To hedge against the risks of its dependence on imported crude oil supplies, China has started a crude oil reservation project in Zhejiang Province which is expected to hold the country's largest oil reservation center.
State-owned China Petrochemical Corp, one of the country's three top oil giants, is constructing an oil reservation center to store as much as 10 million cubic meters of crude oil in Zhenhai, according to China News Service.
Executives with the firm declined to comment on the issue.
"There are several large oil refineries in the Yangtze River Delta, which make Zhenhai a suitable site for the center," said Pan Jianping, an analyst with the Industrial Securities Co Ltd.
For instance, Sinopec Zhenhai Refining and Chemical Co Ltd, which has the largest refining capacity in the country, Sinopec Shanghai Petrochemical Co Ltd and Sinopec Yangtze Petrochemical Co Ltd are all in the region.
Besides the center in Zhenhai, China is also considering to set up three other oil reservation hubs elsewhere. Shandong and Liaoning provinces are candidates for the centers, he added.
Earlier this year, the National Development and Reform Commission established a state oil reservation office to be in charge of the matter.
China is expected to become the world's second-largest crude oil consumer and importer next year.
China's establishment of oil reservation centers will help the country protect itself or minimize itself the influence of price fluctuation on the global oil market, Pan said.
With oil reservation hubs, China can import large amount of oil when prices in the global market are low.
However, China can supply the domestic oil market from the stockpile without having to buy oil when prices in the international market rise.
"At present, more than 30 percent of China's oil demand depends on imports and most of the imports come from the Middle East," said Pan. "That means when there is any political turbulence leading to a supply cut from there, China is very likely to see a surge in oil prices in the domestic market."
This year, China's demand for crude oil is expected to reach 240 million tons, according to Pan .
(Shanghai Daily December 3, 2003)