In terms of coming onto the world energy stage, China knows how to make an entrance. With a population of 1.3 billion people, China is the second-largest energy consumer behind the U.S. "China has been a net importer of energy since 1993," says Jeffrey A. Blount, a partner in law firm Fulbright & Jaworski's Hong Kong office. "Its economy is export-driven and it is thriving as a result of labor and cost arbitrage, which is driving this insatiable demand for energy. As long as its economy is roaring along, China will be adding to world energy demand." China's energy plan involves increasing the role of gas in the energy mix from 3% to 10% by 2020, says Michael E. Arruda, also a partner in the Hong Kong office. It plans to reduce industrial use of natural gas and increase gas use by power plants and residences. Much of this gas would be imported via pipelines as liquefied natural gas (LNG), Arruda says. Blount says, "LNG is one of the most attractive investments for foreign investors in China." Crude oil costs continue to rise, while large, underexploited gas supplies outside of China and the proliferation of LNG projects under development have lowered LNG prices, Arruda says. Also, politically, LNG is viewed as less risky, and natural gas meets improved environmental standards in China. China's indigenous supply does not even come close to meeting demand, forcing it to compete for supply, the attorneys add. China has oil reserves of 47 billion barrels and gas reserves of 53 trillion cubic feet. Its demand in 2005 has been 7.3 million barrels of oil per day, while its production has been 3.6 million per day. Its major fields are in decline, such as Daqing, which was discovered in 1959, while its other promising fields, such as those in the Tarim Basin, have been underwhelming.
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