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Use cheap oil to build more reserves, say analysts

By Si Tingting (China Daily)
Updated: 2009-02-18 08:09

China should start building more strategic oil reserves before international oil prices bounce back to a higher level, industry researchers said.

Related readings:  Use cheap oil to build more reserves, say analysts  China may use forex reserves to help oil firms  Oil steady amid OPEC talks of more output cuts  China's crude oil output hit 190 mln tons in 2008

"The plummeting crude oil prices has given us a perfect chance to increase our strategic oil reserve capacity, but it is a shame that we don't have enough tanks to store them. The government should really press on with the construction," Lin Boqiang, director of the Center for Energy Economic Research of China in Xiamen University, told China Daily.

China recently completed construction of four oil stockpiles. Two of them are in Zhejiang, one in Shandong and the other is in Liaoning. These reserves, together, represent the first phase of its strategic oil-reserve plan.

China is targeting to stockpile 44.6 million cu m of crude by 2011, the country's top oil producer, China National Petroleum Corp, said on its website yesterday.

The country will start constructing oil reserves at eight more locations this year. With the exception of Huangdao in Shandong province and Jinzhou in Liaoning province, the locations of the other six have not been made public.

The Chinese-language China Business Journal has quoted unnamed sources as saying that the construction of another strategic oil reserve base with a capacity of 5 million cu m is also being carried out secretly.

With the planned eight new reserves, China could hold oil stockpiles equivalent to 30 days of net oil imports, compared to the stockpile of 90 days of oil imports required by IEA members.

"As a non-IEA country, China should also try to meet the 90-day requirement for the sake of our own energy safety," Lin said.

Lin has suggested that the government should talk to non-State oil refiners to use their idle storage capacity to take advantage of plunging crude prices.

Benchmark crude oil has fallen by more than 70 percent from a record $147.27 a barrel in July last year. "If we bought all the crude oil at $40 a barrel, instead of the peak price of $147, we could save about 1 trillion yuan annually. That is 20 percent of our annual fiscal revenue," Lin said.

He has also proposed that China's biggest oil producers should cut production and rely more on cheaper imported oil. "If we don't have enough tanks for the crude, we'd better leave them unexploited," he said.

Hundreds of non-State oil distributors and refiners in China are currently sitting on empty tanks that could hold 230 million tons of crude oil.