total of stations equivalent to 9.63 million kW were closed down by the end of last year (2000). These stations include those affiliated with national power generating companies, equivalent to 7.78 million kW. This measure led to annual savings of 7 million tons of coal and achieved reductions of 10 million tons of C02 400,000 tons of smoke and 500,000 tons of coal combustion residue, thus contributing to environmental protection. Power generating companies claim that this measure has caused a decrease of 930 million yuan in profits and also a reduction of 2100 million yuan in fixed assets.

1-76 1.2 The Need for Introduction of Energy Conservation Technology in the Target Industry

Energy saving in the petrochemical industry is based on technological progress and overall production plans. On this basis, the oil, chemicals, and fiber and textile industries as a whole are to be developed and their overall level raised, allowing the rational utilization of oil resources on a comprehensive scale.

With the objective of attaining an advanced level of energy conservation technology progress even by world standards, the necessary equipment is to be introduced on a priority basis, taking into consideration the conditions in China and the production conditions of the petrochemical industry. Technical improvements will then be made that will enable production to meet the standards set and allow the reduction of energy consumption. The target average energy consumption figure for superannuated equipment has been set at 750 kg/ton (standard oil).

The following regulations have been laid down for the achievement of energy conservation in the oil refining industry.

1) Improvement of normal-pressure, vacuum distillation equipment and desalting and anti-corrosion technologies, as well as heat-exchange processes. The number of light hydrocarbon recovery devices is to be increased, and the thermal efficiency of heating furnaces is to be raised. Tower panels and filling materials are to be replaced with the latest types, and high-efficiency compressors and state-of-the-art heat exchangers are to be employed, while processes are to be computer controlled to achieve the best performance.

2) The steam released from the waste heat boilers of reaction cracking equipment is to be changed from low-pressure to medium-pressure. The utilization ratio of the low- level heat emitted by fractionating column tops and steady absorption systems is to be raised. More advanced technology for the recovery of coke energy is to be introduced to raise the recovery rate to 70%. The more widespread use of new catalysts and high-efficiency spraying nozzles is to be promoted.

1-77 3) Regarding cracking reforming devices, the use of a more efficient solvent in place of diethyl-2 -ether or ethanol-amine is to be promoted. Heating furnaces, which are used as coking devices, are to be modified. For devices used to remove tar from solvent, there is an urgent need to utilize supercritical recovery technology. The filtration liquid cycle of ketone and benzene desulfurization devices must be improved. Regarding multipoint dilution, freezing-point dilution, two-stage filtration and the multi-evaporation recovery of solvent, low-efficiency filtration equipment, freezing equipment, and paraffin transport facilities for steam pumps are to be replaced with new, high-efficiency types.

S02 emission reduction, energy conservation, and C02 emission reduction can be attained concurrently only by introducing the energy-saving technology, known as Integrated Gasified Combined Cycle (IGCC) power generation system.

In other words, installing a flue gas desulfurization device at power generating plants or heavy oil direct desulfurization equipment (VRDS) at oil refinery, does not lead to energy saving or C02 emission reduction, however, it contributes to S02 emission reduction. Efforts by China’s refineries to reduce crude oil consumption for the purpose of energy conservation and C02emission reduction would contribute to energy situation (crude oil situation) not only in China and Asian countries including Japan, but also in thwhole world.

Solving China’s crude oil problems would have a direct influence on Japan’s energy security. (China’s capability of processing imported crude oil is expected to reach 90 million tons, nearly half that of Japan in 2005.)

As described above, regulations have been laid down for the achievement of energy conservation through effective introduction of state-of-the-art technologies. In China’s oil refining industry covered by this survey, much equipment is outmoded. Thus, this industry urgently needs to introduce energy conservation technologies.

1-78 1.3 Significance, Need, Effect of the Project Concerned, and Dissemination of the Results to Similar Industries

At oil refineries in China’s coastal areas (Fujian, Guangzhou, Gaoqiao, Shanghai, Shengli, Dalian, and other such areas with well-established import infrastructure), it is expected that in order to meet an increase in the demand for petroleum, there will be a growing need to receive and treat more imported crude oil. In this case, it will be necessary to modify or newly install secondary cracking equipment in order to treat imported crude oil that is heavier and contains more residual carbon than crude oil produced in China.

Crude oil supplied to the refinery of Fujian Petrochemical Co. Ltd. is to be switched to high-sulfur crude oil imported from foreign countries, mainly Saudi Arabia. (Dependence on foreign crude oil for the January-December period of 1999: 76.7%)

This oil refinery currently possesses oil refining facilities with a capacity of 4 million tons per year. The refinery plans to construct oil refining facilities with a crude oil refining capacity of 8 million tons per year integrated with petrochemical facilities, including ethylene production equipment. However, this future plan does not include installation of direct desulfurization equipment such as VRDS, and petroleum coke and heavy residue generated in larger amounts as a by-product of oil refining has a high sulfur content. It would therefore be inappropriate from the viewpoint of environmental protection to supply such petroleum coke and residue as fuel for power generation to power plants or to sell them as fuel for various kinds of boilers to outside companies as in the conventional way.

Therefore, introduction of IGCC technologies would prepare the way for the utilization of high-sulfur petroleum coke and residue from oil refineries as an effective energy source.

1-79 China’s petrochemical complexes generally possess their own power generating plants. The oil refinery concerned is, however, provided with no such facilities, and receives electric power through the network at relatively high prices from the local electric utility company (a coal-fired thermal power station) in Fujian Province.

The installation of an IGCC system would enable this refinery to perform high- efficiency power generation using high-sulfur petroleum coke and heavy residue (inexpensive residue low in utility value) generated as a byproduct, which would otherwise be difficult to treat. As a result, substantial energy conservation would be achieved. This would allow a considerable reduction in C02 emission compared with a neighboring coal thermal power plant or BTG using coal as fuel if it is installed within this refinery. Since electricity obtained through the IGCC system would be utilized within the refinery, power transmission loss would be minimized, which would be additional advantage. Furthermore, the steam generated concurrently in the course of the residue gasification process would be utilized as steam required for the utility facilities of the refinery. This would serve as an alternative to the steam that has hitherto been produced by coal-fired boilers. In this aspect as well, IGCC would contribute to reducing C02. At the same time, hydrogen can be separated in the gasification unit, and therefore, returning the hydrogen to the oil refinery equipment would reduce crude oil consumption and thereby further increase the efficiency of the refinery. The staff of the oil refinery in question are very eager to realize this project for the following reasons, as long as it is cost-effective: increasing of profits through effective utilization of current surplus petroleum and heavy residue; electricity cost reduction effects due to the increased in-house power generation rate; the necessity to conform to increasingly strict environmental regulations; reduction of C02 emissions; and improvement of energy balance also in consideration of the future upgrading of crude oil treatment capacity. There is a high possibility that this project will obtain the approval of the State Economic and Trade Commission and the State Development Planning Commission.

Methods of energy conservation through the effective utilization of petroleum coke and heavy residue, such as would be introduced through this project, are widely applicable to other oil refineries in China. It is therefore very much expected that the results achieved through the implementation of this project would have a ripple effect on other oil refineries that are faced with similar problems once these results are reported to SINOPEC and CNPC.

Specifically, oil refineries such as those with well-established import infrastructures, which are located in the coastal area of China, including Qilu, Guangzhou, Gaoqiao, Shanghai, and Jinling, are believed to have an ever-increasing need to receive and refine imported crude oil in order to meet an increasing demand for petroleum. In this case, the imported crude oil to be treated contains higher amounts of heavy oil and residual carbon compared with crude oil produced in China. This necessitates the introduction of effective utilization of surplus petroleum coke and heavy residue, through which energy conservation and environmental improvement effects can be expected. It is highly anticipated that the technologies to be introduced through this project would have a significant knock-on effect on the above-mentioned oil refineries.

This chapter describes the planning, contents, schedule of and budget for the utilization of a high-sulfur petroleum coke project for Fujian Petrochemical Co., Ltd. It also provides a general description of prospects for financing sources and fund procurement sources, and the profitability of the project, as well as the counterpart's appraisal of and level of interest in this project.

The crude oil treated so far by the refinery concerned has been light crude oil with a low sulfur content. However, in line with the policy of SINOPEC, which has jurisdiction over this company, it has been decided that heavy Middle Eastern crude oil with a high- sulfur content will be supplied in the future. This is a policy to be applied in common to oil refineries in the Chinese coastal area under the authority of SINOPEC.

The crude oil supplied to the oil refinery of Fujian Petrochemical Co., Ltd. is good quality overseas crude oil for the present. In the future, however, in line with the policy mentioned above, the ratio of crude oil with a high sulfur content —mainly from Saudi- Arabia—will be increased in line with the capacity expansion plan for oil refineries. (The rate of overseas crude oil dependence for the term from January 1999 to December 1999 was 76.7%.)

This will result in the production in large amounts of by-product petroleum coke of a higher sulfur content by the delayed-coker facility in the oil refinery. If this by-product petroleum coke is used as fuel for direct firing in existing power plants, etc., energy loss due to low-efficiency combustion will occur and smoke exhaust with high sulfur concentration will be generated, thus causing serious air pollution.

To prevent this, the integrated gasification combined cycle (IGCC) technology utilizing gasified by-product petroleum coke will be introduced under this project to allow the petroleum residue with high sulfur concentration from the oil refinery to be used as effective clean energy.

2-3 Chinese oil refineries lack sufficient technical experience in treatment of crude oil with a high sulfur content. Therefore, a request has been made from SINOPEC and this oil refinery for technical assistance in expectation that the technologies of Japan, which possesses extensive experience in the fields of pollution-control measures and treatment of crude oil containing a large amount of sulfur will provide the solution to the problems.

For this basic survey, cases most likely to produce substantial project effect were selected as described in section 2.1.2, and further, it was decided that equipment configuration, the scales of energy conservation and CO? reduction effects, cost benefits, and dissemination effect should be planned.

2-4 Administrative districts: - Eight (8) cities Fuzhou Xiamen = Special economic zone (Offshore production area) Quanzhou Zhangzhou Putian Sanming Nanping Longyan

Language: - Common language = Mandarin (Beijing dialect) - Dialects: Fujian dialect and Kejia dialect

Climate: - Subtropical zone - Annual mean temperature 17-21 degrees January mean temperature: Coastal area 10-13 degrees Inland area 5-8 degrees centigrade July mean temperature 26 - 29-degrees centigrade

Overseas Chinese’ native places; - Overseas Chinese 8,800,000 - Hong Kong & Macao 800,000 - Taiwan 80% of the total

Religions: - Buddhism (number of Buddhism temples: 142), Christianity, and Islam, (Others) Hinduism, Manicheism and Taoism

2-6 (2) FY1999 Statistical overview of the economic conditions of Fujian Province

1) Gross domestic product (GDP) 362,800 million yuan (increase of 10.0% over the previous year) Primary industry 64,000 million yuan (increase of 6.0% over the previous year) Secondary industry 159,350 million yuan (increase of 11.5% over the previous year) Tertiary industry 139,460 million yuan (increase of 9.8% over the previous year)

2) Fixed assets investment Basic construction 35,715 million yuan Renewal and modification 17,255 million yuan Real estate development 17,416 million yuan

3) Total agricultural, forestry and fishery production 98,550 million yuan Agriculture 40,580 million yuan Forestry 77,80 million yuan Stock farming 20,730 million yuan Fisheries 29,460 million yuan

4) Total industrial production 134,699 million yuan Light industry 77,991 million yuan Heavy industry 56,708 million yuan

5) Total traffic, mail service, and telecommunication production : 38,258 million yuan (increase of 10.5% over the previous year)

6) Total social consumption retail amount : 124,630 million yuan (increase of 14.0% over the previous year)

2-7 8) Total trade value 17,645 million U.S. dollars (increase of 2.8% over the previous year) Imports 7,269 million U.S. dollars Exports 10,376 million U.S. dollars In addition, the preliminary estimate for year 2000 will be as follows.; Exports 12,909 million U.S. dollars

9) Capital import frame (agreement base) : 4,900 million U.S. dollars (decrease of 2.0% from the previous year) The preliminary estimate for year 2000 is as follows: Exports 20,315 million U.S. dollars

10) Balance of deposits and savings at financial institutions : 292,461 million yuan

The GDP of the entire province was 333,020 million yuan, and grew in 1999 by 11%. Of this figure, the share of the primary industry was 62,360 million yuan, increasing by 8.2%; that of the secondary industry was 144,470 million yuan, increasing by 11.9%, and that of the tertiary industry was 126,180 million yuan, increasing by 11.4%.

The total production of the agriculture and forestry, the livestock farming and the fishery industry in the entire province was 99,500 million yuan, registering a growth rate of 10%. Total food production amounted to 9,517,800 tons due to abundant harvests for three consecutive years. It increased by around 95,800 tons compared with the previous year, registering a 1% growth rate, which was a considerable increase by historical standards. Growth was also seen in a wide variety of products, such as eggs, tea, fruit, aquatic products, and forest products.

2-8 The total production by state-owned enterprises and enterprises whose stock was owned by the government amounted to 18,816 million yuan; the total production of group enterprises was 43,031 million yuan; and that by other industrial enterprises, mainly including (enterprises with foreign capital participation (Chinese-and-foreign merger enterprises, Chinese-and-foreign joint enterprises and solely foreign-owned enterprises)) amounted to 47,368 million yuan, showing a 18.6% growth rate.

The GDP of all local-independent business enterprises was 394,500 million yuan, of which the total industrial production was 259,800 million yuan. On a district basis, the economic amount of local-independent enterprises in Quanzhou City was top with total production of 123,200 million yuan, accounting for 31 % of the total production of all local-independent business enterprises in the province. On the basis of the development speed, the growth rate of Longyan City was the highest, reaching 29.2%.

Fujian Province has a highly developed tertiary industry, such as commerce, external trade, finance and insurance, tourism, and real estate, and it has accelerated the development of new service industries, such as information, and consulting, and technical services. The total revenue of the whole of Fujian Province was 25,100 million yuan, increasing by 16.8%.

Total forestry produce for the province in 1997 was 7,710 million yuan, and increased by 15% over the previous year. Of the figure, afforestation production value was 359 million yuan. 29 prefectures (cities and districts) were designated as a Maozhu (bamboo) model base, and the value of total bamboo production in the entire province reached 4,000 million yuan.

The production of marine products was 4,293,100 tons, up 19.8% from the previous year, ranking 3rd in the nation. The consumption of marine products per capita amounted to 131 kg and increased by 20 kg from the previous year, ranking first in the nation for the consecutive years. Fisheries produce was valued at 41,200 million yuan, up 31% from the previous year. Of that figure, the total production of marine products was 27,800 million yuan, an increase of 18.3%. Net income per capita in fishing villages was 3,815 yuan, which was 1029 yuan higher than that in the farming area.

Aquaculture business is making rapid development. The culture output amounted to 2,289,600 tons, showing a 24.14% increase. Of that figure, the production volume of seawater culture is 1,881,600 tons, and the production volume is 408,000 tons. The sea fishery industry has also maintained consistent development. The production volume of sea fishery industry for 1997 amounted to 1,943,900 tons, and grew by 11.8%. As of the end of 1997, there were 1,123 companies engaged in processing and refrigeration of marine products and production of marine livestock feed. The annual volume of marine products processed reached 510,000 tons and the production value of processed marine products was 6,460 million yuan, showing growth rates of 24.4% and 45.45% from the previous year, respectively.

The production value of a petrochemical line was 5,863 million yuan, an increase of 2.49% over the previous year, of which the production value of refined oil was 1,300 million yuan, an increase of 11.16%. The production value of the chemical industry was 4,563 million yuan. The sales income was 8,600 million yuan, registering a 5% growth rate, achieving the profit of 130 million yuan.

The total industrial production value of the Fujian electronic industry was 26,230 million yuan, and increased by 50.3% from the previous year. Sales income was 180,00 million yuan, an increase of 37.4%. The total profit tax (income tax) was 1,360 million yuan, up 68.13% from the previous year. Of that figure, the profit (earning before income tax) was 970 million yuan, registering a 125.7% increase. The total export value was 1,057 million US dollars, a year-on-year growth of 35.31%. The electronics industry ’s total production value in the Xiamen special economic zone (offshore production area) was 11,220 million yuan, accounting for 43% of the entire business sector. The total industrial production value of 20 major electronic enterprises in the whole province was 11,680 million yuan, an increase of 100.49%, accounting for 57.44% of the entire electronic sector in the province.

Output of principal products: 1,235,000 color televisions, 170,000 micro computers, 2,340,000 monitors, 130,000 printers, 1,900,000 cathode-ray tubes, 4.800.000 radio-cassette recorders and audios, 3.420.000 telephones, 780,000 electronic parts, and 9,010,000 ICs. Next to the color television, VCDs gained popularity, with production sharply increasing from 180,000 in 1996 to 2,360,000 in 1997. As a result, the production and sales ranked third in the nation.

The machine industry consists of 196 manufacturing enterprises, including 7 large-scale enterprises, 30 medium-scale enterprises, and 159 small-scale enterprises. There are about 83,000 employees. The total production value amounted to 8,287 million yuan, an increase of 17.1% over the previous year. Income from the product sales amounted to 8,019 million yuan, up 20.8% from the previous year. The total profit tax was 440 million yuan, down 14.2%. Total value of export foreign currency income was 225 million US dollars, a growth of 7.1%. Total production value and the sales ranked 17th of all the provinces in the country and total profit tax ranked 15th in the country.

There were 31 enterprises with export foreign currency income of 1 million US dollars or more, showing an increase of 6 companies over the 1997 level. Four types of products, such as switches and contact breakers, fork-lift trucks, containers and bearings, have earned foreign currency from export equivalent to 10 million US dollars. The total production value of foreign- invested enterprises accounts for 36.9% of the total of the production value.

The total production value of prefectures and prefecture level or higher independent-accounting enterprises (118) was 2,416 million yuan, an increase of 16.6% over the previous year. Sales was 3,170 million yuan, up 7.6%, and the profit tax (income tax) was 320 million yuan, a decrease of 23.1%. Total profit (earning before income tax) was 108 million yuan, showing a 38.1% decrease. There were 16 enterprises with deficits of 1 million yuan or more. Cement production in 1997 was 15.2242 million tons, an increase of 1.19% over the corresponding period of the previous year. Production of sheet glass was 4,680,300 containers, up 57.1%

The economic system is to be divided into nine groups (corporations), including vehicles for agricultural use, vessels, paper and pulp, the chlorine soda chemical industry, cement, forestry (synthetic board), bearings?, sugar manufacture, spinning and so forth. There were 34 limited stock companies newly authorized in 1997. So far, there have been 2,200 or more limited-liability companies, 120 limited stock companies in the entire province, and the total stock capital is 11,286 million yuan. 32 companies have been listed on the stock market, with a total capitalization of 5,046 million yuan. A national-assets operation system is to be established gradually, and drastic reorganization of the social security-system is to be implemented.

- Infrastructure © Electric-power construction a) Large-scale thermal electric power plants to be constructed. Large-scale coal-fired power stations to be expanded and newly constructed at Jiangkou, Meizhou Bay, and the Jiulongjiang Coast. b) Positive efforts to be made for the development of clean energy and new energy sources. c) Construction of auxiliary electric power network

There are 123 kinds of development zones authorized by the State Council and the provincial government of Fujian Province. These zones include 14 zones —state-class economic and technical development zones, Taiwan investment zones, tax-free zones, tourism and leisure zones, new and high technology and industry development zones; 4 province-level tourism and economic development zones; 6 high and new technology development zones and 99 foreign capital investment development management zones. There were 410 items of foreign-capital investment newly authorized in 1997, and the amount of foreign capital agreed on was 1,246 million US dollars, and the actual foreign-capital utilized was 860 million US dollars.

2-13 “Fuzhou Economic and Technical Development Zone ” 100 items were newly authorized for foreign capital investment in 1997, and the total investment was 310 million US dollars. The amount of foreign capital provision agreed on was 265 million US dollars, and the amount of foreign capital utilized was 156 million US dollars, an increase of 17.6%. The industrial production of foreign-in vested enterprises was 8,030 million US dollars, an increase of 52.5%

“Dongshan Economic Technical Development Zone” The development zone places importance on high technology items, glass, food, machinery, electronics, and other light-industry items. Six items have been newly authorized for foreign-capital investment. The amount of contract foreign capital is 40.10 million US dollars, and the total export trade value of the Development Area is 75.00 million US dollars, while the export of foreign-affiliated enterprise is 51.00 million US dollars.

“Dongshan Economic Technical Development Zone ” The development zone places importance on high technology items, glass, food, machinery, electronics, and other light-industry items. Six items have been newly authorized for foreign capital investment. The amount of contract foreign capital is 40.10 million US dollars, and the total export trade value of the Development Area is 75.00 million US dollars, while the export of foreign-affiliated enterprises is 51.00 million US dollars.

“Fuging Rongqiao Economic and Technical Development Zone ” This zone is the first state-level development zone established in 1987, and is dominated by overseas Chinese capital. There have been 246 HS(foreign-invested) enterprises in the zone for these 10 years, and the total investment amount was 1,430 million US dollars.

“Xiamen City Development Zone ” There are four high technical and industrial development zones and one tax-free zone in Xiamen City.

There are 18,342 foreign-capital invested companies, and the total amount of investment is 47,414 million US dollars. The capital registered is 29,424 million US dollars, and the amount of foreign capital is 24,451 million US dollars. These companies include 6,489 Chinese-and-foreign merger enterprises, 1047 Chinese-foreign joint enterprises, and 10,799 solely foreign-invested enterprises. Investments have been made by 69 countries and areas, of which the largest investment is made by Hong Kong. This include 10,832 companies, accounting for 59% of the total number of enterprises. This is followed by 3,858 companies (21%) invested in by Taiwanese enterprises, 728 companies invested in by Singapore (3.97%), 625 companies (3.41%) invested in by Macao, 450 companies (2.45%) by the Philippines, 446 companies (2.43%) by the U.S., and 444 companies (2.42%) by Japan.

2,298 cases have been newly authorized for foreign investment, an increase of 15.7%. The amount of foreign investment agreed on was 4,539 million dollars, a decrease of 30.6%. The amount of foreign capital actually utilized was 4,197 million US dollars, up 2.9% over the previous year. These cases consist of 1946 manufacturing companies and 352 non manufacturing companies. Exports by foreign-invested enterprises accounted for 58.10% of the total export amount in the province. Employees at foreign-invested enterprises account for 40% of all the employees at industrial enterprises in the entire province.

Traffic and other infrastructure facilities The focus of expansion and modification was placed on four airports (Xiamen, Fuzhou, Wushan, and Jingjiang). Three seaports (Fuzhou, Xiamen and Meizhou Bay), four railroads, four power plants (Shuikou, Xiamen, Fuzhou Huaneng and Ping thermal power plants), and their associated electric-power networks were constructed. The capacity of the electric power facilities that were newly increased over the past 5 years reached 368 MW. The handling capacity of seaport was 10.0 million tons or more. 46 airlines, including domestic and international airlines were available. As of the end of 1997, the length of roads open

2-15 to traffic in the entire province was 47,680 km. The number of program- controlled telephone circuits that were newly increased in 1997 was 517,000, and the capacity reached 4,480,000 circuits.

Overview of social insurance system The number of company employees who held an endowment insurance policy reached 13,37,100. The income from endowment insurance premiums was 1,447 million yuan. The number of persons at organizations, businesses, and companies who newly contracted an endowment insurance policy was 430,000. 80,000 persons after retirement received old-age pension. 80 prefectures (cities and districts) also developed agricultural social insurance system, policies which were held by 1,413,000 farmers, of whom 2416 persons received an old-age pension.

Unit: 100 million yuan 1996 1997 1998 Balance 14.22 16.67 18.79 Expenditure 20.00 22.50 25.49

This project is intended for planning the installation of an integrated gasification combined cycle facility to gasify the high-sulfur content petroleum coke supplied from the oil refinery and generate electric power using the effluent gas under the facility enhancement plan. The equipment configuration in the selected cases and the background to the selection are described below.

During our first site survey carried out in September 2000, the Chinese side made a request to use the total quantity of petroleum coke, which will presumably be generated under the facility enhancement plan, as feedstock for the integrated gasified combined cycle facility. The model number of the gas turbine and the number of turbines were selected for the power generating plant on the basis of the amount of syngas generated according to fuel (Case 1). Moreover, for comparative purposes, consideration was also given to a case in which a portion of the syngas is fed to the hydrogen recovery process in order to produce hydrogen that will be needed under the oil refinery facility enhancement plan, and the remaining gas is fed to the power plant (Case 2). Furthermore, in order to maximize the energy conservation effect, the use of a larger and more efficient model than the gas turbine in Case 1 was selected also as a case to be considered. In this case, the amount of fuel is based on the amount of electric power generated (Case 3).

1) Case 1, in which the total quantity of petroleum coke is to be used as fuel for electric power generation Fuel to be used Petroleum coke Amount of fuel to be used 62.0 tons/hour Notel) Gas turbine model number x the number of trains 6B x 4 trains Net power generation 238 MW Overall efficiency 37.3%

Note 1) The amount of petroleum coke assumed to be generated under the equipment enhancement plan of the oil refinery (Data obtained from the Chinese side during the first survey)

Residue 62 Ton / Hr Net Power Block Gasifier Power Section Section 238 MW Refinery Storage 6B C/C x 4trains

2) Case 2, in which a portion of petroleum coke is to be supplied to the hydrogen recovery equipment and the remaining coke is to be used as fuel for power generation Fuel to be used Petroleum coke Amount of fuel to be used 62.0 tons/hour Note 0 Gas turbine model number x the number of trains 6FA x 2 trains Net power generation 177 MW Amount of hydrogen recovered 33,960 Nnf/h Overall efficiency 43.7% rCase 2 Production of both electric power and hydrogen

Residue 62 Ton / Hr Power Block Gasifier _/z\t\Net Power Refinery Section Storage Section Xjy 177 MW V 6 FA C/C x 2trains

2-18 3) Case 3, in which all petroleum coke is to be used as fuel for electric power generation (Recommended case) Fuel to be used : Petroleum coke Amount of fuel to be used : 54.1 tons/hour Note2) Gas turbine model number x the number of trains : 6FA x 2 trains Net power generation : 228 MW Overall efficiency : 41%

Residue 54 Ton / Hr Power Block Refinery Gasifier Net Section Section Power 6 FA C/C x 2trains 228 MW

Note 2) The amount of fuel determined according to the gas turbine model number, which is most likely to produce the largest effect

The table below shows the plant performance calculated from the simulation of the Cases 1 to 3. The overall efficiency (lower heat value) of the plant was calculated from the net power generation obtained by subtracting the amount of power consumption in the IGCC plant on the basis of the heating value of fuel input in the IGCC. The overall efficiency in case 2 is the highest because the amount of hydrogen recovered is directly converted into calorific value. Here, however, Case 3, which will satisfy the request of the Chinese side and at the same time will provide high overall efficiency and be expected to produce substantial project effect, has been selected for consideration. It is proposed from the comprehensive perspective that the Chinese side should

2-19 review the capacity of the upstream equipment of this facility to reduce the amount of vacuum residue (VR).

Case-1 Case-2 Case-3 Electric power Both electric Electric power only power and only hydrogen Feedstock Flow rate t/h 62.0 62.0 54.1 LHV kcal/kg 8,850 8,850 8,850 Thermal energy (LHV) MW 638.0 638.0 557 Electric power Syngas to GT (LHV) MW 538 422 469 Power generation (for 1 train) 6B x 4 6FAx2 6FA x 2 GTG MW 47.3 78.0 90.0 STG MW 24.8 37.6 49.2 power loss/aux. power MW 2.6 4.0 4.8 power generation MW 69.5 111.6 134.4 Total gross power MW 277.8 223.3 268.8 Power consumption ASU MW 32.4 35.5 34.0 Process units MW 2.4 5.9 2.1 Utility/ offsite MW 4.7 4.7 4.5 Total power consumption MW 39.5 46.0 40.6 Net power output to refinery MW 238.3 177.3 228.2

The equipment to be used in the project in Case 3 —selected as described above — will consist of the following units. From the viewpoints of reliability and operability, equipment configuration has been determined as shown in Table 2.1.2-2 below, i.e. 3 trains of gasification equipment, 2 trains of power generating equipment and 1 train of other equipment.

1. Syngas production and treatment equipment (1) Gasification unit #100 3 (2) COS conversion unit #200 1 (3) Acid gas removal unit #300 1 (4) Sulfur recovery unit #400 1 (5) Tail gas treatment unit #500 1 (6) Filter unit and sour water #600 1 stripping unit (7) Soot and ash handling unit #600 1 (8) Waste water treatment unit #700 1 2. Air separation unit #800 1 3. Combined cycle unit #900 (1) Gas turbine 2 (2) Steam turbine 2 (3) Waste heat boiler 2 4. Others (1) Cooling water unit #1100 1 (2) Demineralized water unit #1200 1 (3) Flare unit #1300 1 (4) Instrumentation/plant air unit #1400 1 (5) Backup fuel unit #1500 1 (6) Firefighting unit #1600 1

This project is intended to reduce carbon dioxide emissions through the introduction of an integrated gasification combined cycle facility for effective power generation by utilization of petroleum coke generated from an oil refinery. Therefore, carbon dioxide is the greenhouse gas targeted for reduction in this project.

Integrated gasification combined cycle facilities with high power conversion efficiency, which employ high-efficiency combined cycle power generation units and efficient heat recovery, can reduce the emission of carbon dioxide, compared with coal-fired boiler turbine power generation facilities, which are widely used in China.

Moreover, introducing this facility would also make it possible to significantly reduce emissions of SOx, NOx, dust, and so on, in addition to greenhouse gases.

The staff of the oil refinery in this project began to give some consideration to the use of IGCC for treatment of petroleum coke in 1997, when it started to become clear that crude oil to be treated would contain a higher content of sulfur.

1) Petroleum coke with a high sulfur content generated as a by-product in the refinery process can be effectively used as clean energy.

2) Inexpensive electric power can be obtained through an IGCC system as an energy source for operation in the plant, since the plant possesses no in- house power generating facility.

Petroleum coke, as a by-product residue generated in the course of the refining of crude oil, could be sold as good-quality fuel by Chinese oil refineries due to its low sulfur content because of the low sulfur content of the crude oil produced in China.

(general applications of low-sulfur content petroleum coke) © Binder for coking coal at steel works (lead) © Fuel for power generation plants © Fuel for cement plants © Fuel for baking bricks at adjacent brick plants © Export to overseas countries, including Japan © Material for electrodes

Meanwhile, it became evident that China had to depend on the imported crude oil because no growth in the production of crude oil in China could be expected despite a sharp rise in the demand for oil in the country.

Consequently, it was anticipated that petroleum coke generated as a by-product of oil refining would inevitably contain sulfur of between 5% and 10%, and it

2-23 would be lower in terms of utility value as the sulfur content of crude oil is higher. As a result, concern arose that using such petroleum coke as fuel in cement factories and power plants might cause serious air pollution although such use had generally been carried out in the case of low sulfur content petroleum coke.

Using coal and other fuel with a sulfur content exceeding 1% in power generating plants without any flue gas desulfurization device is currently prohibited in China from the viewpoint of environmental protection. It is not so easy to find an effective treatment method for petroleum coke with a high sulfur content, and therefore, it may be thrown away without much thought. Regarding residue generated as a by-product at Chinese oil refineries handling imported crude oil, it seems most likely that they will dump it in the open or throw it into the sea, thus causing secondary pollution.

In this context, it would be the most effective utilization method of limited petroleum resources, as well as a useful means in light of environmental protection to convert petroleum coke — a by-product oil refining — which is otherwise impossible to utilize effectively — into electric power or chemical materials as clean energy using an IGCC system installed in the same plant.

In such circumstances, this oil refinery, which has little experience in the application of IGCC made a request for technical investigation assistance to Chiyoda Corporation through SINOPEC.

The following measures are regarded as effective for the introduction of IGCC into this oil refinery:

1) IGCC is to be introduced as part of an overall energy conservation and environmental protection measures, and therefore, assistance should be rendered from Japan as part of international cooperation in technical and financial aspects.

2) According to our information obtained by us through interview (of the sources concerned), in the case of application for soft loans, there are preferential treatment measures available in China, such as tax exemptions including customs imposed on equipment introduction from overseas. Thus,

2-24 an attempt is to be made for raising the low economic profit through equipment introduction.

3) Moreover, a 3,000 yuan tax has been imposed per ton of oil sold in China since April 2000. In this regard, if it is decided that the new tax revenue can be appropriated for non-profit environmental protection projects, it is greatly expected that the Chinese government, which is to proceed with this project, would utilize this new tax revenue preferentially for this project of the oil refinery concerned.

On the basis of the fact that the amount of crude oil imported in 2000 already exceeded 70,000,000 tons and based on estimated economic growth, SINOPEC projects that the total amount of crude oil imported in 2005 will be 90 million tons and that the amount of petroleum residue—mainly petroleum coke —would exceed 5 million tons annually. According to SINOPEC, most of petroleum residue will consist of petroleum coke with a high sulfur content. This applies also to the oil refinery under consideration here.

Fujian Petrochemical Co. Ltd was established by joint investment of China Petrochemical Corporation (SINOPEC) and Fujian Province, and construction was started in June 1990. Its operation was started as the most modem fuel production oil refinery with a crude oil processing capacity of 4 million tons in September 1993.

This refinery treats 25 kinds of crude oil, both domestic and imported. Moreover, a wide variety of petroleum products are manufactured, encompassing 43 items, including lead-free gasoline, light oil, jet fuel, solvent, polypropylene, petroleum coke, and sulfur.

The project site is located between Fuzhou City and Xiamen City, on Meizhou Bay facing the Taiwan Straits. Favored with good geographical conditions such as a deep-water harbor, it possesses a crude oil berth of the 100,000 ton class, and is generally regarded as a major petroleum center, which is expected to play an important part in the large-scale oil scheme of Fujian Province in the future.

Crude oil sources Middle East (Arabia), Southeast Asia, North America, Africa, etc. (covering 25 kinds)

Characteristics of facilities : Environmental protection facilities are available, including waste water treatment equipment, sulfur recovery equipment and so forth: Although 90% or more of crude oil currently treated is imported, the treatment design of the refinery is based on domestic crude oil. Thus, the sulfur content constitutes a bottleneck that makes it impossible to treat 100% of imported crude.

Rate of operation : 330 to 365 days per year. Periodical inspection is carried out for about 1 month nearly once every two years.

Construction was divided into two periods. In the first period, toppers and vacuum units were constructed, and light oil hydrogenation refinery and delayed coking units of the secondary treatment equipment were constructed. In the second term starting from 1993, secondary treatment units, including residue catalytic crackers, hydrodesulfurization equipment and catalytic reformer, and gas desulfurization units using light hydrocarbon, gas separator and equipment for MTBE manufacture, sweetening, and sulfur recovery were constructed. In 1994, operation was started. In 1998, polypropylene of 70,000 tons per year was produced using the technology of the Beijing Design Institute and the engineering know-how of SINOPEC. The capacity ratio of reformer to topper is relatively high. For residual oil countermeasures, the refinery depends on residue fluid catalytic cracking units and delayed coking units.

2-27 One crude oil berth of 100,000 ton class and product berths - one each of 5000 tons, 3000 tons and 1000 tons - are available in the harbor, where the water depth is 18 m. Figure 2.2.2-1 shows the equipment configuration of Fujian Petrochemical Co. Ltd. The names and annual refining capacity of the principal existing and improved units are shown below.

Equipment name Annual refining capacity of Annual refining capacity of existing equipment improved equipment (10,000 tons/year) (10,000 tons/year) Crude oil normal pressure 400 800 distillation unit Crude oil vacuum pressure 150 560 distillation unit Residue fluid catalytic cracker 150 Not available (RFCC) Catalytic reformer 30 Not available Hydrogenation refining unit 60 Not available (light oil) Delayed coker 60 Not available Gas separator 20 Not available MTBE 3 Not available Polypropylene unit (PP) 7 45 Sweetening unit 90 Not available Sulfur recovery unit 1 Not available Ethylene unit Not available 60 Hydrocracking unit Not available 80 Polyethylene unit (PE) Not available 30 Solvent deasphalting unit Not available 150

Figure 2.2.2-1 shows the equipment configuration of Fujian Petrochemical Co. Ltd., while Photos 2.2.2-1 to 2.2.2-10 show the major units in this refinery.

Gasoline Crude oil from Daqing Normal Kerosene pressure Light oil 4,000 distillation Sulfur "► Sulfur recovery

Fujian Petrochemical Co. Ltd. is currently considering a plan to expand the existing oil refinery, which has a refining capacity of 4 million tons per year, to 12 million tons per year in the future. This facility expansion on the 8 million ton scale is mainly focused on the ethylene plant. This plans to include polypropylene, MTB, IGCC, and other plants in addition to the ethylene plant. SINOPEC (FPCL) decided on the implementation of a preliminary feasibility study in October 1997, and it intends to submit the results of this study to the State Planning Commission in early summer in 2001 with the view to obtaining governmental approval within fiscal 2001. At the same time, Fujian Petrochemical Co. Ltd. is currently proceeding with work with the aim of operating the expanded facilities in 2005 or 2006.

It is planned to import crude oil from the Middle East, and 50% of Arabian light oil and 50% of Arabian medium oil are to be used as feedstock for the expanded facilities.

In addition, a plan to expand the current crude oil berth of 100,000 tons to the 250,000 to 300,000 ton class is also under consideration. The name of the major items of improved equipment and the annual refining capacity are shown in section 2.2.2 (2) above.

The basic design conditions of IGCC facility are shown below. Although the data was directly obtained from Fujian Petrochemical Co. Ltd., assumption was partly made on the basis of data obtained. * Assumed (hypothetical) data

Annual average temperature 20.2°C Annual average maximum temperature 20.9°C Annual average minimum temperature 18.2°C

2-34 Monthly Average Temperature (FY1995) Unit: °C Annual 1 2 3 4 5 6 7 8 9 10 11 12 average 12.2 11.1 14.1 18.5 22.5 26.5 28.0 27.8 26.9 23.7 18.2 13.4 20.2

Annual average relative humidity 77% Average relative humidity for March to August 80% or more Average relative humidity for September to February 70% Design relative humidity 80%

Annual average 1012.2 mmbar Annual maximum 1020.3 mmbar Annual minimum 1003.3 mmbar

Maximum instantaneous wind velocity 24.0 m/s Basic wind direction in winter Northeast Basic wind direction in summer Southwest

Fuel for the gasification furnace is petroleum coke obtained from the vacuum residue (VR). Petroleum coke corresponds to 30% heavy fraction of vacuum residue, and the sulfur content is high at 7.5 wt.%

Composition C 83.3 wt.% H 8.59 wt.% S 7.50 wt.% N 0.56 wt.% O 0.00 wt.% ASH 0.05 wt.% TOTAL 100.00 wt.% V, Ni, Fe, Na 0.05 wt.% Cl 40.0 wt.ppm

(d) Available amount of fuel: 514,800 tons/year : 1484.64 tons/day : 61.86 tons/hour

Water is taken from a dam 10 km away on the upper reaches of the Jijiang. While there is a plan to utilize seawater in the future, the quality of the river water is shown below.

2-36 PH 7 Hardness 19.26 meq/1 Turbidity 0.4 mg/1 Chemical oxygen demand (COD) 0.4 mg/1 Biochemical oxygen demand (BOD5) 0.93 mg/1 Chloride ion 8.32 mg/1 Total iron ion 0.76 mg/1 Total cupper ion 0.003 mg/1 Suspended matter 36 mg/1

Standards in People ’s Republic of China Sewage overall emission standard (GB8978-1996) Environmental air quality standard (GB3095-1996)

Purchased 0.58 yuan/kwh electricity River water 0.7 to 0.8 yuan/ton Fuel oil 1,600 yuan/ton Hydrogen 8,000 to 10,000 yuan /ton Naphtha 2,910 yuan/ton Gasoline 3.1 yuan /liter (including tax)

While most electricity is purchased from China’s Fujian Electric Power Company, part of it is supplied from the following in-house power generation equipment.

2-37 Tvpe of turbine Design [MW] Normal [MW] No. of units 35 kg/cm 2G back 3.0 2.0 1 pressure turbine

In-house power generating facility is operated as follows depending on the demand for electric power.

In-house power generation Purchased power At peak time 1,800 kWh/h 27,000 kWh/h At bottom 0 kWh/h 23,000 kWh/h

Frequency 50 Hz Supply power source and voltage 6,000 V Motor of 200 kW or more 6,000 V Motor of 200 kW or less 380 V 3 Phases For instrumentation 220 V 1 Phases For lighting 220 V 1 Phases

Supply pressure (kg/cm 2G) 4.0 to 5.0 Supply temperature (°C) Maximum 33 Return temperature (°C) Maximum 43

Ordinary pressure (kg/cm 2G) 5.0 to 7.0 Pressure at occurrence of a fire (kg/cm 2G) 8.0 to 8.5 Temperature (°C): Ordinary temperature Normal temperature

Pressure (kg/cm 2G) 5.5 to 6.5 Temperature (°C) 40 Dew point (°C) @ 1 atm -19 or less

Pressure (kg/cm 2G) 5.5 to 6.5 Temperature (°C) 40 Dew point (°C) @ latm -19 or less

Purity (%) 99.9 Pressure (kg/cm 2G) 8.0 Temperature (°C) 40 Dew point (°C) @ latm -60 or less

High-pressure steam Pressure (kg/cm 2G) 35 Temperature (°C) 435 Medium-pressure steam Pressure (kg/cm 2G) 11 Temperature (°C) 290 Low-pressure steam Pressure (kg/cm 2G) 4.5 Temperature (°C) 190

Composition H, 26.41 mol.% CO, 2.25 mol.% ch4 21.73 mol.% CA 11.63 mol.% c2H4 11.64 mol.% C3H8 11.53 mol.% c,h6 2.62 mol.% QHm 9.54 mol.% QH„ 0.06 mol.% TOTAL 100.00 mol.%

Fujian Petrochemical Co. Ltd. constructed an oil refinery using proprietary Chinese technology. Additional installation, modification or periodical repair work is carried out to improve the refining capacity of the oil refinery. Reviewing of processing equipment specifications; basic design; detailed design of equipment, piping, civil engineering, construction, instrumentation, electricity, and the like; placing orders for equipment and materials; on-site construction, and others have been implemented over a long period. There should thus be no problem involved when the implementation of this project is determined.

The management system of Fujian Petrochemical Co. Ltd. under the authority of SINOPEC consists of 9 management departments under the President’s Office, as shown below. This project is to be carried out by the Equipment Integration Project team under the Planning Management Department

President Planning Management Office Department Equipment Integration Project Team 8 subsidiary Manufacturing Department companies Technology Center Machine and Electric Power Department

The management policy is aimed at achieving the following: increasing the production scale; improving production methods; reducing energy intensity; improving the production engineering level; producing clean products, improving product quality, promoting an increase in special benefits, strengthening environmental protection measures; and so forth.

Management results for FY1999 Total annual sales : 4,616 million yuan Current profit : 944 million yuan

No specific discussions were held regarding the prospects of obtaining loans from Chinese side financial sources and fund procurement sources. Fund raising by means of official development aid would ease the financial burden on the Chinese side and lead to the realization of the project.

2-42 Official development aid for China covers such fields as economic infrastructure (transportation and traffic, energy and communications), agriculture, environment, health and medical care, and the development of human resources. Specifically, in the oil refining industry, in the energy sector, the issue of immediate concern is to convert to (newly install or modify) oil refining equipment capable of treating imported crude oil, as imported heavy crude oil with a high sulfur content is currently being increasingly used. It is thus expected that the Chinese side will also request Japan to help solve this problem. It would therefore be advisable for the Chinese side to apply for yen loans by the Japanese government.

Fujian Petrochemical Co. Ltd. has continued consistent construction and development since its establishment and it is thus able to assign excellent staff in every field. To realize this project construction plan, the company established an equipment integration project team as an organization responsible for this project.

As mentioned above, there will be no problem involved in personnel capability or allocation when the project is implemented

State Development Planning Commission Evaluation and approval of projects Evaluation and approval of introduction of foreign capital (request to be made to a user of loan)

China Petrochemical Corporation (SINOPEC) Presentation of the project plan to the State Development Planning Commission after examination and approval of the project (including the financing plan) Equipment Integration Project Team of Fujian Planning of the project Petrochemical Co. Ltd Financing plan Project work Plant engineering management Purchasing equipment Trial run

2-43 2.2.4 Details of the Project at the Implementation Site (Company) and the Specifications of Related Facilities after Modification

Attached materials relating to this section are listed below. Figure 2.2.4-1 shows the block flow diagram of IGCC equipment configuration and the scope of supply, in which a unit number is assigned to each unit for convenience ’ sake. Figures 2.2.4-2 to -10 show the process flow diagram of each unit. Figure 2.2.4-11 presents a material balance between the units, while Table 2.2.4-1 lists major equipment items. Further details are described in the process flow overview of each unit.

Figure 2.2.4-1 Block Flow of IGCC Unit Figure 2.2.4-2 Block Flow of Gasification Unit (Unit # 100) Figure 2.2.4-S Block Flow of COS Conversion Unit (Unit#200) Figure 2.2.4-4 Block Flow of Acid Gas Removal Unit (Unit#300) Figure 2.2.4-5 Block Flow of Sulfur Recovery Unit (Unit#400) Figure 2.2.4-6 Block Flow of Tail Gas Treatment Unit (Unit#500) Figure 2.2.4-7 Block Flow of Soot and Ash Handling Unit (Unit#600) Figure 2.2.4-S Block Flow of Waste Water Treating Unit (Unit#700) Figure 2.2.4-9 Block Flow of Air Separation Unit (Unit#800) Figure 2.2.4-10 Block Flow of Combined Cycle Unit (Unit#900) Figure 2.2.4-11 Material Balance Schematic Diagram Table 2.2.4-1 List of Major Equipment Items

An overview of the units that are expected to be introduced in this project are described below

2-44 The unit receives petroleum residue from the B/L storage yard, increases the pressure to 65 kg/cm 2G by means of a feed oil pump (a pump for feeding fuel to the gasifier) (P-101), and then continuously supplies it to the gasification reactor (R-101). Oxygen and steam are added to this residue in order to produce synthesis gas through partial oxidization reaction. This synthesis gas is used as fuel for a combined cycle unit (UNIT# 100).

Oxygen generated at the air separation unit (UNIT#800) is preheated by the oxygen preheater (HE-102) and then supplied to the gasifier burner (B-101). High-pressure steam injected by the 02/steam static mixer (Ml01) not only facilitates partial reaction, but also helps to protect the burner internal wall from heat, thus significantly improving the burner’s service life to 8,500 hours at least.

The synthesis gas, whose temperature has reached 1,300°C during partial oxidation reactions that take place within the gasification reactor, generates high pressure vapor through heat exchange with the boiler feed water and is thus cooled to about 340°C inside the waste heat exchanger (E-101). A portion of the vapor is fed to the oxygen preheater (E-102), and the remainder is fed to the electricity generation unit. Then, the synthesis gas cooled by passing through the waste heat exchanger is brought into contact with the feed water heater (economizer) (E-103) for further heat exchange.

The synthesis gas cooled by heat exchange contains soot and ash. These components are separated from the gas by direct water scrubbing by Soot Quench (D-102) followed by the Separator (D-103). Unreacted carbon and ash still remaining are further removed by counter-current scrubbing water inside the scrubber (D-104). These components yield slurry, which is removed and sent to the Soots/Ash Handling Unit (UNIT#600).

The aim of this unit is to convert carbonyl sulfide (COS) contained in the synthesis gas generated by the gasification reaction into hydrogen sulfide (H2S) by means of selective hydrolysis, in order to reduce the sulfur content of the gas through the Acid Gas Removal Unit (Unit#300) installed in the following stage. The synthesis gas, which is generated through gasification reactions of petroleum residue, undergoes a dry solid separation process and wet water scrubbing inside the Gas Cooling Unit. Sulfur content of the synthesis gas includes a trace amount of carbonyl sulfide as well as H2S. Carbonyl sulfide is generally more resistant to removal by absorption in the Acid Gas Removal Unit in the later stage (depending on the capacity of absorption solution used). Residual sulfur, if it remains in refined gas, can increase sulfur oxide in burner exhaust from the heat recovery steam generator (E- 901) in the electricity generator unit. Hence, enhanced sulfur content removal in the acid gas removal unit is expected by conversion of carbonyl sulfide into hydrogen sulfide (H2S) and carbon dioxide (C02) using the following hydrolysis scheme, which takes place in COS hydrolysis reactor (R-201).

This unit consists of COS hydrolysis reactor (R-201) packed with hydrolysis-enhancing catalyst, a COS hydrolysis feed preheater (E-201) to provide required reaction conditions, a boiler feed water/raw syngas exchanger (E-202), a raw syngas cooler (E-203), and a raw syngas condensate separator (D-201). The carbonyl sulfide containing synthesis gas fed from the synthesis gas scrubbing unit is heated by the COS hydrolysis feed preheater (E-201) to the required reaction temperature and transported to the reactor tower. The above reaction selectively takes place inside the tower, converting 90 to 95% of carbonyl sulfide contained in the feed gas into H2S. The thermal energy of the gas from the reactor tower is recovered through heat exchange with boiler feed water, and the gas is further cooled to atmospheric temperature by the raw syngas cooler (E-203). Condensed water through this process is separated by the condensate separator (D-201), sent to the scrubber (D-104) to be used as spray liquid.

2-46 A portion of the condensate is sent to the Sour Water Stripper (D-602) inside the UNIT#600 and then treated in the water treatment plant.

Synthesis gas, after being cooled to atmospheric temperature and stripped of condensed water, still contains a large amount of acidic gases and is, therefore, sent to the Acid Gas Removal Unit (UNIT#300). More than 99.7% of hydrogen sulfide (H2S) is removed from the gas through gas-liquid contact with amine-based absorbent, thus removing sulfur content below 100 ppm. A portion of C02 is also removed.

A part of the refined synthesis gas, after being rid of acidic gas, is sent to synthesis gas expander (G-301) for electricity generation, and the remainder is sent to the Combined Cycle Unit (UNIT#900) after being heated to a required temperature. A portion of the latter part is sent to the Sulfur Recovery Unit (UNIT#400) to be used as fuel gas for recovering sulfur in molten form. In this unit, the absorbent used for absorbing acidic gas and the absorbent coming from the Tail-gas Treatment Unit are merged and then sent to the solution regeneration system. In the regeneration system, the absorbent, after being pre-heated by the rich/lean solvent exchanger (E-302) that utilizes recovered thermal energy, is sent to the regenerator (D-302), and absorbing solution is regenerated using distillation technique. The acid gases, stripped out from the synthesis gas, is sent to the Sulfur Recovery Unit (UNIT#400) that is located downstream. The regenerated absorbent, after being cooled down to a specified temperature through heat exchange, is pumped up and returned to the absorption tower using a circulation pump. Thermal energy required for regeneration is obtained from heat exchange with the low pressure steam in the reboiler. Steam and acid gas exiting from the regenerator top is cooled to atmospheric temperature while running through the condenser, and separated into acid gas and condensed water. Condensed water thus separated is refluxed to the regenerator via the pump. This unit also includes a solvent storage tank (T-301) and the lean solvent filters (F-301A/B) for removing solid from the circulating solutions.

Sulfur recovery process is carried out utilizing partial combustion reaction between hydrogen sulfide (H2S) and air (Claus reaction) to recover sulfur in molten state. Acid gas (raw material), which is supplied from the acid gas removal unit (UNIT#300) and Soots/Ash Handling Unit (UNIT#600), is fed directly to the main burner after flowing through the KO drums for mist separation/recovery. Combustion air for the burner is prepared by adjusting flow volume at the exit of the sulfur recovery unit so that the tail-gas will contain 2:1 ratio of H2S and sulfur dioxide. This system is equipped with an air separation unit that can produce high purity oxygen, providing higher oxygen concentration than ambient air to reduce fuel gas consumption. The system has an analyzer installed at the tail gas pipe exit for precision control of H2S/S02 ratio. A portion of H2S contained in acid gas is converted to sulfur dioxide through the following reaction scheme.

Most of the unreacted H2S is converted to sulfur by the equilibrium reaction with sulfur dioxide generated through the reaction described above:

Flame temperature inside the combustion furnace (called ‘Combustion Chamber’) in which these reactions take place must be kept high enough (> 1250°C) to maintain stable combustion in the burner. Thermal energy of the high temperature combustion gas is dissipated partly by generating mid pressure steam in the SRU waste heat boiler (E-401) and further by generating low-pressure steam in the sulfur condensers (E-402 to E-404), reducing the gas temperature to nearly 180°C. Through these processes, sulfur vapor condenses and is separated from the gas stream at the condenser exit, which still have uncondensed sulfur, and the sulfur deposit is sent to the degasser pit. About 62% of sulfur has been recovered up to this point. Sulfur recovery from unreacted gas further proceeds through two stages of catalyst-enhanced reactions. Thermal energy to maintain catalyst reaction

2-48 temperature is supplied through the mixing of combustion exhaust gas and unreacted gas, and the condensed sulfur is recovered in molten state by cooling the reacted gas in the condensers (E-403, E-404). Refined synthesis gas generated in the gasification unit is supplied to the burner and used as combustion gas. Uncondensed gas (acidic off-gas) that exits from the last condenser (E-404) is sent to the tail-gas treatment unit located downstream. Recovered sulfur contains dissolved H2S in 250 - 300 wt.ppm concentration. Degassing of H2S is required to prevent formation of an explosive mixture gas of air and H2S, which evolves from the recovered sulfur during storage and transport. Degassing is performed by heating the pit inside by feeding low-pressure steam through the coil, reducing H2S concentration in molten sulfur below 10 wt.ppm. Molten sulfur, which is heated for a specified residence time inside the pit, is then sent out from the system. H2S vapor stripped out of molten sulfur by low-pressure steam coil heating is transported to and burned in the Catalytic Incineration Reactor (R-502) installed inside the tail gas treatment unit located downstream.

This unit is designed to convert the sulfur component contained in the tail gas from the Sulfur Recovery Unit (UNIT#400) into H2S by reduction through contact with reducing gas, and to allow the resultant H2S to be absorbed in amine solution that is provided by the acidic gas removal unit installed inside UNIT-300. H2S thus absorbed is sent to the sulfur removal unit again and recovered in the form of molten sulfur. Off-gas, on the other hand, is released to atmosphere through the stack (M- 502) after undergoing contact combustion in the catalytic incineration reactor (R-502). Kraus tail gas is fed to the tail gas treatment reactor (R-501) along with the oxygen obtained from the air separation unit (UNIT#800), reducing sulfur dioxide and sulfur into H2S using the following reaction scheme.

2-49 H2S concentration in the tail gas is reduced to below several ppm level and the exhaust gas from the reactor first passes through the TGT waste heat boiler (E-501) and then quenched in the Quench Column (D-501). Scrubbing water is circulated: water in the bottom of the column is pressurized by means of circulating water pumps (P-501A/B) and fed to the quench column again after being cooled by the circulating water cooler (E-502). Surplus water is utilized as spray water for Sour Water Stripper (D-602) installed inside the Soots/Ash Handling Unit (UNIT#600), releasing acidic gas dissolved in the water. H2S containing gas, after being washed by water, is transported to the amine absorbing tower (Tail Gas Absorber: D-502), where most of H2S and a portion of C02 is absorbed in amine solution. The amine solution, having absorbed acidic gas, is pressurized by means of the rich solution pumps (P-502A/B) and sent to the solution regeneration system inside the acid gas removal unit (UNIT#300). The gas, after being stripped of acidic gas, is finally released to the atmosphere through the stack (M-502) after passing through the catalytic incinerator reactor. Final sulfur content in the combustion gas is reduced to below 250 vol.ppm. This unit is capable of more than 99.9% sulfur recovery using the sulfur recovery/tail-gas treatment processes described above.

Unreacted carbon (soot)/ash contained in the synthesis gas is separated while running through the Soot Quench pipe (D-102) and the carbon separator (D- 103) and form slurry, which is removed. The purpose of this unit is to treat the unreacted carbon/ash slurry by one operation. Slurry is sent to the flash vessel (D-601). Low-pressure steam blown into the drum from the bottom strips slurry of gases such as ammonium and H2S to carry them out from the tower top. This exhaust gas is introduced into the Sour Water Stripper (D- 602) and the sour gas that exits from the top is transported to the drum (D- 402) inside the sulfur recovery unit (UNIT#400), and effluent water is extracted from the bottom and sent to the waste water treatment unit (UNIT#700). The slurry, after being stripped of dissolved gases, is extracted from the bottom of the drum, and undergoes filtration under pressure by means of the Filter Feed Pump (P-605A/B/C) and Filter Press (H-601A/B/C). Filtrate is sent to the synthesis gas scrubber (D-104) inside the gasification unit (UNIT# 100), and filter cake (ash components) is carried out of the system after being dried.

The purpose of this unit is to purify waste water from the Sour Water Stripping process and HRSG blow-down water using biological treatment to reduce hazardous material concentration below those required by the applicable regulation before discharging out of the system.

This unit separates air components and produces concentrated oxygen (95 Vol%) and nitrogen (99 Vol%). The concentrated oxygen is used as gasification agent, and nitrogen is used for reducing NOx and enhancing turbine power output.

This unit comprises two trains of 130 MW combined cycle generators using General Electric Type 6FA gas turbines. The unit is designed to realize easy integration with the gasification process and air separation unit, and to exploit highest total plant/project performance without any loss of reliability.

6FA gas turbine is the scaled-down version of 7FA and 9FA, which are the variations developed from aircraft turbine engines. Combustion temperature level of the turbine is 1,300°C and capable of generating 70MW (at running efficiency 34%) under the ISO conditions (atmospheric pressure, 15°C, humidity 60%, natural gas fuel). The turbine is field-proven in many applications and capable of both 50FIz and 60Hz generation by proper choice of reduction ratio on the side of compressor machines.

Figure 2.2.4-1 shows a cross-sectional view of a 6FA gas turbine. It is composed of a 18-stage compressor, 6 combustors, and a 3-stage turbine as main parts, and the rotor shaft is supported at 2 bearings.

Low calorie synthesis gas and MP nitrogen injection from the air separation unit (UNIT#800) to the gas turbine allows an increase of the gas turbine output to 90 MW by increasing the gas turbine flue gas flow compared with natural gas fuel firing (increase of about 30 percent). The increase in the flue gas flow rate increases the pressure of the combuster, and this might cause surging to the compressor. In this plan, therefore, to prevent this, the first stage stationary blade of the gas turbine is modified to expand the nozzle area.

The above-mentioned increase in the output is limited by the mechanical limit in mechanical performance, including torque at the shaft end. The air flow rate is adjusted by reducing the opening of the inlet guide vane (IGV) at the inlet of the air compressor in order to cope with the actual air flow rate, which increases when the ambient temperature drops in winter and during nighttime.

Diesel has been selected as a backup fuel for this unit, and diesel supply equipment and atomizing air equipment are to be installed.

Type Simplified open cycle, single shaft Model GE-make 6FA Quantity 2 Shaft end output 90,000 kW Revolution speed 5,100 / 3000 rpm Fuel Main Synthesis gas (LHV=2,687 kcal/Nm3) Backup Diesel Flue gas flow rate 849,000 kg/h Fuel consumption 57,300 kg/h Nitrogen 80,200 kg/h Design conditions Ambient temperature 20.2°C Ambient pressure 1.03 ata Humidity 77%

(b) Heat recovery steam boiler (E-901)

The heat recovery steam boiler produces steam by heat-exchanging the high-temperature flue gas from the gas turbine (GT-901). The generated steam is then supplied to the steam turbine (ST-901) and the process side. The structure is of the three-pressure, re-heating and natural circulation type, and the flue gas is emitted through the stack (M-901) into the atmosphere. The low-temperature boiler feed water, after its pressure is increased by the condensate pump (P-901A/B), is fed to the process side, where it is heated to 100°C through the waste heat recovery heat exchanger (E- 202). In order to increase the heat recovery efficiency of the heat recovery steam boiler, high-temperature boiler feed water is further heated to nearly the boiling point and fed to the deaerator (D-901). The heat recovery steam boiling consists of high-pressure superheaters, high-pressure drums, high-pressure evaporators, high-pressure economizers, regenerators, medium-pressure superheaters, medium- pressure drums, medium-pressure evaporators, medium-pressure economizers, low-pressure drums, low-pressure evaporators, and low- pressure economizers.

2-53 It is so designed that each evaporator is provided with a drum to maintain proper steam properties and thus cope with startups or load fluctuation. The downcomer is so formed as to allow appropriate circulation, and the heating surface area consists of spiral fms continuously welded along the tube. The economizers, superheaters and regenerators are made from finned tubes. All pressure parts are fitted with a drain and a vent.

Horizontal, three-pressure, reheat natural circulation Type type; without a combustion backup burner Quantity 2 Draft system Forced draft using gas turbine back pressure

Main steam Steam amount 138,500 kg/h Working steam pressure 105 ata Working steam temperature 540°C Reheating steam Steam amount 128,500 kg/h Working steam pressure 35.3 ata Working steam temperature 538°C

Supply steam from gasification (90 STM) Steam amount 57,300 kg/h Working steam pressure 110.0 ata Working steam temperature 306°C

Supply steam from gasification (LP STM) Steam amount 1,700 kg/h . Working steam pressure 1.8 ata Working steam temperature 114°C

Supply steam to gasification (70 STM) Steam amount 4,000 kg/h Working steam pressure 69.0 ata Working steam temperature 485°C

Supply steam to gasification (70 STM) Steam amount 9,800 kg/h Working steam pressure 69.0 ata Working steam temperature 302°C

2-54 Horizontal, three-pressure, reheat natural circulation Type type; without a combustion backup burner

Supply steam to gasification ST extraction (35 STM) Steam amount 15,300 kg/h Working steam pressure 37.4 ata Working steam temperature 245°C

Supply steam to gasification (MP STM) Steam amount 19,300 kg/h Working steam pressure 5.4 bara Working steam temperature 210°C

Supply boiler feed water to gasification (122 bara) Feed water amount 71,300 kg/h Feed water temperature 125°C

The steam turbine using reheat condensing turbines is to have 2 casings coaxial with the gas turbine. 35 STM for use in processes is extracted at the high-pressure casing. A mixture of steam at the high-pressure turbine outlet and medium-pressure steam is superheated and supplied to the low-pressure casing. Superheating is used for controlling the moisture content at the turbine final stage. In addition, mixing of low- pressure steam is performed at a certain point of the low-pressure casing.

2-55 Type Reheat condensing turbine Quantity 2 Shaft end output 49.22 MW Revolution speed 3,000 rpm Main steam pressure (at the front of the steam stop valve) 102 ata Main steam temperature (at the front of the steam stop valve) 538°C Reheating steam temperature (at the front of the steam stop valve) 538°C Condenser conditions Condensate amount 135,600 kg/h Pressure 0.585 ata Temperature 35°C Surface contamination factor 0.9 Volume of cooling water 7,498 ton/h

(d) Generator (G-901)

Voltage 115 kV Frequency 50 Hz Excitation system Brushless B.L of IGCC B. L of IGQC

90 STM

COS Power Block Storage Power Gas ifier Conversion #900 #200 (2 Trains) Residue (3 Trains)

SRU #400 SuI fur TGT #500

FiItration Sour Water #600 Stripper Waste Water #600

FiIter Cake

ALL RIGHT RESERVED DRN JOB NUMBER THIS DOCUMENT AND ANY DATA AND NEDO /FPCL INFORMATION CONTAINED THEREIN ARE DSGN 03457 CONFIDENTIAL AND THE PROPERTY OF CHIYOOA CORPORATION (CHIYOOA) AND THE COPYRIGHT THEREIN IS VESTED IN CKD CHIYOOA NO PART OF THE IGCC F/S for FPCL DRAWING Nc . REV DOCUMENT. DATA. OR INFORMATION SKA ,L CHIPWIII BE DISCLOSED TO OTHERS OR mum <3> REPRODUCED IN ANY MANNER OR USED FOR ANY PURPOSE WHATSOEVER , EXCE T fig.2.2.4-1 WITH THE PRIOR WRITTEN PERMISSION O BLOCK FLOW DIAGRAM CHIYOOA REV RE VISIO NS DATE DRN DSGfICKD APPC REFERENCE DRAWING S

2-57 90 STM (SUP) from 90 STM to C/C

Raw Syngas to E-201 Raw Syngas from #200 other trains

Sour Water from P-606A/B B—101 #600 Oxygen Scrubber from ASU D—104 #800 Oxygen E-102 Preheater Soot Quench

D-102

Feed Vessel

D-101 E—104 E-103 ^ R—101 E-101 Residue Gasifier Economiser from BL P-102A/B

D-103 Separator P-101 Carbon Slurry To D- Feed pump 601 #600

F-101A/B

To other 90 STM Condensate to trains HP BFW from C/C E-901 #900 #900

JOB NUMBER NEDO / FPCL DSGN 03457 IGCC F/S for FPCL PROCESS FLOW DIAGRAM DRAWING No.

FOR ANY PURPOSE WHATSOEVER . EXCE Gasifier Unit (#100) fig.2.2.4-2 REVISIONS DATE DSGN APPD REFERENCE DRAWINGS

2-59 35 STM from E-901

From Other Trains

70 STM from E-901 #900

Raw Syngas from D-104 #100 E—201

R—201

Hot BFW to COS 0-901 Sour Syngas to E-30 Hydrolysis Reactup #300

Raw Syngas Condensate Separator _ 0-201 E-202 E—203

Sour Water to 0-602 #600

Trim Cooler P-202A/B CircuI ation Rump

BFW from P-901A/B

JOB NUMBER NEDO / FPCL DSGN 03457 IGCC F/S for FPCL PROCESS FLOW DIAGRAM DRAWING No.

COS Conversion Unit (#200) fig.2.2.4-3 REVISIONS DATE DSGN APPD REFERENCE DRAWINGS

2-61 2-63 Clean Syngas to TGI #500

Clean Syngas 0-403 Combustion Air to from G-301 TGT #500 MP Steam to B-402 B-403

0-404

Acid Off Gas to Claus Reactor LP Oxygen from ASU #800 R—401 R-402 SRU WHB E-401

a i r

B-401 K—401A/B

Sulfur Condenser

Acid Gas from D-303 0-401 E—404

E-403 Removed Solution to MP BFW from D-303 #300 E-402

P-401A/B Sulfur Pit Offgas to TGF #500

A 0-402 0-405

Sour Gas from 0-602 Molten Sulfur to BL

S—401 Sour Water to D-602 #600 P-403A/B

P-402A/B

JOB NUMBER NEDO / FPGL DSGN 03457 IGCC F/S for FPGL PROCESS FLOW DIAGRAM DRAWING No.

Sulfur Recovery Unit (#400) fig.2.2.4'5 REVISIONS DATE DSGN REFERENCE DRAWINGS

2-65 Clean Syngas from 0- 403 #400

Combustion Air from K- B-502 401A/B M-501 #400 R—502

Tail Gas Stack

Catalytic Incinerator Reactor

Lean Solution from F-301 #300 Acid Off Gas from E- 404 B-501 K-501A/B #400

0-502

TaiI Gas R-501 Absorber D—501 TGT Reactor

Quench Column

E-501

E—502

LP BFW P-502A/B Rich Solution to E-302

P-501A/B ■F—501A/B Sulfur Pit Offgas from S 401 #400

Sower Water to 0-602 #600

JOB NUMBER NEDO / FPCL DSGN 03457 IGCC F/S for FPCL PROCESS FLOW DIAGRAM DRAWING No.

Tail Gas Treatment Unit (#500) fig.2.2.4-6 REVISIONS DATE DSGN REFERENCE DRAWINGS

2-67 Sour Gas to 0-402 #400

V E—603 /rfT D—604 0-601 CW Fi Itrate FiIter Feed VesseI VesseI Flash Vessel 0-603 __ I I__ —

FiIter Press fl H-601A/B/C

Slurry Cooler P-604A/B E-601 0-602 Sour Water to D- X 104 Sour Water y^r fi #100 CW Stripper P-605A/B/C P-606A/B LPS P-601A/B FiIter Feed Pump F i Itrate Pump Slurry Pump LPS X A Sour Water from

#200

Carbon Slurry from 0-103 Sour Water from P- #100 402A/B #400 T—601 E-602 P-602A/B CW Slurry Tank Sour Water from F- Slurry Tank Pump P-603A/B Effluent 501 Coo Ier Cake Conveyor #500 Stripper Effluent Pump H-602A/B/C Fi Iter Cake to B. L

Effluent Water to WWT #700

ALL RIGHT RESERVED DRN JOB NUMBER THIS DOCUMENT AND ANY DATA AND NEDO / FPCL INFORMATION CONTAINED THEREIN ARE DSGN 03457 CONFIDENTIAL AND THE PROPERTY OF CHPrODA CORPORATION (CHIYODA) AND THE COPYRIGHT THEREIN IS VESTED IN CKD IGCC F/S for FPCL CHIYODA NO PART OF THIS DRAWING No. DOCUMENT. DATA OR INFORMATION SKA PROCESS FLOW DIAGRAM REV BE DISCLOSED TO OTHERS OR Wchutom™ REPRODUCED IN ANY MANNER OR USED FOR ANY PURPOSE WHATSOEVER . EXCE Soots Ash Handling Unit (#600) WITH THE PRIOR WRITTEN PERMBSK3N 0 fig.2.2.4-7 CHIYODA REV REVISIONS DATE DRN DSGN CKD APPD REFERENCE DRAWINGS

2-69 Urea & H3P04

Process EQUALIZATION COAGULATION AERATI ON CLARIFIER CLARIFIER Waste Water BASIN

NeutraIized Water SLUDGE SLUDGE THICKENER DEHYDRATOR

Bo Iier BIowdown PoIymer

SIudge TREATED WATER PIT

GUARD BASIN

Treated Water

JOB NUMBER NEDO / FPCL DSGN 03457 IGCC F/S for FPCL PROCESS FLOW DIAGRAM DRAWING No.

Waste Water Treatment Unit (#700) fig.2.2.4'8 DATE DSGN APPD REFERENCE DRAWINGS

2-71 Air Compressor

Direct Contact Coo Ier MP NITROGEN to 1/2-GT-901 #900

Cold Box Mo I ecu Iar Sieve Absorber

LP OXYGEN to B-401 #400

HP OXYGEN to E-102 #100

JOB NUMBER NEDO / FPCL DSGN 03457 IGCC F/S for FPCL PROCESS FLOW DIAGRAM DRAWING No. Air Separation Unit (#800) fig.2.2.4-9 REVISIONS DATE DSGN APPD REFERENCE DRAWINGS

2-73 Saturated 90 STM Waste Heat Exchanger Hot HP BFW #100 *P BFW Booster

N2 from ASU P-905A/B

MP Steam to Process

Treated Syngas from E- 305 Exhaust Gas #300 HP Drum MP Drum LP Drum

*-901 Back up Fue #1000 Stack Exhaust Gas from GT E-901

6-901 fit-901

Gas Turbine Generator Hot BFW from E-20: (6FA) #200

Vent

ST-901 Condensate Returr (Single Shaft) from E-202 Steam Turbine #200 P-904A/B 90 STM (SUP) to R-101 Generator HP BFW Pump

D-901

Deaerator 70 STM to COS Conversion #200 P-903A/B P—902A/B

Condenser MP BFW Pump LP BFW Pump Make-up Demin Water E-902 Cold BFW to E-202

P-901 A/B LPS to Process Condensate Pump

JOB NUMBER NEDO / FPCL DSGN 03457 IGCC F/S for FPCL PROCESS FLOW DIAGRAM DRAWING No.

Combined Cycle Unit (#900) f.g.2.2.4'10 REVISIONS DATE DSGN APPD REFERENCE DRAWINGS

2-75 fur Power SuI Waste Waste Water Solids 3

12 of 100 ) )

18.

V V ------N2 IGCC

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 ( ( B.L 160500 128416 100.00 28.014 ASU 11 125 ) )

Block 73.4

v V ------02 Trains)

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.30 ( ( 52625 36844 99.50

32.014 (2 ASU #400 #500 Power yx0

) ) SRU TGT

s s ------126.43

4053 ( ( 32.061 Recovered Sulfer 4 7)VAy

80 ) ) in ') 17.6

out

V V ------

4.53 0.32 0.00 0.21 0.07 0.00 0.00 0.24 0.00 0.00 ( ( 50.20 44.41 114737 150061 17.138 /#900 #300 3

) ) 52.8

out Ash #600 Iing ##7T V 200.9 - V - - - - -

Water

1.51 4.25 0.26 0.18 0.00 0.00 0.06 0.00 0.00 ( ( 16.59 36.21 40.94

184091 17.686 145258 Soot Hand #200 Unit Stripper Sour 2

45 ) ) 56.3

out V V ------

1.72 5.00 0.31 0.21 0.09 0.00 0.16 0.00 0.00 0.07 ( ( COS 43.39 49.04 120794 153662 17.620 #200 4-11 #100 . 1 Conversion 3

45 2 ) ) . 56. 0.00 0.00

2 L - - - - - L 21.63 ------Steam 126.55

(

( 54100 3752.13 4610.54

SDA HHP 0 FiItration

0 Trains)

Gasifier (3 KG/H NM3/H

KGMOL/H

0 S H C N Ar

FLOW NO. of FLOW

FLOW L

IGCC KG/CM2G .C H20 HCN NH3 B- C02 CH4 COS H2S CO 02 H2 N2 Ar

1 10 11 12 3 P 2 7 STREAM 4 5 8 9 T MOLE 6 WEIGHT MOLE AVG.M.W. ATOM Residue

2-77 Table 2.2.4-1 List of Major Equipment Items

GASIFICATION UNIT (Unit 100)

EQUIP. NO. Equipment Name Quantity OILFEED

D-101 Feed Oil Buffer Vessel 1

P-101 Feed Oil Pump 3

GASIFIER, WHE, CARBON REMOVAL (3 Trains)

B-101 Gasifier Burners 3+3S

D-102 Quench Pipe 3

D-103 Carbon Separator 3

D-104 Scrubber 3

E-101 Waste Heat Exchanger 3

E-102 Oxygen Preheater 3

E-103 Economizer 3

E-104 Scrubber Loop Air Cooler 3

F-101 A/B Quench Water Filter 3+3S

M-101 02/Steam Static Mixer 3

P-102 A/B Scrubber Circulation Pump 3+3S

R-101 Gasification Reactor 3

2-79 COS CONVERSION UNIT (Unit 200)

EQUIP. NO. Equipment Name Quantity COS CONVERSION

R-201 COS Hydrolysis Reactor 1

D-201 Raw Syngas Condensate Separator 1

E-201 COS Hydrolysis Feed Preheater 1

E-202 Boiler Feed Water / Raw Syngas Exchanger 1

E-203 Raw Syngas Cooler 1

E-204 Scrubber Water Cooler 1

P-201 A/B Scrubber Top Recycle Pump 1+1S

P-202 A/B Trim Cooler Circulation Pump 1+1S

2-80 ACID GAS REMOVAL UNIT (Unit 300)

EQUIP. NO. Equipment Name Quantity AGR

D-301 Acid Gas Absorber 1

D-302 Regenerator 1

D-303 Regenerator Reflux Drum 1

E-301 Regenerator Reboiler 1

E-302 Rich / Lean Solvent Exchanger 1

E-303 Lean Solvent Cooler 1

E-304 Regenerator Condenser 1

F-301 A/B Lean Solvent Filter 1+1S

P-301 A/B Lean Solvent Pump 1+1S

P-302 A/B Generator Reflux Drum Pump 1+1S

T-301 Solvent Storage Tank 1

Syngas Expander

G-301 Syngas Expander 1

£-305 Clean Syngas Heater 1

2-81 SULFUR RECOVERY UNIT (Unit 400)

EQUIP. NO. Equipment Name Quantity SRU

B-401 Main Burner 1

B-402 No.l Line Burner 1

B-403 No.2 Line Burner 1

R-401 No.l Claus Reactor 1

R-402 No.2 Claus Reactor 1

D-401 Feed Acid Gas KO Drum 1

D-402 SWS Acid Gas KO Drum 1

D-403 Fuel Gas KO Drum 1

D-404 MP Steam Separator 1

D-405 Blowdown Drum 1

E-401 SRU Waste Fleat Boiler 1

E-402 No.l Sulfur Condenser 1

E-403 No.2 Sulfur Condenser 1

E-404 No. 3 Sulfur Condenser 1

K-401 A/B Main Air Blower 1+1S

P-401 A/B AGR Drain Pump 1+1S

P-402 A/B SWS Drain Pump 1+1S

P-403 A/B Sulfur Pump 1+1S

S-401 Sulfur Degassing Pit 1

2-82 TAIL GAS TREATMENT UNIT (Unit 500)

EQUIP. NO. Equipment Name Quantity TGT

R-501 TGT Reactor 1

R-502 Catalytic Incinerator Reactor 1

D-501 Quench Column 1

D-502 Tail Gas Absorber 1

E-501 TGT Waste Heat Boiler 1

E-502 Circulating Water Cooler 1

F-501 A/B Sour Water Filter 1+1S

B-501 TGT Line Burner 1

B-502 Incinerator Burner 1

M-501 Tail Gas Stack 1

P-501 A/B Circulating Water Pump 1+1S

P-502 A/B Rich Solution Pump 1+1S

K-501 A/B Start-up / Recycle Blower 1+1S

T-501 Molten Sulfur Storage Tank 1

2-83 SOOTS ASH HANDLING UNIT (Unit 600)

EQUIP. NO. Equipment Name Quantity

E-601 Slurry Cooler 1

D-601 Flash Vessel 1

D-603 Filter Feed Vessel 1

D-604 Filtrate Collecting Vessel 1

T-601 Slurry Tank 1

P-601 A/B Slurry Pump 1+1S

P-602 A/B Slurry Tank Pump 1+1S

P-606 A/B Filtrate Pump 1+1S

H-601 A/B/C Membrane Filter Press 2+1S

P-605 A/B/C Filter Feed Pump 2+1S

H-602 A/B/C Cake Trough Conveyor 2+1S SOUR WATER STRIPPING

E-602 Effluent Cooler 1

E-603 Stripper Circulation Reflux Cooler 1

D-602 Sour Water Stripper 1

P-603A/B Stripper Effluent Pump 1+1S

P-604A/B Stripper Circulation Reflux Pump 1+1S

2-84 WASTE WATER TREATMENT UNIT (Unit 700)

EQUIP. NO. Equipment Name Quantity

WWT Unit 1

2-85 AIR SEPARATION UNIT (Unit 800)

EQUIP. NO. Equipment Name Quantity

ASU Package 1

2-86 COMBINED CYCLE UNIT (Unit 900)

EQUIP. NO. Equipment Name Quantity C/C (2 Trains)

D-901 Deaerator 2

E-901 Heat Recovery Steam Generator 2

E-902 Surface Condenser 2

G-901 Generator 2

GT-901 Gas Turbine (6FA) 2

ST-901 Steam Turbine 2

P-901 A/B Condensate Pump 2+2S

P-902 A/B LP BFW Pump 2+2S

P-903 A/B MP BFW Pump 2+2S

P-904 A/B HP BFW Pump 2+2S

P-905 A/B MP BFW Booster Pump 2+2S

M-901 Stack 2

2-87 OTHER UTILITIES (Unit 1000)

EQUIP. NO. Equipment Name Quantity #1100 COOLING WATER UNIT

C-1101 Cooling Tower

P-1101 Cooling Water Pump

X-1101 Cooling Water Chemical Injection Unit

#1200 DEMINE. WATER UNIT

Demine. Water Unit Package

#1300 FLARE UNIT

Flare Unit Package

#1400 INSTRUMENT /PLANT AIR UNIT

K-1401 Air Compressor

E-1401 Air Dryer

#1500 BACK UP FUEL UNIT

T-1501 Kerosene Tank

P-1501 Kerosene Feed Pump

#1600 FIRE FIGHTING UNIT

T-1601 Fire Water Tank

P-1601 Fire Water Pump

2-88 (3) Plant data

Plant data such as syngas conditions, plant output, effluent data, by-product are shown below.

1) Syngas data

Raw Syngas from Clean Syngas (UNIT) Gasification Unit at GT inlet

Temperature °C 45 80 Pressure kg/cnfG 56.3 17.6 Flow rate (wet) kg/h 120,794 114,737 Composition (wet) mole% H, 43.39 44.41 Ar 0.07 0.07 o2 0 0 N2 0.21 0.21 CO 49.04. 50.2 C02 5 4.53 CH, 0.31 0.32 h2s 1.72 0 cos 0.09 0 nh3 0 0 HCN 0 0 H20 0.16 0.24 DUST mg/Nm 3 <5 Ave. MW 17.62 17.14

2-89 2) Plant output

Petroleum coke flow rate kg/h 54,100

Petroleum coke heat rate (LHV) kcal/kg 8,850 (HHV) kcal/kg 9,310

Heat consumption (LHV) Gcal/h 478.8 (HHV) Gcal/h 503.7

Output (MW) Gas Turbine Output 90 Steam Turbine Output 49.2 Auxiliary power consumption 4.8 Gross plant output per train 134.4 Gross plant output (Total) 268.8

Power consumption ASU 34 Process unit 2.1 Utility unit 4.5 Total power consumption 40.6

Net plant output 228.2

Plant efficiency (LHV) % 41.0

2-90 3) Effluent data

a) Exhaust gas

Unit Tail Gas Stack Combined Cycle Stack

Temperature °C 300 117 Flow rate t/h 11 1700 Composition mol % (wet base) N2+Ar 55.2 75 o, 1 12 CO, 35.1 6.3 H20 8.2 6.7 h2 0.5 0

so2 ppmvd 25 6.6 Kg/h 0.5 5.6 N0x@15%02 ppmvd 3.6 30 Kg/h 0.2 57.7 Dust mg/dry Nm3 2.3 6.0 Kg/h 0.1 5.5

Stack heights stipulated in Integrated Emission Standard of Air Pollutants / GB16247-1996 of China are as shown below on the basis of the maximum allowable emission speed 8kg/h):

Tail Gas Stack (M-5 01) 10 m or more Combined Cycle Stack (M-901) 100 m or more

b) Industrial waste water

Process waste water and boiler blowdown water are to be discharged outside the line after treatment at the Waste Water Treatment Unit (Unit- 700) in accordance with Integrated Wastewater Discharge Standard/ GB8978-1996 in China. Blowdown water of the circulating cooling water will be treated at another treatment facility in the utility area.

2-91 Waste Water Treatment

Unit WWT discharge Chinese standard

Flow rate t/h 20.0 20

pH 6 to 9 6 to 9 Pollutants mg/L Cadmium and its compound 0.1 0.1 Chromium 1.5 1.5 Arsenic and its compound 0.1 0.5 Lead and its compound 0.1 1 Nickel 1 1 Suspended solid 48 70 BOD 25 30 Mineral oil 5 10 Cyanides 0.5 0.5 Nitrogen (Ammonia) 15 15

Cooling Water Blowdown

Flow rate : t/h 160

4) By-product data

a) Sulfur

After being recovered in molten form by the sulfur recovery unit (UNIT#400), sulfur will be stored outside the line. The amount of production is 97 tons/day.

2-92 b) Filter cake

Soot and ash will be collected as filter cake at the filter press (H- 601A/B/C) of the Soot/Ash Handling Unit (UNIT600). The amount of production is 43 tons/day, and 20 wt% of the total is soot/ash and the remaining 80 wt% is water.

(4) Water consumption

River water consumption Cooling water makeup 500 t/h Boiler feed water makeup 60 t/h Total 560 t/h

2.2.5 Scope of Project Funds, Facilities and Equipment, Services Etc., to be Supplied by the Both Parties at the Project Execution Stage

(1) Scope of the supply by the Japanese side

The Japanese side will supply in principle the funds involved in this project, facilities and equipment and services as described below, except for the site construction work. In addition, all the technical codes and standards to be applied shall be international codes and standards.

a) Execution of detailed FS on the basis of this survey b) Formulating of a project master plan c) Process Licensing Fee d) The basic and detailed design for the new facilities and their equipment (however, the detailed designs for civil engineering, architecture, and fire fighting facility are excepted) e) Manufacture of the equipment and purchasing of materials required for this project as shown below • Special type and material pressure vessels • Gasifier and related peripheral equipment • Gas turbine, steam turbine and generator package unit • Air separation package unit • Compressors and special pumps

2-93 • Special piping materials and parts • DCS and special instruments, and special analyzer • Special electrical equipment • Special tools f) Provision of training for operation/maintenance staff to the above-mentioned new equipment/ system/ package g) Purchasing of the spare parts for one year ’s operation of the above mentioned new equipment/ system/ package h) Final shop inspection before shipment of the above-mentioned new equipment/ system/ package i) Customs clearance at Japan or third country and ocean transportation to international port in China for the above-mentioned new equipment and materials (Insurance is included) j) Formulating of site construction plans k) Advice and the technical assistance regarding the detailed design for civil engineering, architecture, and fire fighting and the site work l) Management/supervision and instructions on test runs and performance test operation

(2) Scope of the supply by the Chinese side

The Chinese side will supply in principle the following funds, equipment and materials, service, etc that will be needed in China, including site construction work involved in this project:

a) Soil strength investigation near the construction site for new facilities, and construction site preparation. b) Supply of basic engineering data, such as climatic conditions c) All official procedures and applications to the relevant authorities involved in this project execution d) Supply of design documents and technical information for existing facilities and equipment e) Detailed design for civil engineering, architecture, and fire fighting f) Manufacture of the equipment and purchasing of materials required for this project as given below. • General-purpose pressure vessels • Blowers and general purpose pumps • Air-conditioning facility • General-purpose piping materials and parts • General-purpose instrument, cable, and instrumentation materials • General-purpose electric equipment cable, and electrical work • Common and general-purpose tools • Civil and architectural materials • Insulation materials/painting materials g) Witnessing of shop inspection for major equipment to be supplied by the Japanese side h) Off-loading and customs clearance at the Chinese port i) Inland transportation of new equipment and materials to the construction site, unloading of them at site and unpacking inspection j) Equipment installation work k) Piping modification and tie-in work l) Civil works (including equipment foundation, sewerage and paving) m) Building and steel structure work n) Instrumentation work o) Electrical work p) Insulation and fireproofing work q) Painting work r) General training in case the new operation/maintenance staff are employed s) Execution of the test run and performance operation test under instruction by Japanese supervisors t) Supply of temporary sources of water, electrical power, steam, and compressed air for construction work u) Disposal of scrap materials generated at the construction site v) Exemption of taxes, such as custom duties, corporate income tax, individual income tax, and VAT concerning the imported goods that will be agreed on under contract concluded between the two parties in the future.

2-95 2.2.6 Prerequisites for Implementation of the Project and Possible Problems Involved

The prerequisites and possible problems involved in the implementation of this project shall be as follows, whether a project may be CDM-based or not:

(1) Full investigation should be made into the details of this project, merits, profitability, and the financing methods at the counterpart side and thereafter its agreement that this project deserves implementation should be gained.

(2) The counterpart should make a request for cooperation and assistance to the Japanese side.

(3) The Chinese side should obtain authorization from the central government, while the Japanese side should obtain approval of financial support organizations.

(4) In order to estimate the definite cost of this project, a detailed F/S should be carried out with the counterpart to adjust an execution plan.

(5) Both parties should hold meetings on covenants and reach an agreement on them.

2.2.7 Project Execution Schedule

After the completion of the Basic Survey Project for this CDM, the action plan and the enforcement process up to a commercial agreement are described; these will be required when the implementation of this project is adopted by the Japanese and Chinese governments, or the business enterprises concerned.

(1) Project execution schedule (refer to the attached drawing 2.2.7 Project Execution Schedule)

In planning the execution schedule of this project, it was divided into the following two stages.

1) The first stage — Action plan to reach a commercial agreement

In this stage, in order to further examine the final amounts of loans, more specific amounts of reduction in carbon dioxide, and the profitability of the project, the Japanese side carries out a detailed feasibility study (hereafter

2-96 referred to as a detailed F/S) in cooperation with the Chinese counter partner enterprise.

Specific action plans include the following:

• Preparation of site survey execution for a detailed F/S • Site survey for detailed-F/S execution • Preparation of analytical and basic design data based on the site survey • Design for a preparatory estimate of the budgetary cost • Estimation of the construction budgetary cost • Preparation of a detailed F/S report • Financial support request from the counter partner • Arrangements and conclusion of a loan agreement • Preparation of a contract and negotiation for design, procurement, and construction work • Conclusion of a contract for design, procurement and construction work. Hereinafter, design, procurement, and construction work are called EPC (Engineering/Procurement/Construction) tasks • Conclusion of a loan agreement

2) Second stage —EPC tasks

The second stage encompasses the tasks from the coming into effect of an agreement up to the completion of EPC activities and a trial run. The execution period requires 43 months. •

• Coming into effect of a contract • Basic design work • Detailed design work • Procurement of equipment and materials • Shipping/transportation work • Site construction work • Supervision of test operation and turnover.

2-97 Fig.2.2.7 Project execution schedule Feasibility Study on the Utilization of High Sulfur Pet-Coke as By-product at SINOPEC Fujian Petrochemical Company Limited

— ------1------20005 20015 /1 Project Month ## £ g 9 10 11 12 1 2 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 54 55 57 58 59

A Basic Survey Project for Joint Implement Project

1 Preparation for Site Survey ■mww

2 1st. And 2nd. Site Survey ■ ■

3 Survey data arrangement and an analysis 1 V"

4 Preparation for 3rdSite Survey nna

5 3rd. site survey (interim report)

6 Estimation of budgetary Cost B *

7 Completion of F/S Report

B Project Execution Stage This project execution adoption

1 Reserved negotiation with Counter Partoner and preparation of Site Survey 2 Site survey ■ ■

3 The analysis and the basic-engineering-data preparation based on a survey A* I

4 Design(Preliminary) for Budgetary Cost Estimation

5 F/S and Estimation Work for Plant Budgetary Cost am a

6 Reporting for Detail F/S

u 7 Financial Support Requests from Counter Partner • ~ I

8 Laon Agreement Arrange and Conclusion

9 Preparation for EPC Contract Document andNegotiation

10 Contract for EPC Works 1 4 Project Month(EPC) C Project Execution (2)Stage 1 2 3 4 5 s 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 38 39 41 42 43

11 Effectuation of Contract 1

12 Design/Engineering Basic Design Detail Design

13 Procurement Works

14 Shipping/Transportation

15 Field Construction Works

16 Test Operation Vi ”

2-98 2.2.8 Plot Plan

This plot plan was made on the assumption that no restrictions would be placed on the unused land within the oil refinery so as to allow an appropriate arrangement of IGCC facilities.

The plot was planned to minimize the length of all piping that will be used for connections between the following process units:

(a) Fuel gas supply pipe from the hydrogen sulfur removal unit to the gas turbine

(b) High-pressure nitrogen supply pipe from the air separation unit to gas turbine

(d) Cooling water pipe from cooling tower to steam turbine/air separation unit

In addition, the plot plan was drawn up on the assumption that feedstock, fuel and utilities, etc. would be supplied from the existing facilities. In other words, in planning the layout, installation of equipment such as tanks for these facilities in the concerned area was regarded as unnecessary.

(a) Feed for the gasifier (Petroleum coke)

(b) Backup fuel for the gas turbine

(d) Utility piping (potable water, industrial water, fire-fighting water etc.)

In an actual plot plan, it would also be necessary to take into consideration the following as well as the conditions in the vicinity of the planned construction area:

(a) Route for supply of stockfeed (petroleum coke) to the gasifier

(b) Route for transmission of generated electricity

2-100 1 1 230000 40000 6000 98000 6000 80000 1. SYMBOL ) [| ||: Unit No. A 2. NOTES BATTERY LIMIT (1) Unit No. VS Unit Name Unit No. Unit Name Remarks #iioo Gasification Unit #200 COS Conversion Unit #300 Acid Gas Removal Unit #400 Sulfur Recovery Unit #500 Tail Gas Treating unit #600 Slurry Water Filtration and a Sour water stripping unit #600 Soots Ash Handling unit #700 Waste Water Treating unit #800 Air Separation unit #900 Combined Cycle unit #1100 Cooling Water unit #1200 Deminerizer unit #1300 Flare Unit

NEDO/FPCL

PLOT PLAN (PRELIMINARY)

46000 6000 46000 8CALB 1/500 I JOB NO. Q3457 98000 6000 80000 1 5 10 15 20 PROJECT DRAWING NO. REVISION I 184000 SCALE : 1/500 Fig-2.2.8

~~2 5 10 "I I WORK NO.~~

~~ISltiUlllGUiMO/ll 2-101 2.3 Materialization of Project Financial Plans~~

~~2.3.1 Financing Plan for Project Execution~~

In order to realize this project, the Japanese side intends to hold future discussions with the Chinese side assuming that the project should be implemented on the basis of the application of the Japanese government ’s yen loans with long payment periods in light of environmental protection measures.

~~The figure below shows the flow for the utilization of environmental yen loans to realize this project.~~

~~Environm ental Yen Loan re q u e s t CHINA JAPAN National D eve lop m ent Plan Loan R elevant authorities Comm itte e~~

~~• Project Approval • Evaluation of the request for yen loans •Approval for So ft Loans from foreign countries •Provision of Yen Loan •Application for Yuan Portion~~

National Development JBIG Bank *En v ironmental yen loan by the Ja pa government •Evaluation and Provision of Yuan P o rtio n (Project evaluation) f of project request for yen loans •Loan to China • F ie Id Survey

~~• P roje c t A p p lie a tio n •Application for Environm entaI Yen Loan ______| ■ A p p lie a tio n fo r Yuan P o rtio n~~

~~S IN O P E C •Discussions on plant contract/financing~~

~~• P ro je c t A p p lie a tio n \ •Application for environmental yen •Yuan Portion Application~~

~~C h iy o d a C o r p o ratio n (The party th a t will ex e c u te the project)~~

~~F PC L • Cooperation in the f in a n c ia I p la n of~~

~~Discussions for introducing funds~~

~~2-103 2.3.2 Prospects of Raising Project Funds~~

~~Generally, under present circumstances in China, it seems that energy conservation measures have a low priority compared with investment in productive facilities from a cost-effective viewpoint.~~

However, increasing the cost competitiveness of manufacturing companies through efforts for energy conservation is a national requirement, since substantial imports of good-quality and low-priced crude oil and petrochemicals are regarded very likely to occur as a result of its joining the WTO, planned within the year.

Moreover, in order to alleviate pollution in China, which is generally regarded as the most serious in the world, the Chinese government places emphasis on environmental protection measures as an important national policy, and requires state-owned enterprises and so forth to clear strict environmental standards. Since energy conservation measures also contribute greatly to environmental protection, central government ’s support can be expected.

In this context, it will be necessary to ensure that the central government has a thorough understanding of the significance of this project in order to obtain a high priority on this project by the Chinese side. Thereafter, a request for assistance should be made to the Japanese government from the Chinese side.

~~2-104 2.4 Matters Pertinent to CDM Conditions~~

The following are the matters that are believed to require prior confirmation when this project is implemented as a CDM project with the Chinese side. The prerequisites for and problems with implementation of this project as a CDM project are as described below:

~~(1) Specific methods concerning the CDM should be discussed and agreed on between the countries concerned.~~

(2) While the Chinese government has declared a policy of positively implementing CDM projects, it has stated that at this point of time it is difficult to specify adjustment matters to realize CDM because specific international policies have not been definitely decided yet in COP. It will, therefore, be necessary to hold discussions and decide on specific methods of executing the CDM after an agreement is reached concerning the CDM

2.4.1 Matters to be coordinated with the counterpart country for realization of CDM, such as setting of project implementation requirements and allocation of responsibilities with full consideration for the current situation at the project implementation site

~~The matters (problems) expected to be coordinated with the counterpart country on the basis of this survey report are shown below:~~

~~(1) Agreement between the two governments concerning the baseline for the greenhouse gas reduction effect set in this survey~~

~~(2) Agreement between the two governments concerning the utilization of environmental yen loans for this project as the CDM from Japan~~

~~(3) Identification of the total amount of reduction in greenhouse gas emissions based on the decision made in item 1) above, and agreement to it between the two governments.~~

~~2-105 (4) Determination of the quota of greenhouse gas reduction effect for Japan based on the decision made in 3) above~~

• Determination of the amount of transfer to Japan’s reduction quota for projects utilizing environmental yen loans after the decision made in 2) above (the evaluation method to be decided between the countries)

~~In this regard, it should be noted that the equipment and operation costs not provided through environmental yen loans shall be borne by the Chinese side.~~

2.4.2 Possibility of the Counterpart Country ’s Agreement on this Project to be Implemented as CDM (conditions to which counterpart country agrees — on the basis of the attitude of the counterpart country ’s governmental organizations relevant to CDM and the company at which the project is to be implemented)

This project would be implemented as an energy conservation project because no specific international agreement has been yet reached. However, SINOPEC and the concerned oil refinery have a good understanding of the necessity for measures to prevent global warming, and it is thus expected that the Chinese government will eventually agree on the U. N. Framework Convention on Climate Change through international cooperation, as well as CDM project with Japan.

~~2-106 3. Effects of the Project~~

~~3-1 3-2 3. Effects of the Project~~

Energy conservation effects and greenhouse gas reduction effects that would be achieved if this project is executed are described below together with the basis for producing such effects and the calculation method.

~~By realizing this project, effects on energy conservation and effects on reduction of carbon dioxide (CO?) will be expected for as long as equipment ’s life (about 15 years).~~

In addition, the energy conservation design technique for this facility is not specific to Fujian Petrochemical Co, Ltd., and it is possible to apply to other refineries. This technique is thus expected to produce significant ripple effects.

In this chapter, comparisons with the baseline were made regarding the energy conservation effects/greenhouse gas reduction effects in the case of applying Case 3 chosen in the Case Selection of Chapter 2.

~~3.1 Energy Conservation Effects~~

~~3.1.1 Technological Grounds for Production of Energy Conservation Effects~~

~~Gasification combined cycle power generation (IGCC) contributes to energy conservation in the following three points.~~

~~(D Power generation using high-efficiency gas turbines~~

(High-efficiency power generation) In recent years, the efficiency of gas turbines has been consistently increasing due to high-temperature combustion accompanied by the improvement in the quality of materials of parts exposed to high-temperature gas, such as combusters and first stage rotors/blades. In the combined cycle including steam turbines, the waste heat from exhaust gas is recovered within the Heat Recovery Steam Generator (HRSG), to generate steam, which is then used in a steam turbine to generate electric power. This increases power output as against heat input, thus further enhancing the efficiency.

~~3-3 (D Power generation using steam turbines that utilizes steam generated in the facility~~

(Improvement of overall efficiency by effective utilization of heat) In an IGCC system, overall energy conservation effects can be expected by efficient exchange of heat needed for refining synthesis gas or heat generated during cooling with other fluids, or optimizing complicated heat balance integration between a steam turbine and an HRSG.

~~(D Effective utilization of high-sulfur petroleum residue and superiority in power transmission efficiency~~

(Other factors in energy conservation) In order to cope with the rapid increase in the petroleum demand in Chinese coastal area, the oil refinery of Fujian Petrochemical Co, Ltd. is making more specific plans to increase the crude oil refining capacity to 12 million tons per year from the current 4 million tons per year in the near future. In the existing oil refinery, almost all of the electric power required for the refinery is purchased from the neighboring power plant except for some electricity generated from in- house power generation facility. Future plant expansion will not only significantly increase the amount of crude oil treated, but also produce a large amount of petroleum residue as a by-product. Using this inferior petroleum residue as a feedstock for an IGCC facility (this project) in the oil refinery would prevent power transmission loss that occurs when electricity is purchased from the power grid. Furthermore, the combined cycle system is expected to achieve higher-efficiency power generation than BTG.

~~3-4 3.1.2 Baseline to be Used for Calculation of Energy Conservation Effect~~

~~(1) Calculation of Baseline~~

The net electric power produced by an IGCC facility, which uses residue as by product fuel in the facility improvement plan, is estimated at 228 MW. While the oil refinery covered by this project currently depends on purchased electricity for almost all of its power, it is considering in-house power generation to meet its power needs for the refinery expansion plan.

(Setting a baseline and the reason) Usually in China, the in-house power plant in an oil refinery uses coal as fuel to generate power. Fujian Petrochemical Co. Ltd. in this project has decided to build its own power generating plant along with the expansion instead of purchasing the necessary electricity from the power grid as has been done so far. If an IGCC is not employed in the project, coal-fired thermal plants will be used as in other petrochemical complexes in China. The energy consumption (input) in the above case is calculated as follows on the basis of the boiler turbine generator plant (BTG) capable of supplying 228 MW electric power at the generating end.

Fuel : Coal Fuel heating value (LEW) : 5,860 kcal/kg Energy efficiency (LHV) : 32% Energy consumption (input) (kcal/v) = 228 x 10^x 860/(32/ 100) 613x 106 kcal/h (Utilization factor = 80%) = 613 x 10* x 365 x 24 x 0.8 4,294 x 109 kcal/y

~~Coal consumption (ton/v) = 613 x 10*/5,860 104,560 kg/h (Utilization factor = 80%) = 104,560 / 1,000 x 365 x 24 x 0.8 732,800 tons/y~~

~~For the fuel heating value during our interview survey, the LEW value of coal, which was presented by the Chinese side as a coal heating value used by neighboring plants, was used.~~

3-5 Additionally, for the energy efficiency at the receiving end shown above, the amount of power transmission loss as against the efficiency (32.2%) at the sending end of the thermal power plant in Fujian Province is taken into account on the basis of “Electric Power Industry in China 2000” published by the State Power Corporation of China.

~~(2) Crude-oil equivalent of a baseline~~

~~Crude-oil equivalents of the amount of energy consumption (input) in a coal- fired power plant of 228 MW are calculated as follows.~~

~~From item (1), Coal consumption fton/vj = 732,800 ton/y (Utilization factor = 80%)~~

~~Crude oil equivalent ftoe/vl = 732,800 / 10,000 / 1,000 = 429,400 toe/y (Utilization factor = 80%)~~

~~3.1.3 Specific Amounts of Energy Conservation, Duration and Cumulative Amount~~

IGCC systems can increase total plant efficiency using high-sulfur residue, which is a by-product of the refinery. Energy conservation is achieved to the extent that power generation efficiency is raised compared with that at a neighboring power plant or a coal-fired power plant that would be constructed in this refinery. Moreover, power generation in the refinery would make power transmission loss negligible.

~~(1) Specific amounts of energy conservation~~

The project case is defined as an effective power generation case in which high sulfur concentration residue produced by the oil refinery of the Fujian Petrochemical Co, Ltd. will be used as feedstock. The power generation facility to be considered in this case will be an IGCC power generation facility capable of supplying 228 MW electricity at the receiving end as in the case of the baseline. The energy efficiency calculated in Chapter 2 is to be used as the basis. First, energy consumption in the project case is calculated as follows.

3-6 Fuel High-sulfur residue generated as a by-product in the refinery Specific gravity : 1.1244 Fuel heating value (LHV): 8,850 kcal/kg Plant efficiency (LHV) : 41% (See section 2.1.2 for the calculation results for the project case.) Energy consumption finpuf) (kcal/v) = 228 x 103 x 860 / ( 41 / 100 ) = 478 x 106 kcal/h (Utilization factor = 80%) = 478 x 106 x 365 x 24 x 0.8 = 3,352 x 109 kcal/y

~~Consumption of high-sulfur petroleum residue generated as a by-product (kl/y) 478 x 10" 7 8,850/ 1.1244 48,060 1/h (Utilization factor = 80%) 48,060/ 1,000x 365 x 24x 0.8 336,800 kl/y~~

~~The amount of crude oil equivalent of the high sulfur residue is as shown below.~~

~~Crude oil equivalent (toe/v) = 3,3 52 x 109 / 10,000 / 1,000 (Utilization factor = 80%) = 335,100 toe/y~~

~~Therefore, energy conservation is calculated as follows.~~

~~Energy conservation in crude oil equivalent (toe/y) = (Baseline) — (Project Case) = (429,400)-(335,100) (Utilization factor = 80%) = 94,300 toe/y~~

~~(2) Duration of energy conservation effect~~

The longevity of a petroleum refining facility is generally regarded as 15 years or more assuming that maintenance is properly carried out. It is therefore expected that the energy conservation effect will last for a period of about 15 years.

~~3-7 (3) Cumulative amount of energy conservation~~

~~The cumulative amount of energy conservation effect will be 1,415,000 toe in crude oil equivalent for 15 years.~~

~~3.1.4 Method of Identifying Specific Amounts of Energy Conservation~~

Specific amounts of energy conservation can be identified by displaying the following data on the DCS control unit, recording it continuously, and thereby calculating energy consumption at that point of time. It is also necessary to record the amount of oil treated by the refinery and evaluate the data in consideration of the annual rate of operation.

~~[Required data]~~

~~• Residue consumption in the refinery and its sampling data~~

~~• IGCC power consumption, purchased power consumption and in-house power generation~~

~~3-8 3.2 Greenhouse Gas Emission Reduction Effect~~

~~3.2.1 Technological Grounds for Expecting Reducing Greenhouse Gas Emissions~~

~~(1) Greenhouse gas reduction effect resulting from IGCC energy conservation effect~~

~~High-efficiency power generation cannot be expected of the existing BTG plant, whereas reduction of the C02 can be achieved through high-efficiency power generation in the execution of this project.~~

~~3.2.2 Baseline as a Basis for Calculating C02 Emission Reduction~~

The baseline used here is the case where the coal generally used currently in BTG plants in China is converted into electric power, in the process of which C02 is discharged. The amount of coal input in the BTG plant commensurate with the power output of IGCC system is the amount of energy consumption for the baseline. The power generation facility assumes a BTG plant that can supply 228 MW electric power at the grid sending end (net).

Carbon dioxide emission can be calculated as follows: Fuel: Coal generally used as fuel in China Annual fuel consumption (crude oil equivalent): 429,400 toe/y (Utilization factor: 80%) Conversion coefficient : 42.62 TJ/kt Notel) Carbon emission factor : 20.0 tC/TJ Notel) Fraction of carbon oxidized : 0.99 Notel)

~~C02 emission = 429,400 / 1,000 x 42.62 x 20.0 x 0.99 x 44/12 = 1,328,700 t-C02/y~~

Note 1) Based on the procedure for calculating greenhouse gas emissions in Attached Sheet 1 of Proposal Procedure associated with the public invitation to “NEDO Model Projects for Improving International Energy Use Efficiency for Fiscal 2000”

~~3-9 3.2.3 Specific Amounts of Greenhouse Gas Reduction, Duration and Cumulative Amount~~

~~Specific amounts of reduction in greenhouse gas emission~~

The project case used here shall be the case in which high-sulfur concentration residue produced as a by-product by the oil refinery in Fujian Petrochemical Co. Ltd. will be utilized as a feedstock to efficiently generate electric power using an IGCC system and thereby reduce greenhouse gas emissions. First, greenhouse gas emission in the project case is calculated as follows.

Fuel : Fligh-sulfur residue as by product of the refinery Annual fuel consumption (crude oil equivalent) : 335,100 toe/y (Utilization factor: 80%) Conversion coefficient 42.62 TJ/kt Carbon emission factor 20.0 tC/TJ Fraction of carbon oxidized 0.99

~~CO. emission = 335,100 / 1,000 x 42.62 x 20.0 x 0.99 x 44/12 = 1,037,000 t-C02/y~~

The greenhouse gas reduction effect resultant from IGCC energy conservation effect is expected to be 290,000 t-C02/y as shown below. CO. reduction resultant from energy conservation effect (ton/y) = (Baseline ) - (Project Case ) = 1,328,700- 1,037,000 = 291,600 t-C02/y (Utilization factor: 80%)

~~(2) Duration of greenhouse gas reduction effect~~

The longevity of a petroleum refining facility is generally regarded as 15 years or more assuming that maintenance is properly carried out. It is therefore expected that greenhouse gas emission reduction effects achieved through this project will last for a period of about 15 years.

~~3-10 (3) Cumulative amount of greenhouse gas emission reduction effect~~

~~The cumulative amount of greenhouse gas emission reduction effect will be 4,374 ,000 tons (about 4.40 million tons) for 15 years.~~

~~3.2.4 Method of Identifying Specific Amounts of Greenhouse Gas Emission Reduction~~

Specific amounts of reduction in carbon dioxide emission can be identified by displaying the following data on the DCS control unit, recording it continuously, and thereby calculating the emission of carbon dioxide at that point of time.

It is also necessary to record the amount of oil treated by the refinery and evaluate the data in consideration of the annual operation rate. In addition, in order to determine a more efficient operation method, it would be advisable to carry out daily checks to obtain a grasp of annual load fluctuation.

~~[Required data]~~

~~• Petroleum residue consumption in the refinery • Composition • Fuel heating value, etc.~~

~~• Power generation • Electric power consumption in the refinery • Amount of purchased power or sold power•~~

~~• Utilization factor of an IGCC facility~~

~~3-11 3.3 Effect on Productivity~~

~~While it is difficult to quantitatively evaluate the effect of the project implementation on productivity, the productivity of the refinery is expected to improve with regard to the following points;~~

~~• Electric power purchased from outside utility companies can be reduced by in-house power generation through effective use of petroleum residue.~~

• While crude oil treated in Chinese oil refineries is switching from Chinese oil to high- sulfur Middle East oil, this project would allow effective utilization of high-sulfur residue and maintenance of productivity.

~~• As a result of energy conservation, fuel intensity decreases, while profits improve.~~

~~3-12 4. Profitability of the Project 4-2 4. Profitability of the Project~~

It has been confirmed that the implementation of this project would not only reduce greenhouse gas emissions, but also produce satisfactory results in terms of energy conservation, profitability and cost-effectiveness of the refinery operation of Fujian Petrochemical Co, Ltd..

Specific calculation methods are shown below with regard to the cost required for implementing the project, financial benefits from energy conservation and the unit cost per ton of carbon dioxide for its reduction of 1 ton. Since a simple investment payback period (years) is used for evaluating cost effectiveness, funds to be raised, interests and so forth are not taken into consideration.

~~4.1 Economic Investment Return Effect~~

~~4.1.1 Estimation of the Cost of Implementation of the Project~~

The total cost of implementation of this project consists of the costs required for construction of new facilities, such as a gasification unit, air separation unit and a combined cycle unit, and their auxiliary facilities, and includes the following costs;

~~• Basic design and detailed design costs~~

~~• Equipment and material costs~~

~~• Transportation costs~~

~~• Costs for site construction cost (including commissioning)~~

~~The exchange rate as of January 2001, as given below, is applied for estimation throughout the financing period.~~

~~lUS$ = 110yen 1 yuan = 13 yen~~

4-3 Regarding the respective work responsibilities to be assumed by Japan and China, the Japanese side shall, in principle, cover the basic design, design and purchase of major equipment, partial detailed design, and supervision of and instruction in site construction. The Chinese side shall cover partial detailed design, purchase of items to be locally procured, and on-site construction

~~Moreover, all expenses have been estimated on the basis of prices as of the first quarter of 2001.~~

~~The total implementation cost for this project is about 29,700 million yen (2,300 million yuan on the basis of 1 yuan =13 yen) and the breakdown is as follows;~~

(Unit: 1 million yen) (a) Basic design and detailed design costs 5,500 (b) Equipment and Material costs 14,850 (c) Transportation cost 1,150 (d) Site construction cost (including commissioning) 8,200 Total 29,700

~~(1) Cost estimation is made on the Chinese base as of January 2001, and inflation is not taken into account.~~

~~(2) Import duty on the construction expense and VAT are not included.~~

~~(3) Spare parts for facility operation are not included.~~

~~4-4 4.1.2 Estimation of the Operational Costs before and after Implementation of Project~~

~~Operational costs include; • Personnel costs • Maintenance costs • Utility costs • Insurance costs~~

~~(1) Operational costs before implementation of the project (baseline)~~

~~Personnel and maintenance costs are not incurred before installation of new facilities. As for utility costs, electric power of about 228 MW purchased from the neiboring power station is included.~~

~~0 Personnel cost for new facilities 0 yuan (No operational costs will be incurred)~~

~~0 Maintenance cost for new facilities 0 yuan (No operational cost will be incurred)~~

~~0 Utility cost 1,171 x 106 yuan~~

• Cost for purchased power Purchased power in the refinery 228 MW (228,200 kW) Annual amount of purchased power = 228,200 x 24 x 365 x 0.8 (Utilization factor = 80%) = 1,599 x 10*kWh/yr Unit price of purchased power 0.58 yuan /kWh (*1) Annual cost of purchased power 1,599 x 10* x 0.58 = 927.6 million yuan

~~0 Insurance payments 0 yuan (No operational cost will be incurred)~~

~~Operational costs (baseline) 0 + 0 + 0 + 0 0 + 0 + 927.6 + 0 million yuan 927.6 million yuan 12,060 million yen (*2)~~

~~4-5 (2) Operational costs before implementation of the project~~

© Personnel costs for newly installed equipment 3.81 million yuan Number of additional operators 30 Annual personnel unit cost 127,000 yuan / personnel • yr (*3) Annual personnel cost 3.81 million yuan

© Maintenance cost for newly installed equipment 1.54 million yuan Estimated as 7% of construction cost (including catalyzers and chemical products) Construction cost 2,200 million yuan Maintenance cost 2,200 x 0.07 =154 million yuan

~~• Cost for purchased power 0 yuan~~

~~• According to Table 4.1.2-1, the annual utility cost except for electricity is estimated as follows: = 13,917 x 24 x 365 x 0.8 yuan = 97.5 million yuan~~

Estimated as 0.3 percent of construction cost 2,200 x 0.003 yuan 2,200 x 0.003 = 6.6 million yuan Operational costs (after implementation of the project )=© + © + © + © = 3.81 + 154 + 97.5 + 6.6 million yuan = 261.9 million yuan = 3,400 million yen

~~4-6 Table 4.1.2-1 Utility cost for new facilities by implementation of project~~

~~Utility Unit Cost Consumption Cost (yuan / ton) (ton / h) (yuan / h) Feedstock cost 250 54.1 13,525 River water CTW + BFW 0.7 560.0 392.0 makeup Total 13,917~~

~~Note) (* 1) : Data obtained through interview with Fujian Petrochemical Co, Ltd (*2) : 1 yuan =13 yen (*3) : Data obtained through interview with Fujian Petrochemical Co, Ltd~~

~~4-7 4.1.3 Estimation of Annual Profit and Payback Period~~

Annual profit resulting from the execution of the project refers to the extent to which the operational costs can be reduced per year by implementation of the project and is expressed as the difference between the operational costs before and after the implementation of the project.

~~Annual profit from implementation of project = 927.6 million yuan - 261.9 million yuan (12,060 million yen - 3,400 million yen) = 665.7 million yuan (1 yuan =13 yen) = 8,660 million yen~~

~~Investment payback period (years) = Construction costs / Annual profit 2,280 million yuan / 665.7 million yuan 29,700 millionyen / 8,660 million yen 3.4 years~~

~~(Investment return effect) The following table shows the investment return effects after the completion of the facilities~~

~~Year Starting year 2nd year 3rd year (Investment (1 st year) Investment payoff year) payoff year (4th year) Item 2007 2008 2009 2010 Total cost of the project (million yen) 129,700 0 0 0~~

Cost involved in (1) mentioned above(costs incurred after the ▲ 3,400 ▲ 3,400 ▲ 3,400 ▲ 3,400 completion of the project) (million yen) Cost involved in (2) mentioned above (energy conservation obtained as a 12,060 12,060 12,060 12,060 result of the execution of the project) Total ▲ 21,040 8,660 8,660 8,660

~~Cumulative total ▲ 21,040 ▲ 12,380 ▲ 3,720 4,940~~

~~Note) Year 2007 is assumed as the first year for the project.~~

~~4-8 4.2 Cost Benefits of the Project~~

~~Cost benefits of this project are as follows:~~

~~Project cost Construction cost 29,700 million yen~~

~~Benefits from implementation of this project Reduction in energy consumption 94,300 toe/year (Energy saving) Reduction in greenhouse gas emission 412,600 t-C02 / year~~

~~Energy saving effect per construction cost (toe-y/million yen) 94,300 / 29,700 = 3.18 toe-y / million yen~~

~~Reduction in greenhouse gas emission per construction cost (t-C02-y/million yen) 291,600/29,700 = 9.8t-C02-y / million yen~~

~~4-9 5. Identification of Dissemination Effects~~

~~5-1 5-2 5. Identification of Dissemination Effect~~

~~5.1 Possibility of Promoting Technologies to be Introduced in the Counterpart Country through the Project~~

~~5.1.1 IGCC Equipment Technology Dissemination Scenario~~

~~(1) Survey~~

~~1) Current status and trend of oil refineries in China~~

~~(a) Outlook for China’s future crude oil imports and oil consumption~~

~~(Reference: People ’s Daily: July 6, 2000)~~

~~a) Crude oil imports top the 75.00 million ton mark in the year 2000~~

Currently, in China, the domestic production volume of crude oil, as the raw material in the oil refining and petrochemical industry, has declined, while on the other hand, domestic demand has been increasing, thus turning China from a crude oil exporter into a net importer since 1993. The total consumption of crude oil was 200 million tons in 1999, of which imports were around 40 million tons, accounting for 20% of the total. Experts forecast that China’s oil consumption will increase by 4% per annum until in 2010 China will rely on imports for around 40% of its oil consumption.

~~According to a separate statement by SINOPEC, China’s total imports of crude oil will have reached 90.00 million tons by 2005, and the sulfur content of residue will also exceed 5%.~~

At the initial stage of imports (imports started in 1993), low-sulfur light crude oil imported from Indonesia, Oman, and other areas, was mixed with crude oil produced in China and it was then treated and refined.

5-3 Thereafter, amid yearly-growing demand for crude oil, the use only of crude oil of good quality, in terms of the quantity and prices, with relatively low sulfur concentration imported from Indonesia, Oman, and elsewhere, has been insufficient to cope with demand. Therefore, China is now expanding its import sources to Middle Eastern countries, such as Saudi Arabia, which produce heavy crude oil with high sulfur content. b) China’s oil refineries face a major task in switching over to the import of heavy crude oil with a high sulfur content

The facilities at China’s oil refineries have been designed to deal with the low-sulfur crude oil from the country ’s own oil wells, and they now face the problem that a changeover to high-sulfur imported oil, which is very corrosive, would be extremely difficult both from the technical standpoint and because of the adverse effects of refining such oil on the environment. Because the Chinese government has implemented a policy under which imported crude oil is to be handled by refineries located on the coast, from Dalian in the north to Guangdong in the south, including the refinery, located along the Changiang, operated by the Nanjin Jinling Petrochemical Company, Ltd Co., Ltd., these refineries are not sufficiently capable of adapting to crude oil with a high sulfur content, with the exception of refineries equipped with direct desulfurization equipment, such as the Dalian West Pacific Refinery and the Zhenhai Refinery.

Because of the technical difficulty that most coastal refineries experience in refining heavy high-sulfur imported oil, SINOPEC has devised a policy under which refineries handle a mixture of high-sulfur oil with domestically produced low-sulfur oil. However, the use of this mixture leads to a decline in refining capacity in addition to environmental problems.

5-4 SINOPEC estimates that the amount of residue with a high sulfur content, a byproduct of refining, will reach several million tons per annum in the future. SINOPEC has apprehensions that this massive amount of industrial waste would cause serious environmental problems, if it is left unresolved.

The following regulations are stipulated by Article 38 of China’s Atmospheric Pollution Law (frtEfB). In the event of the emission of sulfides during such processes as oil refining, the production of synthetic ammonia or coal gas, coal coking or the smelting of non-ferrous metals, the facilities must be equipped with desulfurization equipment, or other method must be used to remove the sulfur.

~~Article 60 of Chapter 6 of China’s Atmospheric Pollution Law stipulates severe penalties for failure to comply with the above regulation.~~

(Article 60) In the event that an enterprise commits any of the violations of the law listed below, the administrative department in charge of environmental protection at the local governmental level of the province shall order the construction of additional facilities within a specified period of time, and the enterprise responsible for the violation shall be liable to payment of a fine of not less than 20,000 yuan and not more than 200,000 yuan.

If the coal produced at a newly constructed mine is of a high sulfur content or a high ash content and the enterprise concerned fails to comply with relevant regulations laid down by the national government mandating the construction of an ore dressing facility. If an enterprise that carries out such processes as oil refining, the production of synthetic ammonia or coal gas, coal coking, or the smelting of non-ferrous metals, during which sulfides are emitted, and fails to comply with the regulations laid down by the national government mandating the installation of desulfurization equipment or other methods of removing sulfur.

5-5 (Article 61) In the event that a company or other business unit shall be responsible for an accident due to atmospheric pollution in violation of the stipulation of this law, the administrative department in charge of environmental protection of the local government authorities with jurisdiction over the site of the factory or business site concerned, at the level of county or above, shall levy a fine of 50% of the direct economic loss deemed to have been caused by the accident, after assessing the extent of the damage caused. The maximum fine, however, shall not exceed 500,000 yuan. In the event of very serious damage, the managerial-level personnel directly responsible and other company members deemed responsible shall be subject to disciplinary measures by the company involved or any higher relevant organization. Furthermore, in the event that the violation in question causes serious atmospheric pollution that results in damage to public or private property or loss to public or private assets, or leads to physical harm to or the death of any person, those responsible shall be prosecuted for criminal offenses.

(Article 62) A company that has caused damage or injury as a result of atmospheric pollution must assume the responsibility for ending the cause of the said damage or injury and for compensating any corporation or individual whom it has damaged or harmed. In the event that a lawsuit arises concerning the responsibility for compensation or the amount of compensation, the administrative department in charge of environmental protection shall arbitrate in the case at the request of the parties concerned. In the event of an objection to the arbitration ruling, the parties concerned may appeal directly to the People ’s Law Court.

~~The IGCC technology that forms the theme of the present study is believed to be the only effective method of solving the serious problems discussed above.~~

~~5-6 c) For the purpose of the dissemination of IGCC in China, the following oil refineries are believed to possess the potential for the introduction of this technology.~~

© Guangzhou Petrochemical Co., Ltd. © Maoming Petrochemical Co., Ltd. © Shanghai Jinshan Petrochemical Co., Ltd. © Shanghai Gaoqiao Petrochemical Co., Ltd. © Beijing Yanshan Petrochemical Co., Ltd. d) At the request of SINOPEC, an inspection visit to Guangzhou Petrochemical Corporation was made to investigate the potential for the dissemination of IGCC.

~~Chiyoda Corporation visited Guangzhou Petrochemical Co., Ltd. in response to SINOPEC’s request to make a survey of the potential for the wider use of IGCC on November 29 and 30.~~

According to factory staff, it currently possesses an annual crude oil refining capacity of between 7,500,000 tons and 8,000,000 tons, and has comprehensive chemical plants, including an ethylene plant, (annual production 150,000 tons) downstream.

~~In line with SINOPEC’s policy, the company has now launched a plan to increase the annual oil refining capacity to 1500,000 tons.~~

The plan originally conceived by SINOPEC concerning the introduction of IGCC was to gasify oil coke —a byproduct from the company ’s refinery —in order to manufacture chemical fertilizer and at the same time generate electric power, which was to be utilized at the company ’s chemical fertilizer plant (synthetic ammonia production: 300,000 tons, urea: 520,000 tons) using naphtha as raw material.

5-7 As a result of this visit, however, it was found that operation of its equipment for manufacturing chemical fertilizers had been stopped in August 2000 because of its poor price competitiveness in production of chemical fertilizers in China. They started dismantling the facilities at the time of the visit.

Although, because of this, it has become impossible to materialize the plan to introduce IGCC into this plant, as another finding of the visit, they were considering a plan to encompass also IGCC with a view to co-generating both electricity and hydrogen since they would fall far short of the hydrogen required for the oil refining process along with the doubling of the oil refining capacity to the 15 million ton level per annurm

Chiyoda Corporation ’s inspection visit revealed that IGCC possesses significant potential for its widespread use in China, except that IGCC would be used to make up for the shortage of electricity and hydrogen after the expansion of scale since the company possesses its own large-scale power generation plant, thus making its scale small, and that further investigation would be required in terms of cost-effectiveness. e) Plants other than oil refineries in which IGCC could be utilized:

- Yantai IGCC project • IGCC in this project uses coal Power generated is to be supplied to the electric power network A contract to establish a company was concluded among the following parties on January 8 this year in Beijing. - National Electric Power Company - Sandong Province Electric Power Company Group - City of Yantai - Sandong Province International Trust Investment Corporation

~~5-8 5.2 Effects in Prospect of Dissemination~~

~~5.2.1 Energy-Saving Effect~~

Currently in most Chinese oil refineries, oil coke from delayed coker equipment or liquid oil pitch from solvent deasphalting equipment is produced as a byproduct, and the quantity is expected to reach 5 million tons by 2005 on an annual basis along with the increase in the volume of crude oil processed, (the total volume of oil coke in 1998: 3.50 million tons)

Since Chinese oil refineries, mostly located in coastal regions, process mainly imported crude oil with a high concentration of sulfur, the oil residue also has an extremely high concentration of sulfur (between 5 and 10%), making its use as fuel impossible. For this reason, the oil residue has no definite uses, thus ending in a great amount of industrial waste that could lead to a secondary pollution. It may be piled up in the open, or in the worst case, might even be dumped into the sea.

The only solution to this problem is the dissemination of IGCC. IGCC is thus expected to bring about a significant energy-saving effect because it converts industrial waste into clean energy and allows high-efficiency power generation.

~~(1) Factories in China that have the possibility to widely use IGCC~~

• Guangzhou Petrochemical Co., Ltd. • Maoming Petrochemical Co., Ltd. • Shanghai Jinshan Petrochemical Co., Ltd. • Shanghai Gaoqiao Petrochemical Co.,Ltd. • Beijing Yanshan Petrochemical Co., Ltd.

~~(2) Estimation of dissemination effect~~

The amount of energy reduction in crude oil equivalent that would be achieved if petroleum residue as a by-product reaches 5 million tons in 2005 is estimated below. This is based on the assumption that each of the above-mentioned factories will achieve an energy conservation effect equivalent to that of IGCC at Fujian Petrochemical Co. Ltd. in this project.

5-9 In this estimation, annual energy reduction of 121,600 toe/yr in crude oil equivalent can be expected as against petroleum residue of 54.1 tons/h (379,000 tons/yr). This means that energy conservation effect of 1,468,000 toe/yr can be expected for petroleum coke of 5 million tonsper year (LHV 8,100 kcal/kg).

~~5.2.2 Greenhouse Gas Emission Reduction Effect~~

Supporting that the energy-saving effect described in section 5.2.1 is calculated in terms of the emission reduction in carbon dioxide, one of greenhouse gases, on the basis of the following (Data on 6 factories are summarized based on IGCC at Fujian Petrochemical Co., Ltd.),

~~Heating value of refinery ’s fuel : 42.62 TJ/kton Carbon emission intensity : 20.0 tC/TJ Carbon oxidization ratio : 0.99 Molecular weight ratio between carbon dioxide and carbon : 44/12~~

~~then, the reduction in carbon dioxide emission is calculated from the following formula: = 1,468 x 42.62 x 20.0 x 0.99 x 44/12 = 4,542,000 ton/yr~~

At this point of time, the gross amount is not yet specified, but introduction of IGCC would lead to a remarkable reduction in greenhouse gas emission, as well as the achievement of energy conservation.

~~5-10 5.3 Dissemination Examples of Target Technologies in Countries Other than the Counterpart Country~~

~~5.3.1 State of Introduction of Gasification Equipment on a Global Basis~~

In recent years, the rate of adoption of gasification equipment has been consistently increasing across the world. As shown in Figure 5.3.1-1, the rate of increase has been notably large since around 1990, and it is estimated that the total amount will reach 60,883 MWth in 2004.

~~MWth syngas Note: MWth = 3,413,000 Btu/h 70,000~~

~~60,000 ■ Projects currently being implemented D Projects under planning 50.000~~

~~40.000 n nil. ■ii 3b,000 1~~

~~20.000 ■■■in ml~~

~~10,000 m o- min 1970 1975 1980 1985 1990 1995 2000~~

~~Figure 5.3.1-1 Worldwide Trends in Introduction of Gasification Equipment~~

The major factor behind this remarkable growth is deregulation in the power generation field. This has made it possible to generate electric power using synthesis gas as fuel and sell that electricity, thus increasing the introduction of integrated gasification combined cycle equipment (IGCC) for the purpose of electric power generation. The advantages of IGCC equipment include the possibility of providing utilities through in-house power generation and steam as a by-product, and deregulation has allowed electric power to be sold to other companies via power transmission lines. Consequently, in many cases, the use of synthesis gas for power generation is often more profitable on a cost basis than its use as chemical material. For these reasons, the proportion of IGCC in use among all gasification units introduced far exceeds those for chemical materials.

~~5-11 5.3.2 State of Introduction of Gasification Units by Region~~

~~Figure 5.3.2-1 shows, on a regional basis, the state of introduction of gasification units including those in projects under planning.~~

~~MWth syngas 20,000 ------Note: MWth = 3,413,000BTU/h~~

~~West Europe Asia and North Africa and East Europe Central and Australia America Middle East and South America Former Soviet Union~~

~~Figure 5.3.2-1 State of Introduction of Gasification Units by Region~~

The largest number of examples of the construction of gasification units is found in West Europe, including those operating on a MWth base and those under planning. The major projects in Europe are intended to reduce heavy fuel oil by the combined use of upgrading equipment and IGCC, as well as polygeneration, including electricity, steam, hydrogen, and so forth. In the past, Southern European countries used these low-grade heavy oils (with high sulfur and metal contents) as fuel for thermal power plants, and these countries provided markets for these oils. However, stricter environmental regulations, as well as the deregulation of electric power supply has facilitated a change in trend from conventional power generation facilities to introduction of IGCC, which is currently prevalent. West European countries are currently making enormous investments in the reduction of residue generated at oil refineries. Gasification equipment is being effectively utilized to convert low-grade residue to clean synthesis gas generated in the course of such processes as hydrocracking, visbreaking and solvent deasphalting. Synthesis gas is utilized to generate electric power, steam and hydrogen. Asia and Australia follow the above-mentioned European countries. In this area, China offers the largest market.

5-12 However, the energy market in China is subject to strict regulation, which imposes restriction on the sales of electricity generated by means of cogeneration. This limits the use of gasification units to those for synthesis gas production equipment for chemical materials. In Japan, on the other hand, there are cases in which gasification is used for the purpose of power generation at oil refineries, thanks to the recent electric power deregulation.

Three major coal gasification plants of the Sasol type have already begun operation in Africa and the Middle East. In these areas, however, no new gasification projects have been disclosed, because inexpensive crude oil can be procured and because governmental subsidies have recently been reduced for coal gasification of Sasol type. North America is the only area where gasification equipment has been steadily increasing for a wide variety of uses, and the United States constitutes the representative market. In the U.S., there are outmoded, small gasification plants for use in production of chemical materials as in Germany, while there are also large-scale modem gasification plants, such as natural gas synthetic plants using coal gasification, operating in North Dakota since 1984. The gasification units introduced in the U.S. are utilized mostly for generating electric power, half of which is for IGCC, while the remaining half is for polygeneration at oil refineries. Although no subsidies are provided for gasification at oil refineries, the introduction of gasification equipment is increasing because its introduction allows effective utilization of low-priced, low-grade petroleum coke with little pollution. The above-mentioned fuel contains a large amount of sulfur and heavy metals. Therefore, in terms of efficiency and environmental considerations, gasification is superior to direct combustion of petroleum coke.

~~5-13 5.3.3 State of Introduction of Gasification Equipment by Use~~

As shown in Figure 5.3.3-1, gasification is still in most cases used as chemical material for synthesis gas, and in 89 projects under implementation, synthesizing of 18,361 MWth gas is being performed. In contrast, the introduction of a gasification unit for the purpose of power generation is on a sharp rise, and is closing the gap with the above purpose The main factor behind this notable growth is the introduction of gasification equipment of the poly generation type at oil refineries.

~~MWth syngas 25,000 -----~~

~~20,000~~

~~Chemicals Power F-T Liquids Gaseous Unknown Fuels~~

~~Figure 5.33-1 Introduction of Gasification Equipment by Use~~

~~5-14 5.3.4 State of Introduction of Gasification Equipment by Type of Material~~

As shown in Figure 5.3.4-1, the most notable gasification materials are coal and petroleum (mainly heavy residue). Coal is used in only 29 projects currently in operation, in which gas of 17,929 MWth is synthesized. These projects mostly consist of gasification projects in Sasol, Dakota, and some other companies. Other coal gasification is used for production of chemical materials in China, Italy, Africa, and the United States. In contrast, there are 56 oil-based gasification projects (including fuel oil, residue, and naphtha) currently in operation, producing synthesis gas of 17,789 MWth. In addition to the above-mentioned projects, another 5 gasification projects utilizing petroleum coke as new oil material are to be implemented, which will produce 1,393 MWth in synthesis gas equivalent. Constantly growing concern with environmental matters, meanwhile, is another factor promoting the introduction of gasification. Atmospheric emissions can be reduced to a level equivalent to that of natural gas.

~~MWth syngas 30.000~~

~~25.000 □ Projects under panning~~

~~■ Projects currently being implemented 20.000~~

~~15.000~~

~~10.000~~

~~5,000~~

~~0 ■ Coal Petroleum Petcoke Biomass~~

~~Figure 5.3.4-1 Introduction of Gasification Equipment by Type of Material 5.3.5 Typical Plant for Residue Gasification~~

Major residue-based projects now under operation are summarized in Table 5.3.5-1. An overview of the following typical examples from among these projects is provided below: Shell Pemis (Netherlands; using visbreaker residue as material), Api Energia (Italy; using visbreaker residue as material), ISAB; (Italy; using SDA asphalt as material); SARLUX ((Italy; using visbreaker residue as material) and PIEMSA, a project under planning (Spain: using visbreaker residue as material).

~~5-16 Table 5.3.5-1 List of IGCC Supply Records in Power Plants~~

~~Year of Production No. Plant Name Output Status Techonology Country Primary Feed Start Capacity (MW)~~

1 Schwarze Pumpe Gasification Plant 1992 Power Operating noel GSP Germany Municipal Waste 2 Buggenum IGCC Plant 1994 Power Operating Shell Netherlands Bit. Coal 253 3 Wabash River Coal Gasification Repowering Project 1995 Power Operating Destec United States Bit. Coal 265 4 Ei Dorado IGCC Plant 1996 Power Operating Texaco United States Petcoke 35 5 Polk County IGCC Project 1996 Power Operating Texaco United States Coal 250 6 Vresova IGCC Plant 1996 Power Operating Lurgi Dry Ash Czech Republic Lignite 350 7 Pernis Shell Gasification Hydrogen Plant 1997 Chemicals Operating Shell Netherlands Visbreaker residue 100 8 Pinion Pine IGCC Power Project 1997 Power Operating KRW United States Bit. Coal 100 9 Puertollano GCC Plant 1997 Power Operating Prenflo Spain Coal & petcoke 335 10 Api Energia S.p.A.GCC Plant 1999 Power Construction Texaco Italy Visbreaker residue 282 11 iSAB/Mission Energy Cogen Project 1999 Power Construction Texaco Italy Rose asphalt 512 12 Baytown IGCC Plant 2000 Power Construction Texaco United States Deasphalter pitch 240 13 Chawan IGCC Plant 2000 Power Construction Texaco Singapore Residual oil 173 14 Delaware Clean Energy Cogeneration Project 2000 Power Construction Texaco United States Fluid petcoke 241 15 Sanghi IGCC Plant 2000 Power Engineering IGT U-Gas India Lignite 60 16 SARLUX GCC/H2 Plant 2000 Power Construction Texaco Italy Visbreaker residue 550 17 Fife Power 2001 Power Construction BGL United Kingdom Coal & sludge 120 18 Fife Electric 2002 Power Development BGL United Kingdom Coal & sludge 400 19 Normandy IGCC Plant 2003 Power Engineering Texaco France Fuel oil 365 20 Yokohama IGCC Plant 2003 Power Engineering Texaco Japan Vac.Residue 342 21 Bilbao IGCC Plant 2004 Power Engineering Texaco Spain Vac.Residue 824

~~Source: Gasification Technology Council~~

~~5-17 (1) Shell Pemis~~

This plant is the gasification power generating plant to crack residue from the Shell Pemis oil refinery and utilize it for producing hydrogen, electricity and steam. This plant was constructed as part of a plan to refurbish the outdated refinery. It was completed at the end of 1997, and is currently operated by Shell Nederland Raffinaderij B.V. and Shell Nederland Chemie B.V.

(Purpose of installation) • High-sulfur residue is gasified and supplied to a cogeneration system in order to dispose of residue without any adverse environmental impact while at the same time obtaining electricity and thermal energy. (GE MS6541B x 2 units + steam turbines x 2 units) • Steam from the cogeneration system and the gasification reactor WHE is utilized for not only power generation, but also in the refinery. • Furthermore, as a plant that produces hydrogen together with electricity, this plant supplies high-purity hydrogen to the hydrocracking unit in the refinery.

(Overview of equipment) Figure 5.3.5-1 shows the block flow of this project. Visbreaker tar with a very high content of sulfur is used as raw material and gasified through the Shell process. Moreover, this plant is of the type that also produces hydrogen with the aim of supplying hydrogen to the one of the world's largest hydrocracking units (the amount of hydrogen used : 285 t/d) to be installed in the future.

~~(2) Api Energia~~

This project is a visbreaker residue (tar) gasification project that was launched by the joint venture of Api Group and ABB Sae Sadelmi in 1992 and was implemented under the license agreement with Texaco. ABB group is in charge of execution of all stages of this project ranging from basic design of this project to EPC, while the Api group is responsible for supply of feed oil, fuel and utilities, and at the same time provides personnel for operation and maintenance. This plant has been in commercial operation since November 1999, and also now it continues to generate electric power without any trouble.

5-18 (Background to introduction) The main factor contributing to such positive introduction of IGCC projects in Italy is product specification, which has been made more strict due to environmental regulations. More specifically, the allowable content of sulfur in fuel oil produced in 2000 and subsequent years will be 1% or less, and in order to cope with such situation, it has become necessary to develop a new route for controlling the production of heavy oil. In this context, IGCC has emerged as an effective technology. The following are the main reasons: • Environment-friendly power generating facilities have been required because of constant insufficiency of electricity and lack of nuclear power generation. • Italy depends on other countries for crude oil, and thus has to introduce energy conservation technologies. • Moreover, the government provides incentives to the utilization of unexploited energy sources. • Technologies to be introduced should be such that will be applicable to the introduction of nonrecourse-based project finances. • IGCC allows coordination with foreign-invested IPP.

~~(Plant overview) Figure 5.3.5-2 shows the flow of this project. This is an IGCC of the Texaco quench type using tar as feedstock. The table below shows plant capacity.~~

~~Table S.3.5-2 Plant Capacity (Api Energia)~~

Feedstock Tar 57,200kg/h Gross power generation 279MW (In-house generated power 45.5MW consumption) Net power generation (net) 233.5MW By-product steam 65t/h Overall efficiency (power 40.5% generation) Overall efficiency (cogeneration) 47.2%

~~5-19 In addition, the following table shows the emissions in this project.~~

~~Table 53.5-3 Emissions (Api Energia)~~

~~Waste matter Dry basis IGCC SOx 50mg/Nm 3 630t/y NOx 53mg/Nm 3 720t/y CO 8mg/Nm 3 115t/y Dust 550mg/Nm 3 63t/y~~

~~(3) ISAB and Sarlux~~

ISAB is Italy ’s first IGCC project implemented by Snamprogetti (ISAB Energy) jointly with Foster Wheeler Italiana. The design and procurement tasks were shared equally between the two companies, while on-site tasks, including construction and commissioning, were carried out by the joint body from the both companies. The plant went into commercial operation at the end of 1999, and passed the MPS (Minimum Performance Standard) and reliability tests in March 2000. Sarlux, meanwhile, is a project that was jointly implemented by Snamprogetti, Turbotecnica (Nuovo Pignone) and General Electric. The project tasks were completely divided equally among the companies: Snamprogetti was responsible for process and utility; and Nuovo Pignone and General Electric for combined cycle.

(Plant overview) The block flows of the ISAB and Sarlux projects are very similar, as shown in Figure 5.3.5-3. Feedstocks, such as visbreaker residue (tar), vacuum residue and asphalt, are gasified by a gasifier of the Texaco quench type. The points of difference between the two projects are as follows:

~~5-20 Table S.3.5-4 ISAB and Sarlux Projects~~

ISAB Sarlux Feedstock Asphalt (13 2t/h) Tar (148t/h) Synthesis gas pressure 67barg 38barg Plant capacity 512MWe 551Mwe Hydrogen 40,00ONm3/h Type of the sulfur MDEA-Dow Chemical Selexol-UOP removal unit Synthesis gas before • It is introduced into GT after • It is introduced into the introduction of GT energy recovery using an hydrogen production/recovery expander because of high unit and partially utilized pressure • No expander is used. • No hydrogen production is carried out. C/C unit Supplied by Ansaldo Industria GE STAG 109E x 3 units Siemens/Ansaldo x 2 units (GT: GE MS9001E x 3 units) (GT: Siements V94.2 x 2 units)

~~(4) PIEMSAIGCC Project~~

This is a project to be implemented by Petronor, a member of Repsol YPF Group, and Iberdrola, Spain’s second-largest utility company, to construct an IGCC plant adjacent to the Petronor oil refinery in Bilbao in the Basque Province of Spain. It is to be started in the latter half of 2004.

(Background to the introduction) • Currently the refinery produces mainly gasoline and diesel oil, and the residue generated accounts for as much as 25% of the total oil produced. • The residue has been used mainly as fuel for the heating furnace in the refinery, or has been sold as bunker oil for ships, and as fuel for thermal power plants. These conventional uses are, however, decreasing because of strengthening of environmental regulations and requirement of higher efficiency of thermal power plants. • The quality and the quantity of residue depend greatly on the crude oil; and a more inexpensive crude oil produces heavier residue with a higher content of sulfur.

5-21 • In recent years, the oil market has tended to deal with increasingly heavy crude oil, and it is therefore necessary to consider measures to treat sulfur in the above-mentioned low-grade residue and changes in the products ratio. • The introduction of an IGCC system makes it possible to completely treat residue irrespective of the type of crude oil. IGCC allows in-house power generation instead of selling the residue as fuel oil to electric utility companies. Moreover, facilities for production of hydrogen and the like can be added. • The concentrated sulfur content and the concentrated metal contents generated from IGCC can be sold in solid form to chemical companies and metal recovery companies, respectively.

(Plant overview) Figure 5.3.5-4 shows the flow of this project. Visbreaker vacuum residue (containing 5.5% sulfur) of 195 tons per hour is used as a feedstock to be gasified by the gasifier of the Texaco quench type. This project is to carry out combined cycle power generation using synthesis gas, as well as to produce hydrogen partially using synthesis gas. (21 barg; purity 99.8%) The following table lists the performance of this plant.

~~Table 53.5-5 Plant Capacity (PIEMSA)~~

Performance Total annual amount Residue treatment capacity 195 t/h 1,536,000 t Power generation (Net) 783.9 Mwe 6,294,000 MWh Hydrogen production 21,500 Nm3/h 169,420,000 Nm3 Sulfur production 257.4 t/day 84,500 t

~~Overall efficiency (LHV) 42% -~~

~~5-22 Electric Power > (142MW)~~

~~Steam Steam (825 T/DJ (3895 T/D) Sour Gas (285 T/D)~~

~~Cracked Residue Gasificatiod Syngas Rectisol Rectisol Metha WHE CO Shif (1650 T/C i) Reactor Scrubber Treating -nation~~

~~Oxygen (1572 T/D) BFW Steam (383 T/D) (1057T/D)~~

~~Soot Ash Stripper Recovery WWT~~

~~v Soot Ash~~

~~Figure 5.3.5-1 Block flow (Shell Pernis)~~

~~5-23 Air~~

~~Oxygen Air Nitrogen Separation Electric Electric Power Power~~

~~Gas Acid Gas Gas Steam Gasification Cooling Removal Turbine Turbine Exhaust Hot Steam Soot Steam Exhaus Heat Recovery Sulfur Recovery Demi , Recovery Steam ► Steam Water to Refinery Generation~~

~~Filter Waste Steam Sulfur Cake Water~~

~~Figure 5.3.5-2 Block flow (Api Energia)~~

~~5-24 Waste Water to Biotreatment~~

~~Air Separation Oxygen Waste Water Sulfur unit pretreatment Recovery~~

~~Nitrogen Steam (ISAB) Syngas Gas Cooling Hydrogen Sulfide Feedstock Generation And And COS Preparation AcidGas Soot Extraction Hydrolysis Removal~~

~~Steam Electric Boiler Feed Expander Power Combined Syngas Steam Cycle Unit (ISAB) Saturation Hydrogen Hydrogen Production Demi Water (Sarlux) Syngas to post Firing Desalted Demi Water Water Production~~

~~Figure S.3.5-3 Block flow~~

~~5-25 Vacuum Oxygen Visbroken Tar Oxygen Plant Flue Gases < Compressed-Air Electric HP Steam Power .Steam Combined Gasification RawSynga A Clean Syngas Cycle Plant~~

~~Soot Soot Recycle Water Heat Recovery, Hydrogen Syngas Cleaning Soot and Hydrogen Prod. PSA Offgases Recovery , ^Lean Solvent Rich Grey Water Solvent~~

~~Grey Water Solvent Regen. Sulfur Rec. Sulfur Treatment with A.G.E with TG Recycle~~

~~Utilities Units Offsites Units~~

~~Figure S.3.5-4 Block flow (Piemsa) 6. Effects of the Project on Other Aspects~~

~~6-1 6-2 6. Effects of the Project on Other Aspects~~

6.1 Effect of the Project on Other Environmental, Economic, and Social Aspects in Addition to Energy Conservation Effect and Greenhouse Gas Emission Reduction Effect Obtained through the Implementation of the Project

Realization of this project would allow clean synthesis gas of a level identical to natural gas to be obtained from low-grade feedstock and the use of this gas to generate electric power using a high-efficiency combined cycle. This project is thus expected to produce considerable effects on both environmental and economic aspects.

~~(1) Environmental effect~~

Chapter 3 described greenhouse gas reduction effect as the effect of this project on the environment, along with the specific amounts of reduction. This chapter describes environmental measures to be taken through integrated gasification combined cycle power generation as listed below.

~~1) Sulfur oxide~~

Oil refineries in the coastal area of China are facing a serious problem in treatment of high-sulfur residue as a by-product generated in large amounts from the residue treatment equipment because high-quality crude oil produced in China has been switched to Middle East crude oil with a high sulfur content. Petroleum coke from the oil refinery of Fujian Petrochemical Co. Ltd. may be used as fuel for existing power generating plants, and as a result, high-sulfur smoke may cause acid rain, thus exerting a serious environmental impact on Japan as well. When integrated gasification combined cycle power generation is adopted, most of the sulfur is recovered as a by-product (the recovery rate is 99% or more), and is therefore not released into the atmosphere.

~~2) Nitrogen sulfide~~

~~Injection of nitrogen into the combuster of gas turbine makes it possible not only to increase output but also to reduce the amount of nitrogen oxide (thermal NOx) generated by combustion.~~

~~6-3 3) Dust~~

Amount of dust in the proximity of thermal power plants (Urban area) (Rural area) Compared with the above-mentioned values, the amount of dust emitted from power plants in this project would significantly be reduced to 6 mg/Nm 3.

~~4) Industrial wastewater~~

~~As described.in Chapter 2, industrial water will be treated until it satisfies the emission standards in China and thereafter it will be discharged.~~

~~(2) Economic effect~~

As a result of the implementation of this project, the amount of power purchased from outside will be reduced, while power generation using inexpensive fuel is expected to bring about considerable advantages in terms of cost benefits. This can reduce the cost of products supplied by the refinery, and it is thus expected that this project will be a model project in respect of reducing product costs and raising domestic competitiveness.

~~(3) Social effect~~

Since it will probably become evident that this energy conservation project reduces emissions of carbon dioxide, sulfur oxide, nitrogen oxide and dust, and thereby improves the environment, it should be widely recognized that the oil refinery in question contributes significantly to the environment of the surrounding area and the well-being of the residents. Moreover, the project will also prove that facilities and systems, through introduction of state-of-the-art technologies, can produce not only economic effects, but also positive environmental effects. This is likely to influence other plants and industries, and encourage them to initiate other such projects to achieve energy conservation and reduce carbon dioxide emission in these areas and industries.

~~6-4 Conclusion~~

~~c-i C-2 Conclusion~~

Fujian Petrochemical Co., Ltd. in China, the Chinese counterpart in this basic survey, has given this energy conservation project a high evaluation and has shown a keen interest in it. It is thus expected that this company will make a request for the implementation of this project under Japanese technical and financial cooperation.

Under these circumstances and with the above-mentioned objectives, investigations were carried out in this survey, and proposals for achieving energy conservation were finally summarized. As a result, the following findings have been obtained. The implementation of this project will make it possible to generate electric power of 230 MW and significantly improve the refinery ’s operational profitability. Moreover, in the environmental aspect, this project is expected to save coal for a power plant equivalent to the amount of electricity generated by IGCC, as well as to reduce greenhouse gas carbon dioxide of about 290,000 tons/year, thus significantly contributing to the prevention of global warming.

As for economic profitability, the investment payback period is estimated at 3.4 years, which is a favorable evaluation. Furthermore, it has become evident that the reduction of greenhouse gas emissions by this project will not merely contribute to environmental protection in China, but also improve energy intensity (energy conservation in oil refineries) in the production of petroleum products, and have other environmental benefits due to the reduction in sulfur oxide and nitrogen oxide in the surrounding area. It is expected that the effects of this project will be made widely known to similar companies, and that there will be a new recognition that these companies could contribute greatly to their respective surrounding area.

The survey has shown that the implementation of this project will bring about a considerable reduction in greenhouse gas emission, as well as achieve the energy conservation target and operational profitability of Fujian Petrochemical Co., Ltd. In the future as well, in order to realize this project, a detailed plan, including a financing scheme, will be considered and drawn up in cooperation with the counterpart.

Finally, we hereby express our most sincere gratitude for Mitsubishi Corporation, Japan- China Economic Association, and the Japan Plant Maintenance Association for their cooperation. We sincerely hope that the results of this survey will contribute to the economic development of the People ’s Republic of China.

~~C-3 Attachments~~

~~Attachments-1 Attachments-2 List of References~~

• Internet home page of Japan’s Ministry of Foreign Affairs • People ’s Daily Internet Center • People ’s Daily • Statistical Overview of China • China’s Statistical Year Book • BP Amoco Statistical Review of World Energy; June 2000 • PETROTECH • Energy Economy • Energy Resources in China (the State Planning Commission of the People ’s Republic of China) • SINOPEC • China’s Petroleum Industry and Petrochemical Industry (Tozai Boeki Tsushinsha Co. Ltd.) • Chemical Economy • Handbook on China (Mitsubishi Research Institute; 1999 edition) • NEDO Overseas Report (No. 828 April 17, 2000) • Jiangnan Paper • Internet home page of Beijng Office of Japan-China Economic Association • “Gasification Worldwide Use and Acceptance” prepared by DOE,NETL,GTC and SEA Pacific Inc. • “Initial Operation of the Shell Pemis Residue Gasification Project ”, P.L.Zuideveld et al, EPRI/GTC Gasification Technologies Conference, 1998 • “Api Energia 280 MWe RGCC Plant Project Status Highlights ” R. Del Bravo et al, EPRI/GTC Gasification technologies Conference, 1997 • “Operation of ISAB Energy and SARLUX IGCC Projects”, Guido Collodi, “EPRI/GTC Gasification Technologies Conference, 2000 « “The 800 MWe PIEMSA IGCC Project”, T. Ubis et al, EPRI/GTC Gasification Technologies Conference, 2000

Attachments-3 When you release the description of this report, please obtain beforehand the allowance of International Cooperation Department of New Energy and Industrial Technology Development Organization (NEDO).

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