China plans emergency oil reserve

China, which buys half its oil imports from the Middle East, plans to build a US$1.5 billion emergency oil reserve in case war or other emergencies disrupt supply, the head of the International Energy Agency said.

The second-largest energy user after the US would store about 50 million barrels of crude oil, or 25 days worth of net imports, said Robert Priddle, executive director of the IEA, after meeting officials from China's planning ministry. China, which is not an IEA member, imports about 30 percent of its oil.

"China should build oil stocks to guard against supply disruptions," Priddle said in an interview. The IEA requires its 26 member-countries to hold reserves equal to at least 90 days of imports. "I don't expect countries like China to get to our level fast," he said. "Holding stocks is an expensive business."

China's plan echoes calls by its Asian neighbors for a regional oil stockpile as political tension in the Middle East has boosted oil prices 54 percent this year. Oil last week rose to a 19-month high after the US stepped up efforts to win support for an attack on Iraq, which has the second-biggest oil reserves after Saudi Arabia.

"Work has already begun to build this strategic reserve," said Han Wenke, deputy director of energy research at China's State Development Planning Commission. "Initially the volume of oil will be less than a month of imports."

Building the stockpile to the equivalent of a month's imports may take three years because of high oil prices, Han said. Crude oil on the New York Mercantile Exchange touched US$31.39 a barrel last week, valuing a 25-day reserve for China at US$1.57 billion. "Now is not a good time to start building the reserve because prices are too high," he said. "China expects to build oil reserves equal to 30 days of imports by 2005."

Building the stockpile over three years is unlikely to have an effect on oil prices, said David Thurtell, a commodities analyst at Commonwealth Bank of Australia.

"The US Strategic Petroleum Reserve can hold about 700 million barrels, 50 million is not big in the overall scheme of things," he said.

Beijing is consulting PetroChina Co and other state-owned oil companies and overseas agencies, including the IEA, about building China's strategic oil stockpile, Priddle said after meeting officials last week from the SDPC and companies such as China Petroleum & Chemical Corp, or Sinopec.

PetroChina, the country's top oil producer, would sell its services to the government to help build a strategic stockpile, Huang Yan, the company's president, said in August. Beijing will pay for oil and the storage facilities, he said.

Oil accounts for about 30 percent of China's energy. Demand for oil, used mainly as fuel in vehicles in China, is expected to grow by 4 percent annually over the next few years. That's likely to mean more oil from abroad as growth in domestic supply stagnates. China will rely on imports to meet 82 percent of its oil needs by 2030, the IEA predicts.