China Seen Boosting Emergency Oil-Storage Capacity, IEA Says

China will probably commission additional storage sites for its strategic petroleum reserve this year, boosting crude demand even as construction work on the program takes longer than expected, according to the International Energy Agency.

The nation, the world’s second-biggest crude consumer, will add 245 million barrels of capacity in the second phase of its emergency stockpile plan, the Paris-based IEA said in its Medium-Term Oil Market Report released today. That’s up 45 percent from the IEA’s original estimate of 169 million barrels. Completion may be delayed to 2015, according to the agency, which originally forecast the project would be finished by the end of this year.

China, which buys about half its crude from overseas, is building emergency oil reserves equivalent to 100 days of net imports before 2020 in three phases to lessen the risk of supply disruptions, China Petrochemical Corp., the nation’s top oil refiner, said in September 2009, citing a plan approved by the State Council. While high crude costs and construction delays have slowed purchases so far, many regional administrations have expressed interest in holding supplies, the IEA said.

“What is likely is that some additional Phase-2 sites will be commissioned in 2013, which, when considering the probable spare capacity at sites completed in 2012, could buttress China’s demand for crude over the year,” the agency said in the report. “If China completes tanks at Huizhou and Huangdao, which many observers believe likely to be completed in 2013, this could average over 56 million barrels, or 150,000 barrels a day, of incremental oil.”

Three Stages

China finished filling the first phase of its strategic reserve, with 103 million barrels, in 2009 after spending an average $58 a barrel buying crude for the stockpiles the previous year, according to the National Energy Administration.

The second phase, which started with the Dushanzi and Lanzhou facilities in the country’s western region, was designed with eight new locations, China National Petroleum Corp., the nation’s largest oil company, said in its annual research report in January.

Tanks in the third and final phase of the plan should add about 152 million barrels of storage, which would take the overall capacity to 500 million barrels by 2020, the IEA said. That would be equivalent to about 60 days of net crude imports, which may climb to 8.4 million barrels a day by 2020, according to the agency.

Refined Products

While crude is expected to account for most of the emergency reserve, the government may also require storage of oil products to respond to short-term supply disruptions, the IEA said.

“Reports have begun to circulate that China could be planning to include refined products as part of the SPR,” the IEA said. “However, how China could hold these stocks remains open to debate. Rather than being held physically by the administration, they could instead be held by industry at the request of the government, similar to the minimum stockholding obligation on industry utilized by many IEA member countries.”

To contact Bloomberg News staff for this story: Jing Yang in Shanghai at jyang251@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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