February 1, 2008｜China
Lecturer, Department of Commerce, Meiji University
China, a frontrunner in the global economy, in addition to securing the resources to sustain its growth, has also launched out on the stockpiling of crude oil. Here I would like to summarize the moves regarding China’s stockpiling of crude oil.
China’s imports of crude oil in 2007 recorded their highest level ever of 3.28 million barrels per day, and were at a level approximately 12.4% higher than the 2.92 million barrels per day of the preceding year. Besides the increase in the volume consumed via the high rate of growth in China’s economy, the purchase of crude oil for stockpiling that the Chinese government is hurrying influenced this increase in the volume of imports. Already in 2006 China had become the world’s second largest oil consuming country behind the United States, and from 2000 on the rate of increase of the volume consumed has been growing rapidly at an average annual rate of the 6-7% level. China’s crude oil self-sufficiency rate, however, was approximately 50%, and within the volume of consumption of approximately 7 million barrels per day there was a composition that depended on overseas sources by approximately half.
Under such conditions, China has raised its sense of crisis in the area of energy security, putting together in 2004 the “Medium- and Long-Term Energy Development Plan”, and it revolves around the strengthening of a stable energy supply. The main detail therein is: 1) the checking of the degree of dependence on the Middle East via the diversification of suppliers; 2) the diversification of import methods, with the encouraging of imports other than by tanker—via pipelines or as LNG; 3) the strengthening of the acquisition of oil rights abroad by Chinese firms; and 4) the promotion of the development of alternative energy (biodiesel and coal liquefaction). Besides this, in particular regarding the stockpiling of crude oil, they have planned the early-stage construction of stockpiling bases and the development of safety warning systems for energy, and are attaching overriding importance to the energy security perspective. Regarding its progress, three of the four crude oil stockpiling bases in the initial phase were completed in the first half of 2007, and the one that has lagged behind is expected to be completed in 2008. The filling with crude oil has begun, with the volume for stockpiling in the initial phase at approximately 100 million barrels.
Moreover, the Chinese government has planned the construction of stockpiling bases for 240 million barrels in the secondary phase, and has a target for completion by 2010. The buying in of the huge total volume of crude oil for stockpiling of 340 million barrels—the portions from the initial phase and the secondary phase to 2010—has been a focus of attention in the crude oil market. The large-scale purchase of crude oil stocks by China has been monitored as a material for buying in the market. China’s stockpiling, while equivalent to around a fortnight’s supply only in the first half of 2007, was, according to a provisional estimation at the end of the stockpiling for the initial phase, a stockpile of 35 days. The International Energy Agency (IEA), of which developed nations are members, requires that member countries have a stockpile of 90 days or more of their net import volume. In China’s case, the stockpiling bases of the secondary phase mentioned above have been completed, and when the stockpile is finished in 2010, it will grow to 60 days supply of the volume imported. Additionally, if stockpiling by the private sector is carried forward into law, it would make it reach the level of 90 days.
China, which wants to join the developed nations’ club, became a member of the oil stockpiling mechanism run by the IEA at the end of 2007, and voiced its participation for the first time in emergency-response exercises. Aside from energy security, internationally too China must put effort into stockpiling. Consequently, it is expected that along with the volume of crude oil it consumes, China’s moves in crude oil stockpiling to 2010 will be the focus of further attention in the crude oil market.