| |
China setting up strategic oil
reserve
By Michael
Mackey
SHANGHAI - In an effort to reverse the
growth of its dependence on foreign oil, China - a huge
oil producer and once an exporter - is establishing a
70-75-day strategic petroleum reserve in four locations,
and the first phase is scheduled to be completed in
2007. By 2020, China is expected to import 60 percent of
its oil.
Total price tag: at least US$725
million for the four locations, scheduled to be
completed by 2010 - maybe.
Although China's main
source of energy is coal, it also dependent on oil and
it is now the world's fastest-growing importer. China is
the world's fifth-largest oil producer, but its reserves
would last only a week.
Last May, China's State
Council set up a strategic State Oil Reserves Project,
but only made the decision public late last year. The
State Council, an executive, cabinet-level body, has
adopted a four-location blueprint and is close to
approving details of the first phase of construction in
Aoshan in Zhejiang province on the coast south of
Shanghai.
The three-person Oil Reserves Office
is headed by Bai Rongchun, who is also director general
of the National Development and Reform Commission's
Energy Bureau. The bureau is charged with assessing the
national energy situation, evaluating future needs and
recommending strategic policy changes that will ensure
oil, coal and hydroelectric power to fuel economic
growth.
The oil-reserve blueprint calls for four
physical projects, all of them on the coast in the south
and north so that port facilities can receive oil
shipments. Two projects will be in Zhejiang province,
one of them in Aoshan and another in Zhenhai. The other
two projects will be in Huangdao in Shandong province
north of Shanghai and in Dalian in Liaoning province in
the north. The east coast is emerging as China's
economic and industrial core.
Projected
investment $725 million
These will require total
investment of 6 billion yuan ($724.9 million). The China
Daily and official media also report that these four
will be completed by 2010 and will hold 70-75 days worth
of oil, probably much of it imports. The oil tanks for
the first phase will hold more than 10 million cubic
meters, according to the China International Engineering
Consultancy Co. Other sources say the volume will be
somewhat greater.
The first phase in Aoshan is
expected to cover 120-150 hectares and include a port
capable of docking ships with a deadweight tonnage of
250,000. It will require an investment of 3 billion yuan
($362.7 million) to build oil tanks with a volume of 5
million cubic meters by 2007.
Zhenhai, also in
Zhejiang, is expected to have the same facilities and
cost about the same. No details were immediately
available on the other two sites.
The government
plans to finance the reserve with a special fiscal
allocation and it is very likely to issue long-term
state treasury bonds, establish a special investment
fund, come up with new types of taxes and/or launch an
oil-futures market, although a final decision has not
yet been made.
The government is considering
launching a specialized institution, possibly a national
oil-reserves corporation, to be in charge of
construction, as well as management and operation of the
reserves.
China is setting up the reserve for two
major, related reasons.
China too dependent
on Middle East oil
The crux of the problem is
that China is becoming increasingly dependent on foreign
oil as its economy booms and its own reserves dwindle.
That's the economic part of the problem. The second,
geopolitical part is that about four-fifths of China's
oil imports come from unstable parts of the world, such
as the Middle East.
Last year China imported 72
million tons of crude oil during the first 10 months, 13
million more than during the same period of 2002. It is
now the world's second-largest importer, despite being a
net exporter until 1993. China expects to import 120
million tons in 2004 and by 2020 it will be importing 60
percent of its oil.
China is experiencing a drop
in production. Daqing in the northeast, the country's
biggest oilfield, will see its output slide 4.3 percent
to 46.3 million tonnes this year. This drop comes at a
time when China already is experiencing blackouts while
industrial and consumer demand is surging.
A
strategic reserve would enable Beijing to cope with
international crises, such as political upheaval in the
Middle East that could disrupt its oil supply. A reserve
also would flatten domestic oil prices when there are
international price hikes - an important political
consideration because lower oil prices will keep down
the prices of domestic manufactured goods. The fallout
from unchecked rising oil prices also could mean
destabilizing popular discontent.
China may well
see another financial advantage in establishing an oil
reserve, though it would be sensitive to negotiate and
implement. If China were to stock the reserves with
foreign oil - a big "if" in itself, as it raises
questions not just about the price of the deal but also
about the politics behind it - it would be spending some
valuable foreign currency to buy the oil. This, in turn,
could reduce pressure on Beijing to revalue the yuan.
The United States especially wants China to revalue its
currency upward, arguing that the current rate of
valuation is too low and thus Chinese goods are
underpriced in world markets - to the detriment of
competing US sellers.
Oil reserve just one
step to energy security
Establishing a strategic
oil reserve is not an isolated project, but one of
several steps undertaken to increase energy security.
These include launching the first national geological
survey on oil deposits and creating a long-term energy
policy.
China is also considering directing its
domestic crude tanker fleet to transport half the
nation's oil imports by 2005 in a $10 billion program to
improve the security of oil supply.
As China
tries to cope with its economic juggernaut, problems of
conflict, coordination and division of labor between
government and business emerge, and this is especially
true in the setting-up of a strategic oil reserve. The
new State Oil Reserve Office, for example, presents the
spectacle of the government engaged in business, while
trying to carry on as a government and not to interfere
too much in the workings of the three big Chinese oil
companies - Sinopec, China National Offshore Oil Corp
(CNOOC) and PetroChina.
"State oil reserves are
not business-oriented," one official from the State Oil
Reserves Office told the China Daily, Hong Kong edition.
"The costs should be shouldered by the state." Others
take the view that China's oil companies should play a
larger role.
The State Oil Reserves Office has
said it will not interfere in the business operations of
the three companies and neither will the companies
participate directly in the operations of the reserves
office. The government will work out policy and taxation
incentives, while the three companies are expected to
play an important role in building the state reserves -
as well as their own oil stockpiles.
Much
remains to be done in defining public, quasi-public and
quasi-private roles in establishing and maintaining the
oil reserves. And making sure the rules are observed is
a recurring problem for any business in China. The
business culture and the government's role in it are
evolving rapidly, but they often appear to be in
collusion.
In a recent report on China's
oil-and-gas, power, and airlines sectors, the ratings
agency Moody's said they have strong growth prospects
but warned of a "a lack of transparency in government
policy, corporate structure and practices".
(Copyright 2004 Asia Times Online Co, Ltd. All
rights reserved. Please contact content@atimes.com for
information on our sales and syndication
policies.)
|
| |
|
|
 |
|
