China’s Oil Reserve Plan
China’s crude oil imports have been rising steadily. In 2009, the total amount imported exceeded 200 million tons (1.45 billion barrels). For many years, more than 50% of the oil that China consumes has been imported. Establishing an oil reserve has become an urgent priority in order to safeguard the security of the nation’s energy.
On December 18, 2007, the National Development and Reform Commission announced the formal establishment of the China National Oil Reserve Center. It decided to build oil reserve bases in three phases over a period of 15 years. When the entire project is completed in 2020, China will have oil reserves equivalent to about 100 days of net oil imports. The reserve capacity in the national oil reserve itself will be around 85 million tons, or 99 million cubic meters, with a volume equivalent to 90 days of net oil imports. [2]
Actually, China’s crude oil reserve capacity is regarded as a top secret and is never disclosed publicly. The only number related to oil reserves that is made public is the amount Xinhua News Agency publishes at end of each month. However, that number does not include the national oil reserve. It is mainly based on the oil stock from PetroChina Company Ltd. and Sinopec Corp., with some reserves from other companies.
China’s oil reserve system is based on what is done in the U.S., Europe, and Japan. It consists of four levels: national strategic oil reserves, local government oil reserves, state-owned-enterprise commercial oil reserves, and other mid-level or small companies’ oil reserves.
Three conditions apply to selecting national oil reserve sites: 1. Access to excellent transportation and logistics, such as being near a deep sea port, railway system, or highway system. 2. Proximity to large oil refineries so that the reserved oil can be processed quickly and easily during critical times. 3. Proximity to consumer markets. The four bases in the first phase were all located in the coastal areas where oil consumption is high. Of course, site selection is also based on the geographic location of the countries that export oil to China. For example, locations in the Xinjiang Uyghur Autonomous Region in the second phase were chosen for this reason (to handle oil imported from Central Asia).
China has completed first-phase construction of its oil reserve bases. It has the basic infrastructure necessary to begin implementing its oil reserve strategy. However, there is still a lot of work to be done to set up a complete oil reserve system. For example, laws must be created to handle the strategic oil reserves. An administrative system for the reserve business must be established; planning must be developed for the sources of oil reserves and funding must be secured; new reserve sites must be selected; and the proper reserve amount must be determined.
According to industry experts, because China has just started setting up its oil reserves, it won’t have the ability to stabilize oil supplies or the oil product market if there is a market shortfall in the near future. Therefore, from both the viewpoint of the internal market and the external environment, it is imperative that China establishes its oil reserves quickly.
Three-Phase Implementation
During the first phase of implementation, China has funded four strategic oil reserve bases. They are located in Zhoushan, Zhejiang Province; Zhenhai, Zhejiang Province; Dalian, Liaoning Province; and Huangdao, Shandong Province. Oil started filling the Zhenhai oil reserve base as early as August 11, 2007, using crude oil from Russia. All four bases were in operation by 2008. Filling was completed in 2009. The average cost for the reserved oil was $58. The total reserve capacity was 16.4 million cubic meters, or 14 million tons, about 10 days worth of China’s crude oil imports. With an additional 21 days of commercial oil reserve capability, China’s total oil reserve reached 30 days of crude oil imports after the first phase.
In the second phase, inland provinces will play a major role as the reserve base. Dushanzi national oil reserve base project in Xinjiang started last September. China plans for eight bases in the second phase, including Zhanjiang, Guangdong Province; Huizhou, Guangdong Province; Lanzhou, Gansu Province; Jintan, Jiangsu Province; Jinzhou, Liaoning Province; and Tianjin. The planned capacity for the second phase is 26.8 million cubic meters. There has also been major progress in building commercial oil reserve capacity. Oil companies in China have collectively built a commercial crude oil reserve capability of about 30 million barrels. Of that amount, Sinopec has 50% and PetroChina 40% of the capacity.
The third phase is in the planning stage. Many provinces and cities are competing to be selected as a base. The Wanzhou District in Chongqing City; Hainan Province; and Caofeidian District, Tangshan City, Hebei Province, are three of the front-runners.
Oil Reserve Bases Ranked
Tianjin oil reserve base (phase 2) – 5 million cubic meters of national strategic oil reserve tanks and 5 million cubic meters of commercial oil reserve tanks, for a total capacity of 10 million cubic meters
Shanshan oil reserve base, Xinjiang (phase 2) – 8 million-cubic-meter capacity
Zhoushan oil reserve base (phases 1 & 2) – total capacity of 5 million cubic meters completed in the first phase, with an additional 2.5 million cubic meters to be built in the second phase
Dushanzi oil reserve base (phase 2) – total capacity of 5.4 million cubic meters. Construction started in September 2009 and will be completed in July 2011.
Zhenhai oil reserve base (phase 1) – 5.2 million cubic meters. All of its 52 oil reserve tanks have been filled to capacity.
Huizhou oil reserve base (phase 2) – Planned for a capacity of 5 million cubic meters
Huangdao oil reserve base (phase 1) – 3.2 million cubic meters
Dalian oil reserve base (phase 1) – 3 million cubic meters
Lanzhou oil reserve base (phase 2) – 3 million cubic meters capacity. To be completed in the first half of 2011
Jinzhou oil reserve base (phase 2) – 3 million cubic meters
Jintan oil reserve base (phase 2) – 3 million cubic meters capacity in underground caves. This base can be used to store either oil or natural gas.
Endnotes:
[1] China Review News, January 18, 2011
http://gb.chinareviewnews.com/doc/1015/7/3/5/101573543.html?coluid=10&kindid=253&docid=101573543&mdate=0118133506
[2] We noticed that the numbers here did not match, but left them in place in order for the translation to be exact.