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China to Increase Oil-supply Security
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China is considering letting its domestic crude tanker fleet transport half of the nation's oil imports by 2005, in a US$10 billion program to improve the security of China's vulnerable oil supply.

At present, more than 90 percent of China's crude imports are carried by marine ships, while only 10 percent of the import is taken by the domestic fleet.

Officials indicated that the scheme is in its infancy, but relevant ministries are lobbying the State Council to speed up the process.

The plan is just one step taken by the government since last year to increase energy security, including building up strategic oil reserves, launching a national geological survey on oil deposits and introducing long-term energy policies.

Zhang Guofa, deputy director of the water transport department at the Ministry of Communications, said in December that the Chinese ship fleet is expected to ship 50 million tons of crude oil imports, or half of the nation's total imports.

With the oil import growth, the shipment will increase to 75 million tons by 2010 and to 130 million tons by 2020, said Zhang at an industry forum.

An official from the Ministry of Communications told China Daily that his ministry is studying the program along with the National Development Reform Commission.

Although the scheme is in its early stages, "we hope to lobby the State Council to establish a high-profile committee this year to push the program," said the official who declined to be named.

Major shipping companies, including the China Shipping Group, the China Ocean Shipping Corp, China Merchants and Nanjing Water Transport Industry Co, are also trying to increase their share of the lucrative crude shipping business.

They are soliciting government support for expanding their shipping capacity, sources said.

Due to the insufficient shipping capacity of domestic companies, oil importers, including Sinopec, China's largest oil importer, tend to rent foreign ships to carry most of the imports.

Experts have expressed their concern that the heavy reliance on foreign tankers may get China in trouble once emergencies such as wars occur. Half of China's oil imports come from the unstable Middle East.

Concern has intensified with the rapid increase of China's oil imports. The country is set to overtake Japan as the world's second-largest oil consumer in 2004 behind the United States, the International Energy Agency says.

To increase crude transportation, domestic companies need to double their shipping capacity to around 10 million tons by 2005, said the Ministry of Communications official.

Crude shipping capacity is now 5.2 million tons.

Reports said the shipping companies are expected to build 7 VLCCs -- the major marine vessel to carry crude -- in five years.

The Ministry of Communication has drafted a report to suggest the State Council offer favorable policies, including tax rebates and subsidies, to finance the shipbuilding, according to the official.

The official admitted that it has to convince oil companies to allow domestic firms to transport more oil for them because oil companies have their own economic considerations.

"But all have agreed that the issue is beyond mere economic concerns, it is one of national security,'' he said.

Late last year, Sinopec formed an alliance with China Merchant and China Shipping separately to allow the two shipping corporations to transport a certain load of oil for Sinopec.

Luo Ping, an expert with the logistics research institution under the National Development Reform Commission, said the time is right to expand the domestic crude tanker fleet.

"International fleets are renovating their ships built in the 1970s. This provide opportunities for us to enter the market," said Luo, adding that domestic oil companies can also reduce the risk of fluctuation of foreign exchange rate by using the Chinese crude tankers.

The rent charge of transporting 100 million tons of crude oil can reach US$600 million. Any fluctuation of the exchange rate can result in big losses for oil importers, said Luo.

(China Daily January 7, 2004)

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