CHINA MARKET COMMENTARY: STRONG FIRST QUARTER SETS STAGE FOR CONTINUED STRONG DEMAND

China's economy and energy needs continue to grow rapidly despite the government's austerity policies, which have increasingly focused on monetary controls. Gross domestic product growth in the first quarter was 11.1 percent, and CERA expects strong growth through the coming months to drive energy demand across the board.

*Demand for crude oil and products is expected to be robust through 2007 on the back of vigorous first quarter demand led by naphtha, diesel, and low inventories.

*In the near term, natural gas supply constraints continue to define the market, but several recent developments suggest an expansion of supply to the market in the medium to long term.

*Electricity generation capacity continues to expand rapidly, with 90-95 gigawatts scheduled to be added in 2007 to meet demand, particularly from heavy industry. Closures of older, small plants in favor of large, cleaner plants may affect peaking capacity, particularly through the summer months.

*China became a net coal importer, in part to supply cheap Indonesia coal to power-hungry Guangdong. However, overall domestic coal production and prices recorded substantial growth of 6.9 percent and 9.4 percent, respectively.

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CERA Reports Online, a wholly owned subsidiary of IHS Energy, is a leading advisor to international energy companies, governments, financial institutions, and technology providers. CERA delivers critical knowledge and independent analysis on energy markets, geopolitics, industry trends, and strategy. CERA's expertise covers all major energy sectors--oil and refined products, natural gas, and electric power--on a global and regional basis.