China’s Oil Stockpiling Suggests Fossil Fuel Dependency Unlikely to Decline

In a rare admission of China’s strategic petroleum reserve capacity, a senior industry executive acknowledged that all four state-owned emergency oil reserve tanks – holding a total 100 million barrels – are filled to the brim.

Revealing that China’s current stockpiles have already exceeded the capacity of the first phase of facilities, which the government built over the last two years, China Shipping Group President Li Shaode urged the government to use foreign exchange reserves to finance floating storage capacity in the short term.

Li’s comments come after a string of recent oil- and gas-related events in China. Within the last few months, China has entered into natural gas supply agreements with Myanmar, Kazakhstan and Turkmenistan, and has already begun construction on needed pipelines. Just yesterday, China National Offshore Oil Company (CNOOC) signed a 25 year gas supply agreement with Qatar.

In the last month, China has taken advantage slumped global demand as an opportunity to stock up on oil, and other commodities, at low prices. First, in mid-February, the Chinese and Russians agreed on a 20-year, 15 million tons of oil per year, supply contract. In exchange, cash-strapped Russian oil company Rosneft and pipeline monopoly Transneft received a $25 billion loan. One day later, China Development Bank entered into a similar, $12 billion “loan-for-oil” agreement with Venezuela. And by the end of that same week, China struck another deal for $10 billion with Brazilian oil giant Petrobras.

At the month’s end, just as someone back from a shopping spree might find their closet space inadequate, China’s National Energy Administration announced a second phase of strategic oil reserve facilities, scheduled for completion by 2011.

The expected facilities will nearly trebling China’s total crude reserve capacity to 280 million barrels. Likewise, the government plans to increase storage facilities of refined oil, which will likely be located close to the at least nine refineries currently slated for construction (see here an article on LNG I wrote on 02/06/09). Under these plans, refined oil reserve capability will reach 10 million tons, according to a source quoted in an article by state-controlled news source China Daily.

However, as Li Shaode’s comments illustrate, China has been stocking up on oil steadily before the sharp decline in prices. Reuters estimates that, crude oil imports rose 9.6 percent to 3.58 million barrels per day in 2008, though implied oil demand only rose by 3.8 percent to 7.26 million bpd.

Though the figures demonstrate a noteworthy gap in total demand and consumer demand, China’s clear intentions to improve access to and stored supply of oil and gas suggest, more importantly, that its fossil fuel dependency will not likely wane any time soon.

Photo Credit: Tomsaint11 at Flickr Commons

  1. Bobby B.

    “…China’s clear intentions to improve access to and stored supply of oil and gas suggest, more importantly, that its fossil fuel dependency will not likely wane any time soon.”

    Do not be naive. Strategic petroleum reserves exist for a singular purpose: to fuel a country’s war machine. This explains why such reserves are rarely utilized to combat periods of high demand and high pricing, which would be helpful to the country’s consumer population. Although I hope otherwise, China may be expanding its reserves for offensive or defensive purposes.

  2. Roger

    I’d have to agree with Bobby. Look at the US’s oil reserves, they are for exactly that reason. China has possibly the best chance to go green since their infrastructure is still developing.

    I wonder what they plan to do with that oil…

  3. John C.

    ” I wonder what they plan to do with that oil”. Now, is that a dumb comment or what ?
    Why are you not wondering what they plan to do with the circa $ 700 Billion to $ 2 Trillion DOLLARS they are holding ? They could spend it, and if they spent it, it would relieve our financial problems in the USA.
    Now lets not get confused about this : that money is not only our debt to them but is, in fact, spendable cash ! Or, if you like, it is both, because USA money IS our debt. And our debt IS our money !
    Would they rather have money in the bank or crude oil in a tank ( or in their ground ) THAT is the question.

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