To OTC Journal Members: 

What comes first, the chicken or the egg roll? 

A recent article reported that the Chinese government plans to allocate 23 billion yuan ($3.37 billion) to energy saving projects. 

Is the timing coincidental? Not likely. A new report by McKinsey Global Institute says that China will account for a third of the world's energy demand growth beginning in 2010, representing a 70% spike over what it consumed in 2006. From 1991-2006, Chinese oil consumption tripled. 

On one hand, the Red Dragon is trying to look like a tree-hugging Poster Child by earmarking a boatload of money to create alternative energy. On the other hand, it's doing little to reduce the amount of energy it uses. 

In either case, China Energy Recovery (CGYV.OB) should be licking its chops. The company is on the country's list of green good-doers by converting heat waste into energy, which in turn reduces emissions and provides clients with government credits.

And from the likes of the numbers I'm about to discuss, lack of demand for what CGYV provides is nowhere in sight-especially when you consider the $56 million business has $35 million in backorders. 
 

Crunching the Numbers

The report says that energy consumption by Chinese industry will grow by about 28 QBTUs over the 10-year period and residential use will expand by 11.6 QBTUs.

I'll do the math for you. A single QBUT (quadrillion British thermal units) is equivalent to 172 million barrels of oil. So, that's 4,816 million more barrels used by industry and 1,995 barrels for residential use.

Doesn't seem to leave much for the rest of the world, huh?

For now, increase in demand is expected to stagnate or even contract in the short term in response to the economic downturn. But demand could snap back more quickly than many people think, giving rise to a potential for liquids-demand growth to outpace that of supply-risking a new spike in oil as soon as 2010 to 2013.
 

Well Positioned

This new demand report comes on the heels of a $5 million financing deal with a private investor that will allow China Energy to start building its manufacturing plant. 

CGYV expects phase one to be completed in mid-2010, just it time for China's massive appetite for fuel to kick in once again.

These gargantuan numbers should go a long way in pushing China Energy Recovery (CGYV) close to the magic $2 mark. Here's a little history behind the stock's movement. Prior to hitting bottom at $.90 last September, it delivered a 150% gain to its highest rebound level of about $2.25.

Now, CGYV is range bound, trading between $1.50 to $2. There seems to be sellers near $2, and buyers surface near $1.50. Its current price is $1.78. 

On the fundamental side, the company continues to make money despite today's economy -- 2006 was $5 million, 2007 was $12 million, and 2008 grew to $23 million. If you consider the $7.2 million delivered in Q4, CGYV is on track to bring in $28 million in 2009.