- SHANGHAI -- In an effort
to reverse the growth of its dependence on foreign oil, China - a huge
oil producer and once an exporter - is establishing a 70-75-day strategic
petroleum reserve in four locations, and the first phase is scheduled to
be completed in 2007. By 2020, China is expected to import 60 percent of
its oil.
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- Total price tag: at least US$725 million for the four
locations, scheduled to be completed by 2010 - maybe.
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- Although China's main source of energy is coal, it also
dependent on oil and it is now the world's fastest-growing importer. China
is the world's fifth-largest oil producer, but its reserves would last
only a week.
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- Last May, China's State Council set up a strategic State
Oil Reserves Project, but only made the decision public late last year.
The State Council, an executive, cabinet-level body, has adopted a four-location
blueprint and is close to approving details of the first phase of construction
in Aoshan in Zhejiang province on the coast south of Shanghai.
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- The three-person Oil Reserves Office is headed by Bai
Rongchun, who is also director general of the National Development and
Reform Commission's Energy Bureau. The bureau is charged with assessing
the national energy situation, evaluating future needs and recommending
strategic policy changes that will ensure oil, coal and hydroelectric power
to fuel economic growth.
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- The oil-reserve blueprint calls for four physical projects,
all of them on the coast in the south and north so that port facilities
can receive oil shipments. Two projects will be in Zhejiang province, one
of them in Aoshan and another in Zhenhai. The other two projects will be
in Huangdao in Shandong province north of Shanghai and in Dalian in Liaoning
province in the north. The east coast is emerging as China's economic and
industrial core.
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- Projected investment $725 million
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- These will require total investment of 6 billion yuan
($724.9 million). The China Daily and official media also report that these
four will be completed by 2010 and will hold 70-75 days worth of oil, probably
much of it imports. The oil tanks for the first phase will hold more than
10 million cubic meters, according to the China International Engineering
Consultancy Co. Other sources say the volume will be somewhat greater.
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- The first phase in Aoshan is expected to cover 120-150
hectares and include a port capable of docking ships with a deadweight
tonnage of 250,000. It will require an investment of 3 billion yuan ($362.7
million) to build oil tanks with a volume of 5 million cubic meters by
2007.
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- Zhenhai, also in Zhejiang, is expected to have the same
facilities and cost about the same. No details were immediately available
on the other two sites.
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- The government plans to finance the reserve with a special
fiscal allocation and it is very likely to issue long-term state treasury
bonds, establish a special investment fund, come up with new types of taxes
and/or launch an oil-futures market, although a final decision has not
yet been made.
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- The government is considering launching a specialized
institution, possibly a national oil-reserves corporation, to be in charge
of construction, as well as management and operation of the reserves.
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- China is setting up the reserve for two major, related
reasons.
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- China too dependent on Middle East oil
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- The crux of the problem is that China is becoming increasingly
dependent on foreign oil as its economy booms and its own reserves dwindle.
That's the economic part of the problem. The second, geopolitical part
is that about four-fifths of China's oil imports come from unstable parts
of the world, such as the Middle East.
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- Last year China imported 72 million tons of crude oil
during the first 10 months, 13 million more than during the same period
of 2002. It is now the world's second-largest importer, despite being a
net exporter until 1993. China expects to import 120 million tons in 2004
and by 2020 it will be importing 60 percent of its oil.
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- China is experiencing a drop in production. Daqing in
the northeast, the country's biggest oilfield, will see its output slide
4.3 percent to 46.3 million tonnes this year. This drop comes at a time
when China already is experiencing blackouts while industrial and consumer
demand is surging.
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- A strategic reserve would enable Beijing to cope with
international crises, such as political upheaval in the Middle East that
could disrupt its oil supply. A reserve also would flatten domestic oil
prices when there are international price hikes - an important political
consideration because lower oil prices will keep down the prices of domestic
manufactured goods. The fallout from unchecked rising oil prices also could
mean destabilizing popular discontent.
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- China may well see another financial advantage in establishing
an oil reserve, though it would be sensitive to negotiate and implement.
If China were to stock the reserves with foreign oil - a big "if"
in itself, as it raises questions not just about the price of the deal
but also about the politics behind it - it would be spending some valuable
foreign currency to buy the oil. This, in turn, could reduce pressure on
Beijing to revalue the yuan. The United States especially wants China to
revalue its currency upward, arguing that the current rate of valuation
is too low and thus Chinese goods are underpriced in world markets - to
the detriment of competing US sellers.
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- Oil reserve just one step to energy security
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- Establishing a strategic oil reserve is not an isolated
project, but one of several steps undertaken to increase energy security.
These include launching the first national geological survey on oil deposits
and creating a long-term energy policy.
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- China is also considering directing its domestic crude
tanker fleet to transport half the nation's oil imports by 2005 in a $10
billion program to improve the security of oil supply.
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- As China tries to cope with its economic juggernaut,
problems of conflict, coordination and division of labor between government
and business emerge, and this is especially true in the setting-up of a
strategic oil reserve. The new State Oil Reserve Office, for example, presents
the spectacle of the government engaged in business, while trying to carry
on as a government and not to interfere too much in the workings of the
three big Chinese oil companies - Sinopec, China National Offshore Oil
Corp (CNOOC) and PetroChina.
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- "State oil reserves are not business-oriented,"
one official from the State Oil Reserves Office told the China Daily, Hong
Kong edition. "The costs should be shouldered by the state."
Others take the view that China's oil companies should play a larger role.
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- The State Oil Reserves Office has said it will not interfere
in the business operations of the three companies and neither will the
companies participate directly in the operations of the reserves office.
The government will work out policy and taxation incentives, while the
three companies are expected to play an important role in building the
state reserves - as well as their own oil stockpiles.
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- Much remains to be done in defining public, quasi-public
and quasi-private roles in establishing and maintaining the oil reserves.
And making sure the rules are observed is a recurring problem for any business
in China. The business culture and the government's role in it are evolving
rapidly, but they often appear to be in collusion.
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- In a recent report on China's oil-and-gas, power, and
airlines sectors, the ratings agency Moody's said they have strong growth
prospects but warned of a "a lack of transparency in government policy,
corporate structure and practices".
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reserved.
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- http://www.atimes.com/atimes/China/FB07Ad02.html
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