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Coal Industry

China's raw coal output is now exceeding half a billion tons a year, the total surpassed only by the Soviet and the U.S. production.39 Coal is still the country's principal fuel and large northern and northeastern mines (figure 3) remain its biggest suppliers. Collieries of Ta-t'ung, Fu-hsin, Fu-shun, Ho-kang, Chi-hsi, and P'ing-ting-shan each extract over 10 mmt of raw coal annually, and K'ai-luan, China's oldest and largest commercial mine concentration, surpassed alone 25 mmt in 1975 before it was devastated by the July 1976 earthquake.40 The best available provincial estimates indicate that the North and the Northeast produced no less than 60 percent of the national output and that the South, with no more than 17 percent of the production, remains an uncomfortably coal-deficient region.

41

32 The 1975 U.S. coal output reached 586.43 mmt (USBC, op. cit., p. 710); the Soviet production was the world's largest with 701.28 mmt (Tsentralnoye statisticheskole upravlenie (TSS U), "Narodnoe khozyaistvo SSSR v 1975 g." (Moscow, Statistika, 1976), p. 242.

40 For details on K'ai-luan's development, production, and national importance see V. Smil, "Earthquake Strikes at China's Energy Centres." Energy International, vol. 13, No. 12 (December 1976), pp. 21-22 and H. Harnisch and H. G. Gloria, "Eindrucke vom chinesischen Steinkohlenbergbau im Kailaner Revier," Gluckauf, vol. 111, No. 21 (Nov. 6, 1975), p. 1010.

41 CIA, "China: The Coal Industry," op. cit., p. 8.

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than 10 mmt of annual raw coal production in the mid-1970's.

FIGURE 3.-China's major coalfields. Large squares show collieries with more

There are other similarly intractable problems in China's coal industries. Investment in new mines has been clearly inadequate during this decade with most of the output increases coming from existing collieries. For example, before the earthquake five of the seven K'ai-luan's mines were producing twice as much as was their designed capacity 2 and similar indications of intensive exploitation of old mines are available for other coalfields around the country. Mechanization of large mines remains low and although there are some fairly advanced collieries, no more than 50 percent of all Chinese coal is extracted, loaded, and conveyed mechanically, whereas these operations are virtually 100 percent mechanized in the two other coal superpowers. Even more serious is the shortage of coal preparation capacity; the latest reliable account found its total at 83.62 mmt in 1970 43 and if it would have since grown even by sustained 10 percent per year certainly a too optimistic assumption-the 1977 total could not be greater than about 150 mmt, that is no more than onethird of the country's total raw coal production. And the share of the most efficient and most progressive method of extraction-largescale surface mining-is even lower, perhaps no more than 10 percent.45

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These problems are certainly well recognized, and the Chinese have tried to move toward their solution by reestablishing a separate Ministry of Coal Industry in January 1975 and by embarking on a 10year plan of comprehensive modernization in October of the same year. The major tasks announced were the general mechanization (80-85 percent of all operations) of principal large mines, concentration of the future developments in the existing major coalfields and in new large mines currently under construction as well as the continuing expansion of small mines. As part of this program, more than 50 new shafts were completed in 1976 and 21 pairs of new shafts, with an annual capacity of five mmt, went into operation between January and mid-September 1977.46 K'ai-luan attained its pre-earthquake output by the end of 1977, greater variety of coal machinery is available from domestic production and sizable production increases are expected in the South.47

Nevertheless, it will be a difficult and costly effort to modernize the industry and to maintain its historical output exponential growth of 5.4 percent annually 48 in the decade ahead as the need for heavy investment in this relatively neglected-yet still absolutely essentialfield will have to be weighed against, and adjusted to, the no less pressing requirements of other branches of modern energetics.

Hopeh provincial broadcast, SWB, FE/W810/A/11-12 (Jan. 22, 1975).

A. B. Ikonnikov, "The Capacity of China's Coal Industry," Current Scene, vol. 11, No. 4 (April 1973), p. 8. Coal preparation involves removal of the associated rocks (crushing, washing, and gravity separation of coal and foreign material followed sometimes by dewatering of smaller sizes) and production of fractions of uniform size and quality for different markets. Unprepared coal cannot be used in large modern boilers which can convert the fuel into heat as much as four or five times more efficiently than household stoves or small boilers burning raw coal.

45 U.S. surface production was 54.7 percent in 1975 and, in the same year, the Soviet open mines produced 32.2 percent of the total: USBC, op. cit., p. 710; TsSu, op. cit., p. 242.

46 NCNA in English, SWB, FE/W950/A/15 (October 12, 1977); NCNA also claimed that all equipment for these shafts, including hoisting machines, electrical control devices, excavators and scraper conveyors, was domestically designed and produced.

47 Hunan's goal is more than 25 million tons of raw coal in 1980, Fukien plans for self-sufficiency at the same time: Hunan and Fukien provincial broadcasts, SWB, FE/W952/A/13 (October 26, 1977); FE/W941/A/13 August 10, 1977).

45 When the production depressions caused by the Sino-Japanese civil war and Cultural Revolution, as well as the Great Leap surge, are left out, the Chinese coal output for the past 60 years shows an excellent exponential fit with a growth rate of about 5.4 percent annually: V. Smil, "China's Energy," op. cit., p. 23.

Hydrocarbon Industries

Very high growth rates of China's hydrocarbon extraction, first crude oil exports to Japan and other East Asian countries, expansion of oilfields and refineries, new major gas discoveries and the promising offshore potential have brought widespread international attention to China's oil and gas industry 49-as well as numerous predictions of the country's emergence as a Saudi Arabia of the Far East.50 Admittedly, the country's annual crude oil production increments have been quite substantial-though not without many precedents around the world-during the first half of this decade, but critical analyses had to conclude that China's future export potential is limited, and that the fast growth rates are unsustainable.51 Recent developments have confirmed these conclusions 52 and there is little doubt that the Chinese hydrocarbon production will require large investments and far reaching technological modernization just to keep up the pace with the growing demand.

This is due to a multitude of deficiencies which have accompanied the Chinese oil and gas development. The technology has been very much Soviet-oriented and the Chinese problems are similar to the Soviet ones, only more widespread: shortage of sophisticated geophysical equipment (modern seismic devices, computerized field units) limits the capability of locating deep structures; inefficiencies in field operations are caused by shortages of high quality drilling and casing pipes, continuing reliance on old turbo-drills, poor drill bits and mud pumps, lack of gas treating facilities, and until recently, the prevalent use of line-drive waterflooding.53 This all spells low ultimate recovery rates and slow pace of development in any but rich and shallow fields.4 The Chinese offshore drilling and production technology is especially rudimentary: their drilling fleet for 1976– 77 consisted of only two shallow-water barges, two shallow-water jackup rigs, one older jackup and its near copy and two catamaran drillships. 55

In spite of several major additions during the past 5 years, pipeline network is still quite thin, totaling about 7,500 km.56 Similarly, major improvements have also been achieved in the Chinese oil ports but Lü-ta in Liaoning is still the only installation able to accommodate 100,000-ton tankers and there are only two other terminals-Chanchiang in Kwangtung and Huang-tao in Shantung-which can handle 70,000-ton vessels.57 However, the largest domestically-built tankers

"The most valuable publications have been B. A. Williams, "The Chinese Petroleum Industry: Growth and Prospects" in "China: A Reassessment of the Economy," op. cit., pp. 225-263; H. C. Ling, "The PetroJeum Industry of the People's Republic of China" (Stanford, Hoover Institution, 1975): Chu-yuan Cheng, "China's Petroleum Industry" (New York, Praeger Publishers, 1976) and CIA, "China: Oil Production Prospects" (Washington, D.Č., CIA, 1977).

50 Chairman of the Japan-Chira Oil Import Council, Ryutaro Hasegawa, and the Japan External Trade Organization were the principal sources of these predictions and their unfounded statements have been, unfortunately, transmitted to the American readers under sensational headings by S. S. Harrison, "Time Bomb in East Asia", Foreign Policy, No. 20 (Fall 1975), pp. 3-27 and Choon-ho Park and J. A. Cohen, "The Politics of China's Oil Weep n", ibid, pp. 28-40.

51 See, among others, V. Smil,Communist China's Oil Exports: A Critical Evaluation", Issues and Studies, vol. 11, no. 3 (March 1975), pp. 71-78; CIA, "China: Energy Balance Projections" (Washington, D.C., CIA, 1975); R. W. Hardy, "Chinese Oil" (Washington, D.C., The Center for Strategic and International Studies, 1976).

52 Crude oil production growth rate dropped from 20 percent in 1974 to 13 percent in 1975, stayed at the same level in 1976 and dropped further to only eight percent for the first 11 months of 1977 according to "Initial Success in Economic Construction," Peking Review. Vol. 21, No. 2 (January 13, 1978), p. 12.

A. A. Meyerhoff and J-O. Willums, "Petroleum Geology and Industry of the People's Republic of China", CCOP Technical Bulletin, Vol. 10 (1976), pp. 204-205.

4 CIA, "China: Oil Production Prospects," op. cit., p. 22.

45 Meyerhoff and Willums, op. cit., p. 206.

56 Meyerhoff and Willums, op. cit., p. 207; for details on oil pipelines, both in operation and under construction, see CIA, "Chira: Oil Production Prospects," op. cit., p. 25.

67 CIA, "China: Oil Production Prospects," op. cit., p. 26.

have only 25,000 tons and the Chinese will have to build or import bigger ships to take the advantage of significant economics of scale which they could enjoy by using larger vessels for their north-south coastal shipments of crude oil.58 With the increasing consumption of oil products in large southern cities, as well as in the countryside, these shipments are bound to increase substantially because the regional disparity in crude oil production is even stronger than in the case of coal extraction. Five giant oilfields in the Northeast and the north are producing nearly 90 percent of the nation's oil (figure 4), an imbalance which cannot be remedied easily.

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FIGURE 4.-China's major oilfields. Shares of the 1975 crude oil production (according to the CIA, "Economic Indicators," op. cit., pp. 28-29) are shown for nine major fields which provided 98.3 percent of the aggregate output of 74.261 mmt.

Yet another serious deficiency affecting China's oil industry has been the persistent shortage of refining capacity. According to the official claims, crude oil output had grown more than six times between 1965 and 1974, but the refining capacity increased less than four times, and only a slightly smaller disparity between the two volumes was reported during 1977.59 Even after subtracting the exports and the

59 The Japanese and European experience has shown that the largest economies of scale are realized when increasing the tanker size between 20,000 and 200,000 deadweight tons; gains are much smaller for larger ships-while the problems with them (maneuverability, accident and pollution chances) are greater. The Chinese have actually bought several secondhand 75,000-100,000-ton ships from Japan and Europe.

59 NCNA claimed that while the crude oil output during the first half of 1977 was 10.6 percent higher than during the comparable period in 1976, the amount of oil refined was up by only 8 percent: NCNA in English, SWB, FE/W938/A/11 (July 20, 1977).

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