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Strategic oil reserve due for completion

By Wang Ying (China Daily)
Updated: 2006-06-17 09:06

China will complete construction of its first strategic oil reserve facility in Zhenhai, East China's Zhejiang Province, in August, a top energy official said in Beijing on Friday.

"Three other sites in Dalian (Liaoning), Huangdao (Shandong) and Daishan (Zhejiang) are also under development," said Xu Dingming, director of the Energy Bureau under the National Development and Reform Commission (NDRC).

But he refused to comment on when the pumping of crude oil into the Zhenhai reserve would begin.

"Anyway, we would not let them (the oil storage facilities) remain unused," he said, adding he would not disclose whether the country would use imported or domestically produced oil.

The Zhenhai facility will be able to hold 5.2 million cubic metres of oil.

"A lot of people ask what China should do (with these tanks) as global crude prices are soaring We have our own solutions, but I won't disclose them," Xu told an energy forum.

Minister Ma Kai of the NDRC said in March that China expected to start filling the Zhenhai storage facility by the end of this year.

The three others would be filled "in due course" once their construction is completed in 2007 and 2008, Ma was quoted as saying in an AP report.

Building strategic oil reserves is part of China's efforts to ensure energy safety while cushioning China against possible interruptions of foreign supplies, but some experts are concerned that the move might trigger a spike in an already volatile oil market if China imports oil to fill its reserves.

Crude oil reached a record US$75.35 a barrel on the New York Mercantile Exchange in April, the highest since trading began in 1983.

Chinese Government officials have said the country will not use imported oil to fill its reserves at the current high prices.

"As world oil prices remain high, China will not import oil to fill the strategic reserves since that would involve great risks," Zhang Guobao, vice-minister of the NDRC was quoted as saying in a Chinese-language newspaper based in Beijing.

An oil expert who declined to be named said that China would use two sources to fill the reserve tanks to avoid paying high prices: the country's domestic oil fields and overseas oil assets in which Chinese firms own stakes.

Zhou Fengqi, former director-general of the NDRC's Energy Research Institute, earlier told China Daily that China's planned strategic oil reserves ultimately aimed at 90 days of imports in the previous year, or a fourth of the total oil import for one year.

China last year imported 127 million tons of crude oil, more than 40 per cent of its total oil consumption.

The country has begun looking for new sites to build a second batch of strategic oil reserves in addition to the four under way in Zhejiang, Shandong and Liaoning provinces, the State Council Energy Leading Group said earlier, without elaborating.

Media sources said the new locations might include Tangshan, in northern Hebei Province and Guangdong's Maoming and Zhanjiang in the south.