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China Plans Oil Stockpile

China wants to speed up the stockpiling of strategic oil reserves as tension in the Middle East grows.

But the scheme will cost billions of US dollars and could take up to a decade to complete, some sources say.

Although China presently has little oil reserves, planning for a stockpile has been brought forward.

An official from a major State-run oil company said the government has outlined a framework to build up reserves in a bid to create energy security and is likely to submit a feasibility study to the State Council for a final review by the end of the year.

The unnamed official, who was involved in the framework planning, said: "If the report is approved, the program could soon start."

According to the proposal, the government will purchase imported oil and store it in tanks in southeast coastal provinces.

The official told China Daily the stockpile could initially exceed 6 million tons by 2005.

China's energy security plan, initiated two years ago, has quickly moved back to the top of the government's agenda as a possible war in Iraq may disturb supplies from the oil-rich Middle East. China imports 60 percent of its oil from the region.

The international oil price has climbed 14 percent since the middle of June amid concern a US strike will disrupt shipments.

China's reserves are crucial to buffer its economy against import disruptions. The nation imports one-third of its oil, which is expected to rise to 50 percent by 2010.

Without a sufficient national stockpile and oil imports, experts and officials worry that the domestic supply can only last a few days.

Despite the concern, several uncertainties may prolong the fast-track plan.

According to a senior government source, who declined to be named, there are differing opinions about the stockpiling strategy, such as the amount of oil needed, the time to start the reserve and more importantly, paying for it.

"We are still studying the plan," the official said. "Many concepts have to be clarified."

He said finding the best way to pay for the oil, which will be a multi-billion-US-dollar investment, is the biggest dividing factor.

"It (the financing) is very complicated," he said, indicating that a consensus has not been reached on whether the massive bill should be covered by taxes, banking loans or the treasury.

A major State oil trader said conflicts among different government departments are also hindering the establishment of the stockpile.

"They have different opinions and interests," the unidentified source said.

Insisting government departments are coordinating with each other to work through their differences, the official said the project could be launched very soon.

Another question yet to be answered, according to a State Development Planning Commission official, is what sort of role should the State-controlled oil companies -- such as the biggest two, PetroChina and Sinopec -- play in the program.

As part of the strategic reserve scheme, the government may also make PetroChina and Sinopec increase their inventories to supplement the national stockpile.

A Sinopec representative said the company is willing to increase its inventory or keep oil fields undeveloped to add to the nation's reserves, as long as the government provides preferential policies.

But the planning commission official said the government cannot afford to subsidize the local companies.

Han Wenke, vice-director of the Energy Research Institution at the Commission, said it could take 10 years to complete a comprehensive reserve system.

(China Daily September 18, 2002 )