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State Urged to Build up Oil Stockpile
Calls are growing for China to buy more oil abroad while price pressures are weaker as part of government efforts to create a strategic oil stockpile.
Li Shensheng, a senior oil economist, said Wednesday that the State could use some of its foreign exchange reserves to buy oil on the world market as the price had now come down to around US$24 a barrel from a decade-peak of US$38 last October.
Li said in an interview: "We should seize the opportunity to start building up the State stockpile because the price is expected to surge up again."
Li, deputy director of the Economic Research and Consulting Centre under the State Economic and Trade Commission, said: "The action could be taken immediately while the price stays between US$20 and US$27 a barrel."
His call followed Chinese Premier Zhu Rongji's statement in his government work report during the Ninth National People's Congress (NPC) earlier this month that a strategic stockpile should be rapidly established.
Li said the government recognized the urgency and was developing a framework for the plan.
China, a net oil importer since 1993, is widely seen as being in urgent need for a stockpile such as the United States' Strategic Petroleum Reserve to cushion its exposure to the volatile world market.
Chen Huai, deputy director of the Market Economic Institute of the State Council-affiliated Development Research Centre, said: "The move is feasible because the State has abundant foreign exchange reserves."
These currently stand at more than US$165 billion, second only to Japan in the world.
Li said the creation of a stockpile was a long-term strategy and could not be achieved "overnight." He reiterated his call for the government to build up reserves of 15 million tons within 10 years.
He said a State stockpile should be a national energy security measure for "a rainy day," adding that domestic oil companies should establish their own reserves to reinforce the government's strategy.
Zhang Jiaren, vice-president of China Petrochemical Corp (Sinopec), said during the NPC session that over the next two to three years the country's largest oil company planned to double its current oil reserve of 5 to 6 million tons.
However, Song Wucheng, an analyst from the Energy Research Institute of the State Development Planning Commission, said: "The current price is still too high and the action should be implemented when it falls to US$16 to US$18 a barrel."
Song said the price was less than US$10 a barrel in March 1999 and that future sharp falls were possible.
But Li said the price was unlikely to go back to such low levels and would stay above US$20 in coming years.
Members of the Organization of Petroleum Exporting Countries (OPEC), the oil cartel which controls nearly half the world's production, aims to keep the price of crude oil between US$22 and US$28 a barrel, with a preferred target of US$25.
OPEC has reduced output twice so far this year by a total 2.5 million barrels per day, or 9 per cent of its production, to buoy up the price.
Li said China would depend more heavily on oil imports because of the widening gap between its demand and production.
He estimated the country's oil imports would stand at 100 million tons a year by 2005 against more than 70 million tons this year.
Source: China Daily
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