3) To make great efforts to develop natural gas industry in order to optimize energy structure. Natural gas industry will enjoy top priority in energy investment allocation in order to strengthen exploration and increase output. Measures will be taken to encourage investment from more channels to explore and extract natural gas and to build pipelines and infrastructures.

Projects related to natural gas will be granted favorable policies in terms of loans. New regulations will be established with regards to pricing, tax, environmental protection research to nurture natural gas industry. At the same time, measures will be taken to speed up the coal gas development.

4) To encourage domestic enterprises to take active parts in international market to source oil and gas from various origins. Domestic enterprises will be encouraged to conduct their business internationally. They are expected to play a more active role in joint exploration and extraction overseas and build up oil and gas production bases there. In this way, domestic technology, equipment, materials and labor are expected to enter overseas markets. Measures will also be taken to encourage more overseas oil and gas to enter domestic market.

5) To speed up establishment of a national oil reserves system under unified planning. A national oil reserves system should be established because it can ward off or cushion any possible negative effects incurred by supply disruptions, price upheavals and other unexpected events. and ensure a stable oil supply. Certain proportion of the oil supplies, controled by the government, will be marketed to cover operation and maintenance costs.

In the early stage of the project, a greater proportion of the oil will be allocated to the market to alleviate government financial load. Funds for reserve infrastructure will be mainly provided by the government, but more financial resources will be sought through policy loans, issuance of securities. At the same time, an enterprise reserve system will also be set up.

6) To reform financial system for oil investment, strengthen supervision and perfect policies and organizational structure. Government approval for each project will be phased out. Enterprises will be decision makers and risk takers; Banks are entitled to grant loans independently and the government will assume the role of a supervisor. The investors will be decision makers, beneficiaries, and also risk takers under the new investment management. International practices will be adopted, through legislation and administrative measures, to better major management system and regulate business operations. Laws and regulations on oil resource management and commercial activities will be enacted.

2: A brief introduction to the development of China's oil and gas industry

Oil and gas industry has developed into a fundamental industry in China's economy. So far, up to 688 oil and gas fields have been discovered in 25 provinces, cities, autonomous regions and offshore areas. China has set up six oil and gas zones, including 24 production bases, like Daqin, Shengli, Liaohe, Xinjiang, Sichuan, Changqin, Bohai and South China Sea.

China has become the fifth biggest oil producer in the world with an oil production of 160 million metric tons in 2000 from a paltry 121,000 metric tons in 1949. China ranks fifteenth in gas production with an output of 27.7 billion cubic meters in 2000. By the end of 1999, China has built 11,300km long-distance oil pipelines, 11,800km long-distance gas pipelines. Now an oil network connecting Northeast China, North China and East China, and a gas network connecting North China and Sichuan-Chongqing have been set up. A system including exploration, extraction, designing, operations, scientific and technological research and technical supporting services has been in place in the industry.

By the end of 1999, the discovered oil reserves amounted to 20.56 billion metric tons, with 5.93 billion recoverable. 42.4 percent of the total recoverable oil reserves are discovered with 8.07 billion metric tons to be discovered, enjoying a huge potential for exploration. The total natural gas resources amounted to 380 million cubic meters (kcm) with an estimated 105 kcm recoverable. Up till now, 23 kcm of natural gas has been discovered with 14.8 kcm recoverable. Only 14 percent of the recoverable resources has been found so far. Despite all these, China is still at preliminary stage in gas exploration. The country is rich in coal gas. It is roughly projected that China hs 3,000-3,500 billion cubic meters of gas reserves up to 2000 meters deep on land.

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