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Building global oil power, China’s reserves far ahead of plan

Building global oil power, China’s reserves far ahead of plan thumbnail

China is estimated to be holding double the amount of crude in its strategic reserves than its official plan has revealed, as the world’s top energy consumer takes advantage of a dive in prices to strengthen its position in the global oil market.

Based on data compiled by industry and consulting sources, China now has nearly 30 days of stocks to cover crude imports, far ahead of its official schedule showing 15 days.

In the next few years, China’s cover could reach 90 days, equivalent to the target reserves for the West’s main oil importers, including the United States, particularly if prices stay weak.

After a 30 percent drop in oil prices since June, the OPEC producer club meets in Vienna on Thursday to consider whether to cut output to shore up prices.

Beijing rarely publishes its oil stocks for fear that the knowledge will give sellers an upper hand in price negotiations.

But for the first time last week China revealed it had accumulated 91 million barrels of crude during its first phase of building strategic petroleum reserves (SPR) between 2006 and 2009, equivalent to around two weeks of oil imports.

But a second phase of stockpiling underway and due to be completed by 2020 indicates it has much higher reserves.

Consultancy Energy Aspects estimates that China has already stockpiled 80 million barrels in the second phase. Combined with the first, China would have around 170 million barrels, equivalent to nearly 30 days of forward cover based on its crude imports at 6 million barrels per day (bpd).

“China could buy another 20 million barrels by year end… and in theory could fill over 300 million barrels over the next few years to reach 90 days of forward cover,” said Energy Aspects’ chief oil analyst Amrita Sen, referring to SPR.

The data was in line with estimates from a source at an independent storage provider.

CHEAP OIL DRIVES BUYING

Developing the storage capacity for reserves is hugely expensive and a long-term strategy. China has jumped on two stretches of falling oil prices in the last five years to build up its stocks.

A plunge in prices during the 2009 financial crisis provided the chance to fill reserves in its first SPR phase.

In the next phase, four tank projects with a combined 88.1 million capacity have been completed and are estimated to be almost full after the recent fall, analysts said.

State oil company China National Petroleum Corp (CNPC) is due to complete another 18.9 million barrels of storage in Jinzhou, Liaoning province, by 2016, they said.

Commercial oil storage, built by Sinopec and PetroChina, will add to China’s overall inventories.

PetroChina’s trading arm Chinaoil soaked up an unprecedented 47 cargoes, or 24 million barrels of Middle Eastern crude, last month.

“My bet is the purchases were partly backed by stockpiling – they got a government mandate, or even could have worked their way to convince the government to stock up,” said a China-based trader with knowledge of Chinaoil’s trading strategy.

Refinery sources said about half of this would end up in storage, adding that Chinaoil may strike again should prices remain low.

WHERE’S THE OIL GOING?

The amount of crude Chinaoil bought was far more than it can immediately process.

Parent firm PetroChina has only three plants able to process higher sulfur oil like the Oman and Upper Zakum grades it bought.

Refinery sources said PetroChina’s plant in Qinzhou, which was revamped two months ago to run such crude, was the most likely taker.

But as the facility can currently only take a maximum of 3 million of the purchased barrels a month, much of the oil will have to go into tanks, essentially boosting China’s reserves.

“There is limited room for further SPR filling in the short-term but there is some room for commercial reserve filling,” said Seng Yick Tee, director of consultancy SIA Energy, adding there was plenty of commercial storage capacity to handle the amounts currently being imported.

 

reuters



17 Comments on "Building global oil power, China’s reserves far ahead of plan"

  1. rockman on Wed, 26th Nov 2014 7:54 am 

    As discussed before the China govt doesn’t need to internally house as much oil as the US gov’t. The combination of proven oil reserves in foreign fields they own and long term purchase agreements they are not as vulnerable as the US. They also have developed numerous JV’s with oil exporters that guarantee access to oil. One example is the 600,000 bopd refinery in Saudi Arabia own 50/50 between China and the KSA. Regardless of future circumstance it’s a safe bet the will make sure this refinery has all the oil it requires. China has also provided loans to exporters with the provision that they have the right of first refusal: as long as China agrees to pay the market price they’ll have the only option to buy that crude. And lastly, unless the US govt changes the law, the Chinese are free to buy as much refined product exported from the US as they chose to pay for. This effectively gives them access to about ONE BILLION bbls of oil per year which includes production from the Canadian oil sands.

    The US govt does hold any of these advantages in the global oil market.

  2. Davy on Wed, 26th Nov 2014 8:15 am 

    What if transportation is disrupted Rock? Who is then more vulnerable? All the JV’s in the world will not matter. A significant amount of China’s oil is from the ME which is a dangerous place to be dependent on.

  3. JuanP on Wed, 26th Nov 2014 8:36 am 

    I have been following China’s strategic oil reserves’ growth for years. I understand why China feels it needs this, but I think it is unfortunate. They should spend their money better. At least they have been smart enough to buy most of the oil when it is cheap. Their goal is to have around 620 million barrels in the reserves by 2020. I find this pretending BAU will continue amazing.

  4. Davy on Wed, 26th Nov 2014 9:19 am 

    Juan, my view is if BAU is disrupted and permanently damage having oil in reserves to mitigate and adjust to a post BAU is important. I agree with you on the BAU pretending which it seems all major economies are participating in.

  5. rockman on Wed, 26th Nov 2014 10:18 am 

    Davy – Always a possibility. But it’s difficult to imagine all global transport gets cut back that much. Of course with much of our oil coming from Canada and Mexico the risk is lower. But that’s today…what happens in 10 years when Canada is free to export to any foreign market…and that foreign market is China which can outbid the US consumer for much of that oil? The Chinese have already become a significant importer of oil from a country the US had long assumed would be all ours: Venezuela. The Chinese, unlike US politicians, are always looking at the long game as well as the immediate.

    And if imports were cut for many months that portion of the US SPR that would be allocated to the public would also deplete quickly. Remember what most folks don’t realize: the majority of the oil in the SPR is reserved for the Dept of Defense. Good to remember that CONGRESSIONAL LLAW only allows a 30 million bbl release over a one month period. That volume represents about 13% of current US oil imports. And the same law requires any oil withdrawal to be replaced in a timely manner.

    Also consider how the two govts would handle a shortage differently: the Chinese could take truly draconian measures I doubt the US govt would even consider.

  6. Tim on Wed, 26th Nov 2014 10:30 am 

    As a daily reader here at Peak Oil and to all the regular commentators:

    Rockman
    Davy
    Shortonoil
    Ghung
    Makati1
    GregT
    Juan
    Northwest Resident

    And all the rest,

    I want to wish you all a,

    HAPPY THANKSGIVING!

    Who knows how much longer we have so if your celebrating tomorrow please get your minds off anything oil related for the day.

    Tim

  7. paulo1 on Wed, 26th Nov 2014 10:30 am 

    Chinese are smart planners with the leadership and system in place to implement startegic moves. US is a reactive entity, focused on political message. Why worry about stockpiling in Saudi America?

    This isn’t about BAU after decline, it is about transition and keeping the poulation quiet.

    Riots and protest in 37 cities last night in US about many many issues, the least of which is the shooting of young Mr. Brown.

    Can you imagine what life will be like in cities during a real oil supply decline and resulting economic transition? Does anyone still think an urban environment will be a good place to be?

  8. Davy on Wed, 26th Nov 2014 10:35 am 

    Tim many thanks. I appreciate your interest in PO. It has made a difference in my life discussing issues rarely dealt with elsewhere.

  9. Northwest Resident on Wed, 26th Nov 2014 10:36 am 

    Hey Tim — Thanks for the holiday wishes. Same to you. But you know, it is going to be difficult to not at least check online for oil related news concerning OPEC’s meeting results tomorrow. Right now, I can’t decide if it would be better to check that news before I eat Thanksgiving dinner, which might ruin my appetite. Or if it would be better to check that news after I eat, which would risk a serious case of indigestion.

  10. Davy on Wed, 26th Nov 2014 10:44 am 

    Rock, your analysis of China is valid. My point is China is dangerously overextended with a huge population and an export economy. I am looking at the situation more from G-man’s point of view of shortages which I believe are not far away.

    IMA rock if China was taking the long view why would they create 25 Trillion in credit building multiple Mega cities, destroy vast swaths of prime farmland and watersheds, and create vast over capacity in heavy industry?

    My regard of China is not as high as you in this regard. If the U.S. is a has been I also believe China is a has been having lived a short life in hyper growth. China is a dead man walking. This is true of the U.S. But it is China looked to as the next economic superpower. This is absurd when you look at the predicaments China faces.

  11. GregT on Wed, 26th Nov 2014 10:45 am 

    Happy Thanksgiving to you as well Tim!

    No matter how this all turns out, there is always something to be thankful for!

  12. Davy on Wed, 26th Nov 2014 10:51 am 

    Paulo I meant to reference you thoughts not G-man, sorry.

  13. JuanP on Wed, 26th Nov 2014 10:51 am 

    Happy Thanksgiving to Tim and everyone else! I give thanks for this peakoil.com community.

  14. JuanP on Wed, 26th Nov 2014 11:00 am 

    Davy, I fear those reserves won’t get put to good use like you suggest. Most reserves everywhere are likely to be used to repress the masses, extend BAU pretensions, and engage in resource wars. If I thought that they would benefit the people in any way I would change my mind.

    I know I am a little pessimistic some times. 😉

  15. Davy on Wed, 26th Nov 2014 11:16 am 

    Juan you are likely correct. Maybe theoretically my view has merit. Maybe the side of good will triumph….not. Well at least following the beginning of the abyss after bad blood destroys bad blood. Exhaustion may eventually lead to a maternal shift in humanities spiritually away from conflict and towards life. That is if there is a humanity.

  16. ghung on Wed, 26th Nov 2014 12:53 pm 

    Tim – Thanks for the good wishes! Indeed, I’ve been doing other things besides peaking out at peak oil. Deer hunting (firearms) season opened Monday, and we already have two fine young bucks (my 4 year old Grandson helped shoot his first deer yesterday).

    I’m busy processing the first through the meat grinder; vacuum-packing it for the freezer (over 40 pounds so far) I also made and canned 20 jars of venison chili; all ingredients from our place except the beans and salt. The other deer will hang in the shed for a few more days. My friend’s wife just came by for the hides and brains. I’ll smoke some tenderloin to complement the turkey at Thanksgiving dinner tomorrow. Giving thanks, indeed.

    I wish the authorities would open a short fall season for wild turkey so I could smoke one of those; we have an abundance of both turkey and deer on the place. The mast (wild nuts) is enormous this year; should be good for the wild game population; more fat deer and wild hogs for next year.

    It’s hard to worry about lean times ahead during this season of abundance. When I consider the minimal resources I put into producing food this year, and the amazing return, there’s plenty of room for hope, locally. I’m sure someone will come along intent on spoiling the party, but for now, we’re thankful.

    It’s a beautiful solar day; batteries fully charged by noon; the home is soaking up the warmth to be re-radiated over night; the solar water heater is chugging along; the solar water pump is humming in the pipes, overflowing the big cistern; the wood cart is full, but probably won’t be needed at all tonight; picked up a nice bottle of bourbon to get the festivities going… What could be better?

    Best to all!

  17. Makati1 on Wed, 26th Nov 2014 7:37 pm 

    Happy Thanksgiving to All! May your day be filled with happiness, love and all the other good things of life.

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