Strategic Petroleum Reserve in China

Strategic Petroleum Reserve in China
China’s is the world’s second-largest oil consumer and oil importer. (The US, of course, is the leader in both those categories.) Given China’s enormous oil appetite, which in 2009 averaged about 8.6 million barrels per day, nearly double the level achieved in 1999, it’s no surprise that China continues filling its strategic petroleum reserve (SPR). Indeed, by having its own SPR, China joins the ranks of other developed countries and it follows the recommendations of the International Energy Agency. And in building and filling its SPR, China has also inflated its own oil demand.

China began discussing the need for an SPR back in 1993. Eight years later, the SPR was named as a key component of China’s oil strategy for the 21st century and in 2004 construction on the first SPR project was launched in Zhenhai, Zhejiang Province. That SPR has a capacity of about 102 million barrels. Last year, all of the country’s SPR projects were in operation, containing about a two-week supply of oil. The oil that filled the first SPR facilities averaged $58 per barrel, much lower than the average price during the period, thanks to the global financial downturn.

Today, a second batch of SPR projects is under construction, with a designed capacity of 169 million barrels and a third batch of SPR locations are now going through the site selection process. That third group of SPR projects, which will also have a capacity of 169 million barrels, will likely be finished by 2020. Thus, within a decade, China’s SPR will have a capacity of about 100 days of imported consumption.

While the SPR provides China with a measure of security on the oil supply front, the facilities themselves have long been monopolized by the big national oil companies. Sinopec has 50 percent of the capacity in the SPR and PetroChina has 40 percent. However, in May several private enterprises have been allowed to join the SPR business for the first time. Even before the bidding, those companies had storage space and piers for oil transportation and storage. It is estimated that the private storage capacity is as high as 220 million barrels. Recent news reports indicate that six companies have won bids to participate in the SPR and they will contribute about 9.4 million barrels of storage capacity.

The SPR provides yet another example of China’s influence on the global oil market. And if China’s economy continues to grow at a torrid pace, expect that influence to continue growing.

© 2013 Energy Tribune

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