China urged to invest in offshore storage

China, having filled its first 100 million bbl of onshore emergency crude tanks, should now use its foreign exchange reserves for offshore oil storage, according to a senior shipping company official.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Mar. 12 -- China, having filled its first 100 million bbl of onshore emergency crude tanks, should now use its foreign exchange reserves for offshore oil storage, according to a senior shipping company official.

"The four onshore reserve bases have been fully filled, so we need to invest urgently in floating storage," said China Shipping (Group) Co. Pres. Li Shaode, who also proposed a transportation industry fund.

Led by the government and supported by state-owned enterprises in related industries such as oil, steel, shipbuilding, and shipping, the fund would finance construction of offshore oil storage facilities, including oil tankers.

China has set up a 100-million-bbl strategic oil reserve system with four reserve bases in the coastal cities of Ningbo, Zhoushan, Dalian, and Qingdao. It wants a reserve that eventually will store as much as 90 days of imported oil.

Meanwhile, however, analysts believe the country's crude stock build is already much larger than the 100 million bbl the four coastal sites can accommodate, and they expect stockpiling to continue as new storage tanks come on line.

"We expect China's oil stockpiling to reach a peak this year, and continue into the next year," said Yan Kefeng, a senior oil analyst with Cambridge Energy Research Associates.

Yan said stored oil at the reserve bases matches a separate set of data released by China OGP, a publication run by the Chinese state media, which showed that the country's crude inventories grew by nearly a third last year to about 34 days of demand.
However, China's storage shortage could prevent it from taking full advantage of falling oil prices.

In May 2008, when the international oil prices hovered, China's crude imports reached 16.05 million tonnes, while in November and December of that year, when oil prices sank, the country's net imports decreased to a little more than 13 million tonnes, according to statistics of the Guangzhou Customs.

While China plans construction of another eight reserve bases, private Chinese oil companies have applied to become part of the national oil reserve system.

In December, the Petroleum Flow Committee of China General Chamber of Commerce planned to apply to China's Ministry of Commerce and the National Development and Reform Commission for more oil storage facilities and oil purchases at sagging international prices.

Zhao Youshan, committee president, did not reveal details of the application but said the interested private oil companies have vacant depots totaling to more than 300 million tons of oil storage capacity.

Contact Eric Watkins at hippalus@yahoo.com.

More in Pipelines & Transportation