China's Energy Security: Strategic Petroleum Reserves

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Crude oil reserve base, Ningbo.JPGOn September 24 construction commenced on the 5.4-million cubic-meter strategic petroleum reserve (SPR) in Dushanzi, Karamay city, in China's far western Xinjiang region. This marked the beginning of the second phase of China's building up of its oil reserves capacity. On September 25, Zhang Guobao, head of the National Energy Administration (NEA) and vice-minister of the National Development and Reform Commission, said at a national energy conference that China will work to increase its strategic crude oil reserves capacity to 90 days by 2020. At the present moment China is still far from reaching this level, with its national oil inventory covering only 21 days of its economy’s needs.

In the light of China’s growing dependence on imported oil, the country cannot rely on its existing capacity. As the world's second-largest oil consumer, China now relies on imports for about half of its oil needs. It imported 178.9 million tons of crude oil in 2008, an increase of 9.6% year-on-year, according to the National Development and Reform Commission. This tendency will only accelerate in the near future, when by 2020 China is expected to import 60% of its oil. The country’s lack of an SPR already caused problems during 2004-2008, during the period of sharp oil price surges. Yet right now, when China has the opportunity to take advantage of favorable oil prices, it cannot fully use it simply because it does not have enough reserves to store the relatively cheap (compared to last year) oil.

So far China has only completed the first phase of its SPR, with bases in Zhenhai, Zhoushan, Dalian and Huangdao, which are all located in the coastal areas of Zhejiang, Shandong and Liaoning provinces. The second phase, which has already started, includes building 8 new SPR bases by 2011, which will raise China’s strategic crude oil reserve capacity to 44.6 million cubic meters, or 281 million barrels. According to Zhang Guobao, China will start building the third phase of strategic oil reserves after the second phase is finished. If everything goes as planned, China will be able to avoid the economic disruptions it suffered in 2008 due to fluctuations in the world oil prices, and increase its energy security as a whole.

Image: Crude oil reseve base at Ningbo, Zhejiang province. (China Daily)

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