China To Start Filling Oil Reserve In 4Q -Official
06/28/2005
Dow Jones News Services
(Copyright © 2005 Dow Jones & Company, Inc.)
By Angel Gonzalez and John M. Biers
Of DOW JONES NEWSWIRES
NEW ORLEANS (Dow Jones)--China will begin filling its strategic oil reserve by the end of the year, a Chinese energy official said Tuesday.
"We'll start filling the reserve in the fourth quarter of the year with domestic supply," Zhang Guobao, vice chairman of the National Development and Reform Commission, said on the sidelines of a conference in New Orleans.
The NDRC is an agency of China's State Council charged with developing national economic strategies. Zhang's comments are the first official confirmation of when the country plans to start putting oil into its long-planned government stockpile. Some energy analysts believe the move could add to pressure on international oil markets and thereby boost already high prices.
The U.S. is in the process of filling its own Strategic Petroleum Reserve, a move criticized by the airline industry for putting upward pressure on prices. The Energy Department plans to stop filling the SPR when it reaches 700 million barrels a day in August.
Chinese officials expect to fill their reserve gradually, potentially over several years. In printed remarks prepared for a presentation Wednesday, Sinochem Corp. Vice President Han Gensheng noted that other major oil consumers needed 10 to 15 years to fill their reserves.
"China also needs a long process," Gensheng said.
Sinochem, a state-owned Chinese oil company, is setting up facilities for the reserve. Gensheng said it is "impossible" for China to spend "huge funds" on the project the way other consumers have.
"China is a developing country with a weak economic foundation," Gensheng said. "And there is high demand for investment in education, health care and infrastructural construction, despite the limited financial resources of the government."
Gensheng pointed to the increased stockpiling in OECD countries as a factor behind high oil prices. Government and commercial stocks in OECD countries increased by 211 million barrels from 2000 to 2004, according to the Sinochem presentation. In 2004, increased government stockpiling in the U.S. and throughout the OECD accounted for 4% of the world oil demand growth, Sinochem said.
Saying high prices shouldn't be blamed on increased Chinese consumption, Sinochem pointed to financial speculation and the decreased impact of OPEC as other major factors behind today's high prices.
China is now beginning construction of storage tanks to hold the reserve and will have some ready by the end of the year, Zhang said. The reserve will be filled at first with domestic oil, rather than oil bought on international markets, and China is considering letting its oil companies pay royalties in kind with crude for the reserve, he said.
"I don't think it's appropriate for us to purchase oil in the international market right now," Zhang said, citing the high cost.
Oil trades in a global market, however, so the source won't matter much to the supply and demand fundamentals that weigh on prices. Any domestic crude stored by China, a net importer, would have to be compensated for with imports by refiners. |
