information from EIA on China
China's petroleum industry has undergone major changes over the last decade. In 1998, the Chinese government reorganized most state owned oil and gas assets into two vertically integrated firms -- the China National Petroleum Corporation (CNPC) and the China Petrochemical Corporation (Sinopec). Before the restructuring, CNPC had been engaged mainly in oil and gas exploration and production, while Sinopec had been engaged in refining and distribution. This reorganization created two regionally focused firms -- CNPC in the north and west -- and Sinopec in the south, though CNPC is still tilted toward crude oil production and Sinopec toward refining. Other major state sector firms in China include the China National Offshore Oil Corporation (CNOOC), which handles offshore exploration and production and accounts for more than 10% of China's domestic crude production, and China National Star Petroleum, a new company which was created in 1997. Regulatory oversight of the industry now is the responsibility of the State Energy Administration (SEA) which was created in early 2003.
With China's expectation of growing future dependence on oil imports, China has been acquiring interests in exploration and production abroad. CNPC has acquired oil concessions in Kazakhstan, Venezuela, Sudan, Iraq, Iran, and Peru, and Azerbaijan. Sinopec also has begun seeking to purchase overseas upstream assets. The Greater Nile Petroleum Operating Company (GNPOC), the Sudanese oil project in which CNPC owns a stake, began exports in August 1999. CNOOC also has purchased an upsteam equity stake in the small Malacca Strait oilfield in Indonesia. Despite efforts to diversify its sources of supply, roughly half of China's imported oil comes from the Middle East, with Saudi Arabia alone accounting for 17% in 2003.
The most significant deal thus far is CNPC's acquisition of a 60% stake in the Kazakh oil firm Aktobemunaigaz, which came with a pledge to invest significantly in the company's future development over the next twenty years. The Kazakh and Chinese governments signed an agreement in May 2004 for the construction of a $700-million pipeline to export Kazakh crude oil into western China. The pipeline would run from Atasu in central Kazakhstan to Xinjiang, supplying three refineries with about 200,000 bbl/d of crude oil. While the intergovernmental agreement cites a completion date of late 2005, this is considered unlikely, and negotiations on a binding contract and pricing continue.
Russia's Far East is seen as a potential source of Chinese crude oil imports. The Russian and Chinese governments have been holding regular discussions on the feasibility of pipelines to make such exports possible. One proposed plan is a pipeline which would carry as much as 1 million bbl/d of crude oil from Anagarsk in Russia to join the existing Chinese pipeline network at Daqing. Yukos Oil of Russia and CNPC signed a memorandum of understanding in June 2003 for sales of oil via the pipeline, contingent on the pipeline being built. An alternative plan, proposed by Russian pipeline operator Transneft, would take Russian crude from both West Siberia and East Siberia via a 1 million bbl/d pipeline to an export terminal at the Pacific coast port of Nakhodka. Japan and China each have undertaken intense efforts to sway Russia toward their preferred pipeline option. As of mid-2004, most analysts expect the Nakhodka pipeline to prevail, with Japan offering to heavily subsidize the construction of the pipeline and provide other financial assistance to Russia, but no binding agreement has yet been concluded.
China setting up strategic oil reserve
By Michael Mackey
Feb 7 2004 Asia Times
SHANGHAI - In an effort to reverse the growth of its dependence on foreign oil, China - a huge oil producer and once an exporter - is establishing a 70-75-day strategic petroleum reserve in four locations, and the first phase is scheduled to be completed in 2007. By 2020, China is expected to import 60 percent of its oil.
Total price tag: at least US$725 million for the four locations, scheduled to be completed by 2010 - maybe.
Although China's main source of energy is coal, it also dependent on oil and it is now the world's fastest-growing importer. China is the world's fifth-largest oil producer, but its reserves would last only a week.
Last May, China's State Council set up a strategic State Oil Reserves Project, but only made the decision public late last year. The State Council, an executive, cabinet-level body, has adopted a four-location blueprint and is close to approving details of the first phase of construction in Aoshan in Zhejiang province on the coast south of Shanghai.
The three-person Oil Reserves Office is headed by Bai Rongchun, who is also director general of the National Development and Reform Commission's Energy Bureau. The bureau is charged with assessing the national energy situation, evaluating future needs and recommending strategic policy changes that will ensure oil, coal and hydroelectric power to fuel economic growth.
The oil-reserve blueprint calls for four physical projects, all of them on the coast in the south and north so that port facilities can receive oil shipments. Two projects will be in Zhejiang province, one of them in Aoshan and another in Zhenhai. The other two projects will be in Huangdao in Shandong province north of Shanghai and in Dalian in Liaoning province in the north. The east coast is emerging as China's economic and industrial core.
Projected investment $725 million
These will require total investment of 6 billion yuan ($724.9 million). The China Daily and official media also report that these four will be completed by 2010 and will hold 70-75 days worth of oil, probably much of it imports. The oil tanks for the first phase will hold more than 10 million cubic meters, according to the China International Engineering Consultancy Co. Other sources say the volume will be somewhat greater.
The first phase in Aoshan is expected to cover 120-150 hectares and include a port capable of docking ships with a deadweight tonnage of 250,000. It will require an investment of 3 billion yuan ($362.7 million) to build oil tanks with a volume of 5 million cubic meters by 2007.
Zhenhai, also in Zhejiang, is expected to have the same facilities and cost about the same. No details were immediately available on the other two sites.
The government plans to finance the reserve with a special fiscal allocation and it is very likely to issue long-term state treasury bonds, establish a special investment fund, come up with new types of taxes and/or launch an oil-futures market, although a final decision has not yet been made.
The government is considering launching a specialized institution, possibly a national oil-reserves corporation, to be in charge of construction, as well as management and operation of the reserves.
China is setting up the reserve for two major, related reasons.
China too dependent on Middle East oil, The crux of the problem is that China is becoming increasingly dependent on foreign oil as its economy booms and its own reserves dwindle. That's the economic part of the problem. The second, geopolitical part is that about four-fifths of China's oil imports come from unstable parts of the world, such as the Middle East. Last year China imported 72 million tons of crude oil during the first 10 months, 13 million more than during the same period of 2002. It is now the world's second-largest importer, despite being a net exporter until 1993. China expects to import 120 million tons in 2004 and by 2020 it will be importing 60 percent of its oil.
China is experiencing a drop in production. Daqing in the northeast, the country's biggest oilfield, will see its output slide 4.3 percent to 46.3 million tonnes this year. This drop comes at a time when China already is experiencing blackouts while industrial and consumer demand is surging.
A strategic reserve would enable Beijing to cope with international crises, such as political upheaval in the Middle East that could disrupt its oil supply. A reserve also would flatten domestic oil prices when there are international price hikes - an important political consideration because lower oil prices will keep down the prices of domestic manufactured goods. The fallout from unchecked rising oil prices also could mean destabilizing popular discontent.
China may well see another financial advantage in establishing an oil reserve, though it would be sensitive to negotiate and implement. If China were to stock the reserves with foreign oil - a big "if" in itself, as it raises questions not just about the price of the deal but also about the politics behind it - it would be spending some valuable foreign currency to buy the oil. This, in turn, could reduce pressure on Beijing to revalue the yuan. The United States especially wants China to revalue its currency upward, arguing that the current rate of valuation is too low and thus Chinese goods are underpriced in world markets - to the detriment of competing US sellers.
Oil reserve just one step to energy security Establishing a strategic oil reserve is not an isolated project, but one of several steps undertaken to increase energy security. These include launching the first national geological survey on oil deposits and creating a long-term energy policy.
China is also considering directing its domestic crude tanker fleet to transport half the nation's oil imports by 2005 in a $10 billion program to improve the security of oil supply