China's strategic petroleum reserves capacity will have doubled by 2011-12. This rapid expansion of Chinese petroleum storage capability, coupled with robust growth in oil demand, will only see China's demand for imports—particularly of crude oil—grow. Such growth will create potential difficulties for China, Asia, and the world at large.
This article provides an overview of recent developments in China's strategic petroleum reserves and commercial storage.
SPR
China's SPRs are being constructed in three phases.
Phase I entered service at the end of 2008, with crude storage capacity of 103 million bbl. Phase II will have 168.6 million bbl capacity and be completed by 2011-12. China's strategic storage will likely rise to about 500 million bbl following completion of Phase III.
China's National Energy Administration, under the National Development and Reform Commission, is in charge of the country's SPRs, and home to the National Office of SPRs. The NEA administrator, Zhang Guobao, also serves as one of the nine NDRC vice-chairmen.
The NDRC is in charge of policy and planning for SPRs. The NEA organizes reserve base construction, procures oil, and executes use and turnover decisions. CNPC-PetroChina, Sinopec, and Sinochem are responsible for facilities maintenance and site management.
Phase I
The sites for China's SPR Phase I are Zhenhai, Zhoushan, Huangdao, and Dalian. Construction began in 2004 and was completed at the end of 2008. The tanks have been fully filled and can support 13-14 days of oil consumption or 25-26 days of net oil imports based on 2008 levels. Table 1 details the four sites.
Zhenhai and Zhoushan's Phase I tanks, with total capacity of about 40 million bbl, were filled before oil prices rose above $70/bbl in July 2007. China did not pump oil into the other tanks from August 2007 to September 2008 when crude oil prices were higher than $70/bbl. It put about 60 million bbl of imported crude into storage from October 2008 to the end of March 2009, averaging more than 300,000 b/d. The crude price purchased for SPR Phase I averaged $58/bbl.
Phase II
NDRC plans eight strategic stockpiling bases under Phase II, with a total capacity of 169 million bbl. Differing from Phase I, which includes all above-ground tanks in coastal areas, China plans to build some of its Phase II SPRs in underground water-sealed caverns in inland provinces.
NDRC will divide China's SPRs under Phase II into three categories:
- National SPR.
- Commercial petroleum storage by state oil companies.
- Commercial storage by local governments or companies.
Table 2 details eight Phase II sites. One is complete and three are under construction, with the other sites being prepared for construction. At least 19 million bbl of Phase II storage have come on stream since yearend 2008. By yearend 2009 or early 2010 about 69 million bbl will be ready, with full capacity reached by yearend 2011 or early 2012.
• Commercial crude storage at Baishawan, Pinghu in Zhejiang (Sinopec). Sinopec finished building a 2 million cu m commercial crude reserve base at Baishawan in Jiaxing City, Zhejiang Province in January 2009.
It includes two 50,000-cu-m tanks, thirteen 100,000-cu-m tanks, and four 150,000-cu-m tanks, and all supporting equipment. Pinghu (Baishawan) is an important transit point for Sinopec's 400, 000-b/d Ningbo-Shanghai-Nanjing crude pipeline network. The pipeline supplies feedstock to Sinopec's refineries in the Yangtze River delta.
• National commercial crude storage in Shanshan, Xinjiang (PetroChina). Managed by PetroChina, this facility has a designed capacity 50 million bbl. Total planned investment equals 6.5 billion yuan (about $952 million).
Crudes come from Xinjiang oil fields via the Shanshan Lanzhou crude pipeline, as well as from Kazakhstan. PetroChina started construction in March 2008 and completed its first phase at year end 2008. The first phase of Shanshan oil storage holds 6.3 million bbl and cost 856 million yuan. Storage fill is under way. The 7-million-cu-m second phase is scheduled to be complete yearend 2009.
• National commercial crude storage at Tieling, Liaoning (PetroChina). This 7.3-million-bbl facility started construction in 2007 and should come online by yearend 2009.
• Commercial crude storage in Jinzhou, Liaoning (PetroChina). The first phase of the project includes construction of six 100,000-cu-m crude storage tanks at a total investment of 680 million yuan ($100 million). Construction began May 2008 and is to be completed in 2010. Upon completion, in addition to use as commercial storage, the site will transfer crudes through the port of Jinzhou at 40,000 b/d.
• National commercial crude storage at Caofeidian, Hebei (Sinopec). Land leveling for this 33-million-bbl facility is under way. The site is near Jidong oil field. Sinopec built a 300,000-tonne crude oil dock in Caofeidian with 400,000-b/d capacity. Sinopec's 190-km Caofeidian-Tianjin crude oil pipeline, with 400,000-b/d capacity, began operations July 2008.
• Commercial crude storage in Tianjin (Sinopec). China has started preliminary work on two 20.1-million-bbl tank farms at an oil storage base in Tianjin, one as an SPR and the other for commercial use.
• Gansu-Lanzhou site (PetroChina). The State Council earmarked Gansu as a strategic oil reserve depot as part of its 11th 5-Year Plan (2006-2010) for Western Development. PetroChina will manage the 12.6-million-bbl facility. Estimated cost of the facility is 1.83 billon yuan ($261 million). The environmental appraisal for the project is complete and the land permit is currently being sought. PetroChina plans to complete the construction of the site within 3 years.
The reserve will take in crude from the China-Kazakhstan pipeline and Xinjiang oil fields. Crude from the storage facility will then flow southwest via the new Lanzhou-Chengdu pipeline (operational in 2010) to CNPC's recently approved Sichuan refinery.
• Commercial underground crude storage in Zhanjiang (Sinopec). Zhanjiang's local government says a 44-million-bbl underground storage cavern with an estimated investment of 2.3 billion yuan (US$337 million) is under preliminary study.
Commercial storage
China had at least 300 million bbl of crude storage capacity at the start of 2009, of which Sinopec owns nearly half, CNPC-PetroChina around 40%, and CNOOC-SinoChem-others the rest. Actual and effective sizes, however, vary and because these storage tanks—old and new—are all over the country, their overall utilization rates, particularly at old facilities, are low.
Sinopec established its Sinopec Commercial Crude Reserve Center in 2008 to manage its oil storage. The center will manage financing of oil procurement and flows into and out of storage.
At least 30 million bbl of commercial crude storage has come on line since end-2008 and more is expected in the near future. Table 3 provides details of recently completed large commercial storage bases and bases expected to come on stream in the next few years.
• Commercial crude storage in Lanshan, Zhenhai Ningbo (Sinopec). The Lanshan reserve base, in Ningbo's Zhenhai district, has 38 tanks with a combined capacity of 23.9 million bbl. It is next to China's 5.2-million-cu-m Zhenhai SPR base. Sinopec started filling the commercial oil reserve base in January 2009.
Similar to Sinopec's Pinghu commercial crude reserve base, Lanshan is an important transit point for the Ningbo-Shanghai-Nanjing crude pipeline network, which supplies feedstock to Sinopec's refineries in the Yangtze River delta.
• Commercial crude storage in Zhoushan (Sinochem). Sinochem is building a 2-million-cu-m crude and refined-product storage in Zhoushan. It finished Phase I of the project, totaling more than 1 million cu m, in second-quarter 2009 and plans to complete Phase II by yearend 2010. The site is next to the Zhoushan SPR base.
• Commercial crude storage in Dushanzi, Xinjiang autonomous region (PetroChina). Construciton of this 13-million-bbl facility will be complete by yearend 2009.
• Commercial crude storage in Linyuan, Daqing (PetroChina). PetroChina is building a 1.2-million-cu-m crude storage facility in Linyuan, Daqing, to be completed by 2010. Investment in the project totals an estimated 1.2 billion yuan. By late May 2009, two tanks were completed.
Before this project PetroChina had nine crude tanks with a total capacity of 300,000 cu m at Linyuan, receiving oil from the Daqing field via pipeline and from Russia by train.
The newly expanded facility will also receive Russian oil by pipeline through an offshoot of the East Siberia-Pacific Ocean pipeline, currently under construction. The link to China is expected to be built in third-quarter 2010. Oil from Linyuan storage will then move via pipeline to Tieling in the neighboring Liaoning province. From there it can enter PetroChina's northeast crude pipeline network for delivery to the company's refineries in northeast China.
• Commercial crude storage in Yanpu Island, Hainan (Sinopec). The NDRC approved Sinopec's plan to build 15 million cu m of commercial oil reserves on Yanpu Island, where it has a 160,000-b/d refinery. China might also include Yanpu on the list for SPR Phase III sites. Yanpu has a deepwater port and is near the Malacca Straits and Nanhai oil and gas fields.
• Commercial crude oil storage in Dalian (PetroChina). PetroChina is building a 10-million-cu-m commercial crude oil storage facility near Dalian port. PetroChina has completed the first two phases of the project, and Phase III is scheduled to come on stream in first-half 2010.
• Commercial crude oil storage in Yanpu, Hainan (Vopak, SDIC). Royal Vopak signed a joint-investment agreement in January 2009 with China's State Development and Investment Corporation (SDIC) to build a large commercial crude oil tank farm in Yangpu, Hainan Island. The project will store up to 32 million bbl of crude and products and will come on stream as early as 2011. Investment in the project totals an estimated $1 billion or more.
The facility will include a 300,000-tonne crude terminal and smaller berths for refined products tankers. The two companies are currently evaluating the project.
Vopak also runs chemical and oil storage facilities in Jiangsu, Fujian, Zhejiang, Shandong, and Tianjin.
Product storage
In mid-May 2009, the Chinese government announced plans to build strategic reserves for refined products, its first official plan to expand beyond crude oil reserves. The state will build storage to hold up to 10 million tonnes of refined products by 2011. China's State Bureau of Material Reserves, a subsidiary of the NDRC, will operate the country's strategic refined products stocks.
Numerous oil product storage tanks of varying sizes are scattered around China. Capacity of these tanks at the start of 2009 totaled more than 300 million bbl, similar to the crude storage. Actual inventory, however, is far lower, showing limited utilization.
CNPC-PetroChina and Sinopec Group have about 174 million bbl of oil product storage, about 53% of the total. CNPC-PetroChina and Sinopec are following the government's call to increase commercial oil-product storage to 252 million bbl by the end of 2013, a jump of more than 40% in 5 years. Newly added oil product storage tanks will be built in most instances as part of greenfield refineries.
The authors
