The crude oil price plunge of more than 50% since last June has proved a mixed blessing for global economies. It has cut deep into the coffers of oil producing nations while providing much needed relief for oil and natural gas import dependent countries.
China, the world’s second largest oil importer, is also taking advantage of the oil price plunge. Pragmatic energy planners in Beijing have set in motion a record breaking oil buying spree in efforts to fill the country’s Strategic Petroleum Reserves (SPR). In December, China’s crude oil imports rose above 7 million barrels per day for the first time. China’s oil imports for both January and February were slightly lower, but still increased over the same time last year.
Li Li, research and strategy director at Guangzhou-based energy consultancy ICIS China, told Breaking Energy that despite increased crude oil purchases China still needs to increase it oil reserves. “In 2014, China imported 300 million metric tons of crude oil, one fourth of that would equal 90 days of use. After five years crude import will increase to 400 million metric tons,” she said. She added that it’s still not enough to meet reserve standards.
China currently holds 22.7 days of oil reserves, including 9 days in phase one of its SPR and 13 days from commercial stocks. Global standards, however, are much higher. Most International Energy Agency members, for example, hold at least 90 days of oil storage reserves.
“Comparing US crude oil reserves and China’s, the US already accomplished a 90-day reserve over 30 years ago, so is not concerned about oil prices, but China doesn’t have enough oil at a safe level,” Li said.
Li added that a large part of China’s increased crude oil buying has been to fill commercial reserves, mostly held by private companies and national oil companies. In January, China’s powerful National Development and Reform Commission issued a directive requiring the establishment of a minimum commercial stock of crude oil, mandating that refineries keep crude oil reserves equivalent to at least 15 days of their designed processing capacity.
“It’s hard to give exact estimates because data is difficult to obtain, but based on our calculations commercial reserves still have about 30% more capacity before they are completely filled,” Li said. “But the big problem now is, there isn’t enough money to buy much more and they also have to determine what is the most favorable price.” During the interview, Li also negated reports that China may have more storage come on stream this year than has been officially reported.
When asked about the impact of the recently released “Under the Dome” documentary film which exposed China’s growing air pollution problem, Li said that it wouldn’t have any affect on the country’s oil refining sector since it’s not the main industry being targeted in the film. “It’s a fantastic documentary,” she said, “though there are some scientific mistakes. But most people say the [pollution] problem is about regulation, not energy, energy is not guilty.” Li said that the film presents a good message but it’s really more of a social documentary than scientific work.
