Country Diversifies Oil Sources

European and US tensions with Iran will not affect China's crude oil supplies in the short term as China diversifies its oil sources and expands its oil reserves to offset its declining purchases of Iranian oil.

The most likely sources of replacement oil are countries such as Saudi Arabia, Angola and Russia, Han Wenke, director of the Energy Research Center of the National Development and Reform Commission, told China Daily.

"China's strategy to diversify its crude oil supplies in recent years has proved effective in the current situation," said Han.

China, which uses more oil than any other country besides the United States, slashed its imports of Iranian crude by more than 50 percent in March year-on-year to 254,000 barrels a day because of commercial disputes, marking the biggest reduction this year.

Saudi Arabia, the top supplier of crude to China, exported 3.95 million tons of crude oil to the country in March.

China, the top buyer of Iranian crude oil, which makes up more than 20 percent of the Middle East country's exports of crude oil, reduced its oil imports from Iran by 5 percent in January year-on-year and 45 percent in February year-on-year, according to figures from China's customs administration.

The reductions were the result of a delay in contract negotiations with China International United Petroleum & Chemicals Co, according to analysts.

"That contract was ultimately put in place," said Vandana Hari, the Asia editorial director of Platts, a provider of energy information. "(But) it doesn't mean that China will try to buy more Iranian crude. I think the opposite is happening."

She said the company has noticed that Chinese refiners have begun looking for other sources of crude in case the Iranian supply of the resource is cut off.

"I don't think it is as simple as Iran becoming desperate and selling crude at lower prices with Asian countries buying more," she said.

Sanctions imposed on Iran by the United States and European countries may take more of a toll on Japan and South Korea than on China, largely because the former two countries rely more on Iranian crude, Han said.

In a ranking of countries that export the most crude to China, Iran has fallen to the eighth place, going from third place in 2011, when the holders of the first two positions were Saudi Arabia and Angola.

The change was the result of China importing more crude last month from Russia, Kuwait and the United Arab Emirates.

Russia, which exported 2.31 million tons of crude to China in March, replacing Iran as the country's third biggest supplier, recently moved forward in its long-stalled negotiations over a plan to deliver 68 billion cubic meters of natural gas a year to China through pipelines. That progress came during a visit by Vice-Premier Li Keqiang to the country last week.

Analysts expect stronger energy cooperation with Russia will help slake China's thirst for energy and mitigate possible disruptions in the Iranian supply of the resource.

Han said China may consider importing more from the country if certain conditions are met - if, for example, crude prices are lowered.

He also said China's strategic oil inventory will provide relief from supply cuts from Iran, as will big petroleum companies' increasing capacity to hold reserves.

China has completed the first phase of a plan to have the capacity to stockpile an amount of crude oil equal to more than 30 days of its net imports of the resource.

The second phase is now under way and is expected to be completed before the end of 2015, Han said.