Of China, Strategic Petroleum Reserves, and "them again"
Posted by Heading Out on Wednesday November 15, 2006 at 9:52 AM EST
Dear Me! There has been a considerable stir in the TOD house, since CERA have just come out with a report restating their position that there is no Peak Oil Problem. For a mere $1,000 you may discover (perhaps) what is new since the last time they said this. Now we have commented about problems with the CERA position on a number of occasions (try one, two, three , four and five for a start). But since it is better to do a little checking first, it may take a little time to go through and see exactly what is different this time around, if anything.
In the meantime, the election is over, and a small, cynical, part of my mind wonders how long it will be before we start adding more oil to the Strategic Petroleum Reserve. Last year's Energy Policy Act authorized increasing the size of the reserve to 1 billion barrels. The current reserve is made up of 273.5 million bbls of sweet and 415 million bbls of sour, for a total of 688.5 million, as of November 3rd. However, over the past few months there has been very little activity. The reserve had been filled to its initial target of 700 million barrels by August 2005, but then, following Katrina there was a period where it proved its intended value:
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On August 27, 2005, Hurricane Katrina entered the Gulf of Mexico and began a path of destruction that caused massive damage to production platforms, terminals, pipelines, and refineries in states along the U.S. Gulf Coast. Because of the severe disruption to petroleum supplies, Secretary Bodman immediately approved six requests for emergency loans of crude oil from the SPR and President Bush directed that a drawdown and sale of crude oil be conducted. Ultimately, 9.8 million barrels were loaned and 11 million barrels were sold. Because the loaned oil is repaid with similar quality oil, plus a negotiated volume of premium barrels, 10.3 million barrels were scheduled to be repaid. By late Spring 2006, repayment of 8.6 million barrels had been completed. However, delivery of the remaining 1.7 million barrels was deferred at the President's direction as part of his Four Part Plan to Confront High Gasoline Prices. The final 1.7 million barrels will be delivered during Spring 2007.
One can thus anticipate, that purchase coming in the spring. However, in the President's message in April, the deferral of purchases was meant only to be temporary.
The President has directed the Department of Energy to defer filling the Reserve this summer. Our Strategic Reserve is sufficiently large to guard against any major supply disruption over the next few months. Deferring deposits until the fall will leave a little more oil on the market - and when supplies are tight, every little bit counts.
The example of Katrina provides a justification for the SPR's, and this has, perhaps, not been lost on the Chinese, who have suffered a more-than-normally-vicious typhoon season this past year, including Saomai and Prapiroon. They had initially planned to start filling their SPR about this time last year, but hesitated because of concerns that the price was high and that buying for the reserve would drive prices up further.
They have obviously now changed their minds, and have been buying for over a month, but the size of the reserve anticipated may now be considered too small. The current size is sufficient for about 7 days, though this is projected to increase to 10 days.
China's first batch of the four strategic petroleum reserve bases are designed to be in Zhenhai (Ningbo of Zhejiang Province), Huangdao (Qingdao of Shandong Province), Daishan (Zhoushou of Zhejiang Province) and Dalian (Dalian of Liaoning Province). The other three reserve bases are expected to be completed by 2008. By then, they will form a total petroleum strategic reserve capacity for consumption of more than ten days.
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