China Stockpiles More Oil

But do its plans include greater transparency and international cooperation?
By Michael Lelyveld
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BOSTON--China is planning a massive expansion of its strategic oil reserve, but it has yet to reveal how it will use the stockpile, analysts say.

On Sept. 25, a top energy official announced that China will put enough oil in storage to last for 90 days by 2011, nearly tripling the amount held for emergencies last year, according to state media.

The new capacity would allow China to meet standards of the Organization for Economic Cooperation and Development (OECD), said Zhang Guobao, director of the National Energy Administration (NEA).

Zhang said China plans to store 44.6 million cubic meters of oil, the equivalent of 280 million barrels. While the figure falls short of 90-day coverage for last year's imports of 3.8 million barrels per day, it still represents a major rise from the 2008 reserve level of 103 million barrels, according to NEA figures.

Experts say that China wants to buy oil for storage while prices are relatively low, but they question whether the new 90-day plan means it is ready to adopt OECD policies for cooperating on the use of emergency reserves.

Dependent on imports

"I doubt it," said Robert Ebel, senior adviser to the energy and national security program at the Center for Strategic and International Studies in Washington.

Ebel told Radio Free Asia that China's growing consumption and limited oil production at home means that it is becoming increasingly import dependent.

"They're going to be importing more and more oil, and they're going to have to have a substantial reserve in place just in case something happens to supply," he said. "That's first. They want to protect their own market."

China's second consideration is whether it wants to join the Paris-based International Energy Agency (IEA) and follow its guidelines for managing strategic reserves, said Ebel.

OECD countries that cooperate with the IEA agree to use strategic reserves only for interruptions in supply due to emergencies like natural disasters or war. Members also pledge to make their reserves available to one another in times of crisis.

But in the past, China has argued that its stockpile should be used to curb domestic price rises caused by market forces. China also provides little information on its reserves, so that world markets cannot tell if consumption is rising or China is only filling its tanks.

Ready to join?

Philip Andrews-Speed, a China energy expert at Scotland's University of Dundee in Edinburgh, wonders whether Zhang's reference to the OECD means that China is prepared to follow IEA standards for transparency, noninterference with the market, and oil sharing in emergencies.

"I think it would be a long way before China is fully ready to join the IEA," Andrews-Speed told RFA.

"The IEA will question whether they are transparent enough and whether China is prepared to adhere to the conditions and give up a certain measure of sovereignty over the managing of its resources."

The questions over the strategic oil reserve come down to the old issue of whether the Chinese government is ready to trust in market forces rather than central controls.

"In the short term, probably not, because controlling the domestic oil market and the pricing is still very important politically for it," Andrews-Speed said, but added that the policy could change over time.

"I don't see why in five or 10 years it couldn't take a more relaxed attitude on that."

Reserve facility built

News of the expansion coincided with an announcement that PetroChina has started building a 34-million barrel strategic oil reserve facility at its newly upgraded Dushanzi refinery in Xinjiang's Karamay City.

The project will include 30 tanks to hold oil mainly from Kazakhstan and Russia, the official Xinhua news agency said.

The storage in Xinjiang is seen as a sign of China's rising reliance on the restive region and likely increases in oil flows through an import pipeline from Kazakhstan that opened in 2005.

"Kazakhstan is becoming increasingly important not just as an import point with the strategic storage and the refinery," said Andrews-Speed.

"In case of any marine blockade, this import point and the storage become potentially critical, at least in the short term, for China."





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