Strategic crude oil reserves

An unnamed official from China’s National Energy Administration (NEA) has announced that China plans to increase its strategic crude oil reserves by 160% to 270 million barrels over the next five years, according to the Nikkei newspaper. As part of the plan it will begin building a second group of stockpiling bases as early as this year at a cost of 30 billion yuan (US$4.39 billion). The second group of facilities will consist of eight sites with a total capacity of 26.8 million kilolitres, or 169 million barrels, and will be completed in five—six years and filled in sequence. The Chinese government aims to have supplies equal to 90 days of consumption by 2020, putting it on a par with industrialised nations.

Significance: Earlier this month the State Council approved the second phase of China’s strategic crude oil reserve plan, which is a significant increase on the first phase launched in 2003 under which four bases have been constructed with the capacity to hold between 20 and 30 days of imports (see China: 4 June 2009: Chinese State Council Approves Second Crude Reserve Plan, Opens Up Bases to Foreign Media). China’s NOCs have been looking to take advantage of the fall in global crude prices and demand to boost strategic reserves, which can provide a buffer against potential supply disruptions to the domestic market. A number of oil-for-loans agreements with countries such as Russia and Venezuela promise to secure long-term supplies at favourable prices for the strategic crude oil reserve plan while the acquisition of foreign producers such as Addax Petroleum also potentially promises control over crude streams around the world, some of which may be directed towards the domestic market (see World: 25 June 2009: Sinopec Agrees to Acquire Addax Petroleum for US$7.2 bil.). The sharp increase in strategic oil reserves could have a modest upward impact on global oil prices, particularly as China is planning to fill the larger second phase of its strategic crude oil reserve plan more quickly than the first.

This entry was posted on Wednesday, July 1st, 2009 at 10:42 am and is filed under World. You can follow any responses to this entry through the RSS 2.0 feed.