China to boost oil stockpiling amid price slump
BEIJING, Dec 29 (Reuters) - China plans to use the fall in global energy demand to boost its fledgling oil reserves against future supply shocks, as it speeds up development of nuclear and wind power and cuts reliance on coal, a top energy official said.
Setting out the nation's policy responses to the global economic crisis in an unusually detailed exposition of its energy strategy, Zhang Guobao, head of the National Energy Administration, said:
"The severity of the economic downturn has brought a marked decline in demand for oil and unprecedented pressure on prices. The amount of crude oil on the international market still far exceeds global demand."
In his article published on Monday in the official People's Daily newspaper, Zhang wrote that the global downturn had posed serious challenges to China's energy sector but also brought a rare chance to make adjustments.
Among the plans, China will push ahead with building the second phase of its strategic oil reserves, having largely completed the first, Zhang said.
That could increase import demand and help global crude oil prices to get into forward gear, having been stuck in reverse since hitting a record high in July.
The government has not disclosed if it has fully filled the first phase of tank farms, which were set up in four locations and can hold 102 million barrels, equivalent to 29 days of crude imports, based on average net trade so far this year.
The first two bases, at Zhenhai and Zhoushan, were up and running more than a year ago. Construction of the Dalian facility, the fourth base, was due for completion by year-end.
Although it was unclear if "completion" referred to building or filling tanks, Zhang's words lent credence to signs that China had at least started filling its third base, at Huangdao.
Industry sources have told Reuters that around 7.3 million barrels of oil were injected into Huangdao in early November and more stockpiling was planned in December and January.
The sources said more than half of November's oil came from Saudi Arabia. This tallies with Chinese customs data showing a 70 percent year-on-year rise in imports of Saudi crude last month, despite slippage in overall crude imports and -- according to Reuters calculations -- a 3.2 percent downturn in oil demand.
A GLIMPSE OF STOCKING
China has completed planning of the second phase of government storage facilities that could hold up to 26.8 million cubic metres of oil, or some 170 million barrels, but has not disclosed where the facilities are or whether construction has begun.
The size of China's storage will still be a fraction of the U.S. Strategic Petroleum Reserve, the world's largest emergency oil stockpile, which holds 700 million barrels of crude.
But China is second only to the United States as a consumer of oil and its rapid stockpiling effort, begun only two years ago, has the potential to soak up a lot of surplus crude oil.
China is also shopping for strategic metals such as aluminium and indium and is supporting farmers by buying up crops. But officials have said little about buying oil, aside from vague remarks that China could buy up "resources and materials".
Demand from China helped to propel crude oil CLc1 to more than $147 a barrel in July. But prices are now on track for a near 60 percent drop this year, the biggest annual fall since futures began trading 25 years ago, and are down more than $108 a barrel from July's record.
The country would also encourage its oil firms to use spare storage capacity to increase commercial stockpiling of oil resources, Zhang said.
Last week top state oil firm PetroChina (601857.SS) began filling its new Shanshan facility in the northwestern Xinjiang region with Kazakh oil, while its rival Sinopec (600028.SS) finished building tanks in the coastal Zhejiang province.
Private fuel traders, long living under the shadow of the oil duopoly because they are short of independent fuel supplies, have also indicated they are interested in storing government oil, state media has reported.
Zhang also said China would push on with plans for pipelines from Kazakhstan and Myanmar, though he did not mention increasing imports from Russia, which wants to build oil and gas pipelines from East Siberia and is locked in talks with PetroChina's parent CNPC about a loans-for-oil deal.
Among its other plans to push for energy development, China will start building four nuclear power stations next year -- two in Shandong, one in Zhejiang and one in Guangdong, Zhang said.
Two stations are supposed to adopt technologies from U.S.-based, Japanese-owned Westinghouse (WAB.N) and one from France's Areva (CEPFi.PA), earlier plans showed.
