China to Boost Its Oil Reserves

Iran's threat of blocking the Strait of Hormuz, a major oil trading region, has served as a wake-up call to Beijing that it is time for China to develop its own petrol stockpiles to face future potential energy crises.

During the oil crisis of 1973, the United States, Japan, France and then-West Germany established the International Energy Agency to manage petroleum reserves in case of another crisis, according to Beijing's Legal Evening News. During that energy crisis, the mandatory oil reserve requirement for each country was 60 days. During the energy crisis of 1979, the reserve requirement of the group's member nations had increased to 90 days.

The United States' oil reserves are world's largest emergency supply, with a capacity to hold 727 million barrels of oils. The oil reserve requirement for the United States and Japan today is 150 days, and is 100 days for Germany.

China imported 254 million tons of oils in 2011, and began its petroleum reserve program much later than most countries. In January 2010, China completed its first four petrol strategic stockpile bases in Zhenghai, Zhoushan, Huangdao and Dalian. The total tonnage of oil in those four bases is 14 million tons, and the current oil reserve requirement for China is 30 days.

After the completion of China's second phase creating oil stockpiles, it will become the second-largest oil-reserve nations in the world with 500 million barrels of oils. The estimated oil reserve requirement for China at that time will be 90 days. According to the British Financial Times, China is already the second-largest oil importer.

Still, there are some potential challenges for China's petroleum reserve program. Unlike the United States, more than 50% of China's oil is imported from the Middle East and Africa. Since Beijing does not produce large amounts of its own oil, the source of China's energy would be cut more easily should conflict or war erupt in oil supply regions.

China could seek help from private corporations in planning its petroleum reserve program, as the United States and Japan did, according to Lin Boqiang, director of the Center for Energy Economic Research at Xiamen University. This could provide China with more opportunities for cooperation with the foreign oil industry. Lin added China should seek to buy more oil from Russia.