In a bid to help stabilise soaring international crude oil prices, the United States has asked China to tap into its crude oil reserves.
The issue came up during a virtual meeting between President Xi Jinping and his US counterpart Joe Biden in November.
The US has the world’s largest reported strategic petroleum reserve, while China as the world’s largest importer of crude oil has also built up a system of its own.
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In the 1990s, China said it planned to establish a US-like strategic petroleum reserve system, and the project officially started in 2007 when the National Strategic Oil Reserve Centre was tasked with overseeing the issue.
It came at a time when China was scrambling for global resources – such as buying crude oil from politically turbulent regions such as Sudan, Iraq and Venezuela, and obtaining iron ore from Australia and Brazil – to fund its economic growth.
In the 14 years since then, China’s reliance on overseas oil has increased significantly, largely due to its role as the world’s factory, and because so many more people are driving.
In 2020, China imported 73 per cent of the oil it consumed, compared with 49 per cent in 2007.
As the world’s largest crude importer, China bought 542 million tonnes (4.06 billion barrels) last year, a year-on-year increase of 7.3 per cent.
Its January-October imports fell 7.2 per cent from a year earlier to 425 million tonnes (3.36 billion barrels), according to customs data.
In 2007, China said it was planning to build a crude oil reserve system in the next 15 years, with a planned storage capacity of 70 million cubic metres (18.5 trillion gallons), which would offer a back up supply equivalent to 100 days of imports.
The first phase includes facilities with 16.4 million cubic metres’ worth of storage capacity in four coastal bases of Dalian in Liaoning province, Huangdao district in Qingdao in Shandong province, Zhenhai district in Ningbo in Zhejiang province and Zhoushan in Zhejiang province.
The first phase has been completed, while reports of a second phase have appeared in state media reports, although they have not been officially confirmed.
The Chinese government has expanded the storage capability in Huangdao and Zhoushan, and built new facilities in Dushanzi, a border city in the westernmost region of Xinjiang, Lanzhou in the northwestern province of Gansu and in the northern port city of Tianjin, although no capacity figures have been disclosed.
China does not regularly publish the size of its crude reserves, but the National Bureau of Statistics said in 2018 that the national reserve, including some corporate stocks, totalled 37.73 million tonnes, or 280.7 million barrels, by mid-2017.
However, the country is widely believed to have stockpiled a significant amount of crude oil when prices plunged in March and April last year.
Wang Yongzhong, a senior energy researcher with the Chinese Academy of Social Sciences, estimates that China’s crude reserve is equivalent to around 40-50 days of its imports, still far below the 90-day criteria set by the International Energy Administration.
Despite this, Chinese authorities have more tools at their disposal to deal with supply or price issues compared to Western countries.
Stocks of the three state-owned oil giants – China National Petroleum Corporation, Sinopec Group and China National Offshore Oil Corporation – can be used by the government, while their production can be directly influenced.
Also, the government established four strategic extraction zones – Xinjiang, the Shaanxi-Gansu-Ningxia region, the Sichuan-Chongqing region and Qinghai.
The US created the Strategic Petroleum Reserve (SPR) in 1975.
The reserve currently holds around 600 million barrels in dozens in four heavily guarded locations on the Louisiana and Texas coasts, which is enough oil to meet demand for more than a month.
Energy and mineral security, as part of the country’s 2021-25 national security strategy, were highlighted at a meeting of the top-level Politburo at the end of November, just days after the meeting between Xi and Biden.
This could be followed by higher domestic production targets, more diversified overseas supplies and new energy products.
China is also eyeing a bigger role in international markets with its crude oil futures exchange in Shanghai offering the ability to leverage its status as the world’s largest crude oil buyer to obtain more pricing power.
In late September, the National Strategic Oil Reserve Centre conducted its first public sale of oil reserves to intervene in the domestic market, with 7.38 million barrels released from its Dalian base.
The Chinese authorities have taken an open attitude toward the recent US request for joint sales of crude reserves to influence international prices, and both sides are reported to be negotiating details of the proposal.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.
