China Establishes Oil-Reserve Administration System

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Researched by Industrial Info Resources (Sugar Land, Texas)--To tackle emergencies and to guard against the risk of an imbalanced oil supply, the China National Center for Strategic Oil Reserve, a three-level administration system, was established in mid-December 2007. In recent years, the international oil price has been high. Based on the price of $55 a barrel and a daily import of 3 million barrels, China will have to pay $30 million more every day for every $10 increase in the price of international crude oil. This is costing China billions of dollars and losses in opportunity.

The imbalance of oil supply and demand in China, the country's heavy reliance on imported oil, its limited channel for oil imports, backward oil-storage facilities, international crude-oil price fluctuations and political instability in the Middle East have highlighted China's problem of price security in oil imports.

The establishment of China National Center for Strategic Oil Reserve will help to alleviate the situation. According to the plan set by the National Development and Reform Commission (NDRC), China will complete the construction of the center's infrastructure in three phases in the next 15 years. By the end of the construction period, reserve oil will be ready, as well. The total investment into the center will exceed $13.8 billion.

Planning and construction of the first phase of the center started as early as in 2003. Four sites were chosen for the first phase: Zhenhai in Zhejiang Province, Huangdao in Shandong Province, Xingang in Liaoning Province and Zhoushan in Zhejiang Province. They are all located in coastal cities with ports and transfer pipeline networks. The total storage capacity of the four sites adds up to 16 million cubic tons.

So far, the site choice of the second phase has been decided under the supervision of NDRC. Lanzhou City in Gansu Province and Shanshan City in Xinjian Autonomous Region are on the short list.

According to analyst Niu Li from Chinese National Information Center, China's strategic oil reserve is still far from 90 days for domestic use. Even after this level is achieved, China still cannot manipulate the international oil price with its strategic oil reserve.

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