Dec. 13 (Bloomberg) -- China will complete within three years an emergency oil stockpile to meet 30 days of demand and expand it in stages to 90 days by 2010 to avoid boosting global prices, said an official at a state oil company.

China, the world's largest energy consumer after the U.S., may build up a reserve covering six months, though no timeframe has been set, Wang Jiming, vice president of China Petrochemical Corp., the parent of Asia's largest oil refiner, known as Sinopec, said in an interview in Beijing on Dec. 8.

China's soaring demand helped push benchmark oil prices to record highs this year, prompting concern that any stockpiling would boost prices further. China wants bigger inventories to secure energy needs as it becomes more reliant on imports to maintain the world's fastest-growing major economy. The strategy emulates programs in the U.S., Japan and India.

``The stockpile plan shouldn't create a sharp increase in international oil market prices because we're building up the inventory in stages,'' Wang said. ``We don't plan to buy oil reserves in huge quantities in a short period of time. That isn't China's aim.''

In addition to stockpiling fuel, China's government is encouraging the country's oil companies to buy oil resources abroad, promoting coal-to-fuel conversion projects, energy conservation measures and the use of hydropower and wind power to reduce reliance on crude oil imports.

Imports Soar

China's crude oil imports have risen over the past decade from zero to 40 percent of local consumption, as demand more than doubled to over 6 million barrels a day. The cost of oil imports rose 65 percent in the first 10 months of this year to $26.47 billion, according to figures from the Customs General Administration of China.

The U.S. has the world's largest government-owned emergency oil stockpile at 669 million barrels, stored in underground salt caverns along the Louisiana and Texas coasts.

``China is trying to benchmark with the U.S., building up its reserve to keep track with international standards,'' said Vincent Chan, head of China research at Credit Suisse First Boston in Hong Kong. ``Rising oil prices have added pressure for Chinese leaders, raising their concern over the need for an inventory for emergency use.''

The 30 countries that make up the Organization for Economic Cooperation and Development including the U.S., the European Union, Japan and South Korea held around 2.6 billion barrels of crude oil and fuels in stockpiles in September, representing 51 days of demand, according to data from the International Energy Agency.

Japan

Japan held stockpiles of 570.5 million barrels of oil and fuel products in September, equivalent to 172 days of consumption.

China may need an oil stockpile to meet a minimum 30 days of consumption, or 110 million barrels, by 2005 and 186 million barrels by 2010, according to a Merrill Lynch & Co. research report dated Nov. 30. To meet consumption for 90 days, the nation may need to boost the stockpile to 220 million barrels in 2005 and 900 million barrels in 2010, the report said.

China, which last year overtook Japan to become the world's second-largest oil consumer, won't buy oil for the stockpile at any price, Wang said.

``We're aware that oil prices in the market are at high levels,'' Wang said in an interview in Beijing while attending talks on energy cooperation between South Korea and China. ``It wouldn't be sensible to rush to buy oil at these prices.''

Oil's Gains

Crude oil has risen 23 percent in New York over the past 12 months, closing at $40.71 a barrel on Dec. 10. It rose as high as $55.67 a barrel on Oct. 25, the highest since oil futures trading started in 1983. Prices have since declined 27 percent because of increased production by the Organization of Petroleum Exporting Countries and expanding U.S. inventories.

``Even if China is moving at its maximum speed to fill the first-phase reserve, the overall market impact would still be mild in our calculation,'' said Scott Roberts, the Beijing-based chief China representative of Cambridge Energy Research Associates, an independent energy consultant.

China may need to import as much as 90,000 barrels a day to meet the first-stage deadline, as much as 5 percent more than the nation normally imports, Roberts said.

``It remains a question on how quickly and how much of the oil will be put into the tanks,'' Roberts said. ``This will be an important political decision.''

Project's Members

China's government has asked China Petrochemical, China National Petroleum Corp., the parent of PetroChina Co., the nation's largest oil producer, and Sinochem Corp., the country's largest chemicals trader, to build and manage the emergency oil storage facilities, Wang said. He declined to comment on how much the plan will cost.

Beijing-based China Petrochemical is parent of Hong Kong- listed China Petroleum & Chemical Corp., known as Sinopec. China National Offshore Oil Corp., parent of the country's biggest offshore oil producer, CNOOC Ltd., isn't involved in the plan, said Wang, who is Sinopec's president and vice chairman.

Bai Rongchun, director general of the energy bureau at China's National Development and Reform Commission, the nation's top policy planning ministry, couldn't be reached for comment. Bai is head of development strategy, mid-to-long-term planning for the oil and gas industries, and oil reserves.

Pei Jianjun, an official at the energy bureau at the commission working with Bai on the stockpile strategy, declined to comment.

Four Initial Sites

In the first stage of China's emergency stockpile project, four storage tanks will be completed within three years in the coastal cities of Dalian, Qingdao, Zhenhai and Zhoushan, holding enough oil for about one month of consumption, Wang said.

The facility in Zhenhai in China's eastern province of Zhejiang will be the first of the four sites to be completed, with capacity for 9.5 million barrels of oil by August next year for use in emergencies, Shanghai-based Merrill Lynch analyst Bin Guan said in the Nov. 30 report. It would have 16 tanks and will be expanded to 64 capable of storing 38 million barrels by the second half of 2006, he said. Nationwide emergency storage capacity may rise to 150 million barrels by 2007.

China's crude oil consumption may more than double again in the next 22 years to 12.8 million barrels a day, according to a forecast by the U.S. Energy Information Administration.

``Instead of building up the supply, what's more important for China as a long-term strategy will be to work harder on new technology to reduce the nation's overall crude consumption,'' Credit Suisse's Chan said. ``What they need is to improve energy efficiency.''

To contact the reporter on this story: Loretta Ng in Beijing lng13@bloomberg.net

Last Updated: December 12, 2004 19:50 EST