SINGAPORE - 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.
An undated file
photo shows the construction site of the Zhenhai oil reserve.
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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.
