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China to have strategic oil reserve soon
By Felicia Loo | June 10, 2005

SINGAPORE (Reuters) - China is on track to complete building its first strategic oil reserve storage tanks by August, but Beijing has not indicated when it may start filling them in the face of high oil prices, an industry official said on Friday.

The world's second-largest oil consumer after the United States will finish the crude oil tank farm in Zhenhai, located in the port city of Ningbo in the booming east coast province of Zhejiang, on schedule with plans announced last year, he said.

The 5.2 million-cubic-meter (33 million-barrel) facility will hold about one-third of China's initial planned emergency reserves, the foundation of state efforts to bolster energy security as consumption soars and domestic output plateaued.

"The entire infrastructure in Zhenhai will be completed by August. But prices are so high right now and it is not clear when Beijing will kick off emergency stockpiling activities," the Chinese official told Reuters.

A top Chinese government official said last week that China would build up its emergency stockpile gradually, lessening the impact on global energy prices.

He did not say when Beijing could begin filling the tanks, a move being closely monitored by oil traders fearful that even a modest build will add stress to a taut global crude market that some fear may struggle to meet global demand later this year.

China's oil demand is forecast to rise by almost 8 percent this year to nearly 7 million barrels per day (bpd), half last year's explosive growth rate but still increasing its dependence on foreign crude.

It now imports 40 percent of its oil needs and the growing reliance on imports has moved energy up the political agenda, especially as prices cling above $50 a barrel.

CUSHION

China has also earmarked three other sites for strategic stocks along the eastern seaboard, aiming to build a total of 16.2 million cubic meters (101.9 million barrels) of reserves in the next five years, equivalent to 20 days of consumption.

This would augment the commercial stocks of the country's major refiners and importers, who typically hold 10 to 30 days worth of supplies, and give Beijing some cushion against any unexpected supply outages, particularly from the Middle East.

Industrialised nations highly dependent on crude oil imports, such as Japan and the United States, built up large emergency stockpiles in the mid-1970s, after the Arab oil embargo.

The United States is due to complete filling its Strategic Petroleum Reserve (SPR) to its 700-million-barrel capacity -- stored in salt rock caverns -- in August.

Top Chinese refiner Sinopec has been commissioned to build the tanks in Zhenhai, where its unit Zhenhai Refining & Chemical Co Ltd is based. The 400,000 barrel-per-day (bpd) refinery is the largest in China.

The United States also has a 2-million-barrel reserve of heating oil in its Northeast, but China has no intention of building product stocks as yet, the industry source said.

"Unlike the United States, China will concentrate on strategic crude stockpiling first. There are no plans for products reserves at this point," he said.

The other crude oil tanks will be in Aoshan in Zhejiang, Huangdao in Shandong and Dalian in Liaoning.

The capacity in Aoshan will be similar to Zhenhai, while the other two sites will each boost 30 tankers storing up to 3 million cubic meters of oil.

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