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Asian Petroleum Review : Jan-March 2011
21 Call it the Beijing two-step. Almost every winter, China's energy mar- ket suffers a new variant of the same no- win situation as state controls exacerbate supply shortages that only urgent and pricey imports can relieve. This year it is diesel that is scarce. A spike in demand for diesel-fired power genera- tion has caused a supply shortage that could last well into 2011, forcing Chinese refineries to im- port the fuel for the first time in nearly two years and to consider tapping state fuel reserves. Despite cold weather and rising fuel costs, a state campaign to stamp out energy wastage has prompted officials in many provinces to cut power supplies to factories, businesses and even homes and public facilities. Many big power users have simply switched to stand-alone diesel generators, which fly below the radar of the official campaign focused mainly on coal-fired electricity. The International Energy Agency, which forecasts the measures would add an extra 70,000 barrels per day of diesel demand in China until February, says shortages have hit big cities such as Beijing, Shanghai, Chongqing and Nanjing. "Energy efficiency is very important for the Chi- nese government and so you set a very ambi- tious target and try to achieve it," said IEA Ex- ecutive Director Nobuo Tanaka. "But sometimes this kind of unexpected result, moving demand to diesel power, may happen. " . Government controls keep prices at the pump in check, and the inflationary impact makes further rises at the pump an unlikely govern- ment response to the shortages. "Given concerns about inflation, more fuel price increases are not a sure thing and the (supply) outlook for the domestic refined fuel market is not good even in January or Febru- ary," said an analyst with a Sinopec thinktank, who declined to be named as a matter of in- ternal policy. Although diesel prices were mostly freed up two years ago, that reform only guaranteed "normal" price fluctuations while crude oil was below $80 per barrel. With U.S. light crude above $80 in the last few weeks, the system lacks one of its few release valves: flexible fuel pricing. "There will be more shortages, trust me, unless China raises prices, " said Gordon Kwan, head of energy research at Mirae Asset Securi- ties in Hong Kong. Compared to previous fuel crises, this year cer- tainly offers some hope for energy consumers: first, the energy efficiency drive is aimed squarely at a year-end deadline, which could mean pressure for power cuts could abate sharply on Jan 1. Thomson Reuters Asia Petroleum Review In coal lockdown, China creates diesel snafu By Jim Bai and Chen Aizhu BEIJING Jiang Jiemin, Chairman, Petrochina "Energy efficiency is very important for the Chinese government and so you set a very ambitious target and try to achieve it" - Nobuo Tanaka IEA Executive Director .