China May Opt for a Strategic Oil Reserve

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Monday, August 21, 2000

ENERGY SECURITY High oil costs fuel concern Aug 21 2000 9:26AM

Skyrocketing world oil prices seem to have subsided temporarily, but concerns for China's national energy security still persist, the China Daily Business Weekly reported.

Industrial insiders and experts advocate the immediate establishment of an oil reserve for future unexpected shortages.

A strong oil stockpile is indispensable for China, a net oil importer since 1993, to cushion its vulnerability to the volatile world oil market, said experts.

Li Shensheng, deputy director of the Economic Research and Consulting Center under the State Economic and Trade Commission, said the widening gap between China's oil production and demand makes an oil stockpile urgent.

Li suggested the central government create a strategic oil reserve of 15 million tons (one ton equals to 7.3 barrels) by 2010.

China will depend even more heavily on oil imports in the future, Li said.

"The country's oil imports will surge as the rise in its demand for oil will continue to outpace the increase in production," he said.

Li estimated oil imports this year at 70 million tons and said by 2005 the amount will reach 100 million tons. In 1999, China imported over 36 million tons of oil.

Li said oil demand will climb to 296 million tons by 2010 from 189 million tons in 1999 to fuel rapid economic growth during the next decade, anticipated to strike 7% or more annually.

But domestic oil output, Li said, will linger from 160-170 million tons during the period.

The Chinese government has allowed domestic oil prices to fluctuate in line with world market changes since 1998.

"Capricious world oil markets have posed a serious threat to China's energy security and sustainable development," said Chen Huai, deputy director of the Market Economy Institute of the Development Research Center under the State Council.

Domestic oil refineries have suffered from recent price hikes on the international market.

Oil prices are now hovering at around US$30 per barrel. The price shot up from less than US$10 per barrel in March, 1999 to US$37 in May, the highest since the 1990-91 Gulf War ignited by a Iraq-Kuwait conflict over the coveted resource.

Oil analysts said the price is unlikely to drop and will stay at US$20-25 per barrel for the next decade.

Members of the Organization of Petroleum Exporting Countries (OPEC), the cartel which holds nearly half of world oil production, recently agreed to cut oil output if the price drops below US$22 per barrel.

China would be in "hot water," Chen said, without a strong oil stockpile.

In comparison to China's tiny reserve, Japan possesses enough oil to guarantee supply for more than 160 days.

Many developing countries, such as Brazil and India, have also set up national oil reserve systems.

The central government is aware of the "paramount significance" of a strategic oil reserve, said Xie Zhongyu, deputy director of the State Administration of Petroleum and Chemical Industries.

Xie called for a state-controlled oil stockpile to protect the country from fluctuations on the world market and other uncertainties.

"Domestic oil enterprises should also play a due role in buoying the country's oil reserve regime," Xie said.

He urged domestic oil refineries to increase their oil storage to maintain normal production and stabilize prices on domestic markets.

Xie emphasized self-reliance to ensure the country's energy security.

"First of all, we must spare no efforts to promote oil prospecting and find more back-up oil reserves at home," he said.

More funds are required for domestic oil prospecting, especially the vast western and offshore areas with great untapped potential, Xie said.

China National Offshore Oil Corporation, one of the country's oil giants, plans to produce 30 million tons of oil annually during the next five years.

"However, we should make full use of foreign oil resources to fill the domestic gap and maintain our sustainable development," Xie said.

He said more channels should be opened to acquire foreign oil as world oil production and consumption are expected to remain in balance at least in the next 15 years.

He called for reinforced cooperation in oil prospecting and exploration with Russia and central Asian nations, petroleum-rich countries with close geopolitical relations with China.

China National Petroleum Corporation has began to develop oil fields in Sudan and Peru.

Currently, about four-fifths of China's oil imports are from Middle East.

http://www.chinaweb.com/english/cw_html/news/industries/BJ10383.html

-- Martin Thompson (mthom1927@aol.com), August 22, 2000


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