Oil & Gas
With China's rapidly growing economy, energy demand has increased dramatically. In 2006, China was the world's second largest consumer of energy, consuming oil with 7,27400,000 barrels per day. While coal has traditionally been the country's main source of energy, environmental concerns have prompted China to reduce its reliance on coal and increase the use of oil and gas as alternate sources of energy. According to the EIA, China's annual crude oil consumption went from 3,000,000 barrels per day in 1993 to 5,200,000 barrels per day in 2002, or a compounded annual growth rate of 6.3%. The EIA forecasts that daily consumption of crude oil in China will reach 13,200,000 barrels by 2025.
In the PRC's 11th Five-Year Plan (2006 to 2010) or the Five-Year Plan, the Chinese Government outlined the directions to be followed by the energy industry and associated government agencies to enhance oil and natural gas exploration capabilities, employ leading edge extraction techniques to increase oil extraction efficiency rates, and promote the use of environmentally friendly energy-efficient new materials.
The Chinese government does not control prices or impose any material market controls on the sale of FRP pipes in China. The Company prices its various products on the basis of standard commercial factors.
In the past three years, increasing oil prices have allowed Chinese oil producers to use advanced oil extraction methods that require pipes that are able to withstand substantial pressure and highly corrosive materials. Because metallic-based pipes such as steel pipes have proven problematic under such extreme conditions, there is now increased demand from domestic oil producers to increase the use of FRP pipes.
Hanwei's primary FRP oil pipe production is located in Daqing, the oil and gas heartland of China. The oilfield located in Daqing accounted for over 25% of domestic oil production in China in 2004. Located in the Heilongjiang Province in northeast China, the City of Daqing was founded in December 1979. Daqing Oilfield is now the largest oil production base in China. Daqing is also an important base for the petrochemical industry in China, with approximately 70 large and small-sized petrochemical enterprises.
While Daqing and other adjacent oil fields located in northeastern China have been the primary market for Hanwei's products, the Company has successfully sold and installed its products into other parts of China and will seek to increase its market share in the oil and gas producing regions of southwestern China, Shandong, and Xinjiang. In addition, Hanwei has implemented a plan to extend sales internationally and received its first sales order from Kazakhstan in 2007.
