[ASIA] China Quake May Reduce Energy Demand

China's strongest earthquake in 58 years may reduce the nation's energy demand as damaged power plants and transmission lines force companies to idle some generators.

About 5.5 gigawatts, almost 1 percent of the nation's generation capacity, were idled in the provinces of Shaanxi and Sichuan after yesterday's quake, according to a report by the official Xinhua News Agency, citing data from the State Grid Corp. of China. Sichuan, where the quake was focused, lost 4 gigawatts of capacity.

``This earthquake in China may impact demand from power plants being down,'' Phil Flynn, a senior trader at Alaron Trading Corp. in Chicago, said in a telephone interview. ``Demand for oil was already down in April.''

China's oil imports, the third-highest in the world, fell for the first time in 18 months in April as record crude prices discouraged refiners from purchasing oil to turn into fuels for sale at less than costs. Crude oil for June delivery fell $1.86, or 1.5 percent, to $124.10 a barrel at the close of floor trading on the New York Mercantile Exchange yesterday on concern that demand may fall in emerging markets including China.

Six substations were damaged in Sichuan, disconnecting power plants in the province's western regions from the national grid, while in neighboring Shaanxi two substations and three generating units were hit by the temblor, Xinhua reported.

Sichuan holds about 40 percent of China's natural gas reserves and produced about 22 percent of the nation's output in 2006, according to China National Petroleum Corp., PetroChina's parent, and BP Plc's annual energy report.

The full extent of damage to China's resource companies isn't known because disruptions in telephone networks cut off local staff from their head offices in Beijing, Shanghai and Guangzhou. The quake took out more than 2,000 China Mobile Ltd. base stations, Vice President Sha Yuejia said in a broadcast on state-run China Central Television.

Metal Production
Aluminum smelters in Sichuan reported little damage to production, said Wan Ling, an analyst with metals and mining researcher CRU International Ltd.

``The earthquake center is pretty far from Chengdu and Chongqing, and industrial facilities,'' said Wan, adding that she had been in contact with smelters in the region. The 7.9 magnitude quake struck 90 kilometers (55 miles) west-northwest of Chengdu, the provincial capital of Sichuan, and about 350 kilometers from Chongqing.

Sichuan's output of aluminum and zinc is relatively small in national terms, said Michael Widmer, London-based analyst with Lehman Brothers Holdings Inc.

The province's aluminum production is about 600,000 tons, Wan from CRU said by phone from Henan province. China, the world's largest producer, has a total aluminum capacity of more than 15 million tons.

Source: Bloomberg| by Rob Delaney

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