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China to Build up Strategic Oil Reserves

Nation to Build up Strategic Oil Reserves

China will not buy more crude oil while international prices remain so high, a senior cabinet official said yesterday.

While denying that China, a relatively small importer of crude oil, is a threat to world supplies and reserves on account of its increasing levels of energy consumption, Zhang Guobao, vice-minister of the National Development and Reform Commission, said the country will research other methods of building its oil reserves.

"We import only 6 percent of our total consumption and we will not change the policy of domestic dependence," Zhang said at a press conference organized by the Information Office of the State Council.

"It would be a great financial risk for China to buy oil from the international market for its strategic reserve program, as current global oil prices have been fluctuating."

Zhang, whose commission is the most powerful cabinet department monitoring economic and social development, said oil has already been siphoned into reserve facilities, but he didn't elaborate on the issue.

Zhang added that China's two major oil firms, Sinopec and PetroChina, will build four reserve bases. Reports have said that three of them are in east China's Zhenhai and Daishan, Huangdao near Qingdao in Shandong Province, and Xingang near Dalian in Liaoning Province.

China is a relative newcomer to the concept of strategic oil reserves. Developed countries such as the United States and Japan have had them for years.

As for the size of China's oil reserve, Zhang said: "This should be determined by China's real conditions."

The country doesn't need an oil reserve as big as Japan's, which has to import all of its oil, Zhang added. China can satisfy most of its demand with the crude produced at home.

Because of China's lack of dependence on world crude, it is quite unnecessary for other countries to overreact to the growth of its energy consumption, he said.

"The international community should also respect China's right to develop, and the aspirations of the Chinese people to shake off poverty and live a decent, well-off life," Zhang said.

Furthermore, he said, the world stands to gain in business opportunities from China's energy growth because it will drive the development of its partners.

"It's really a win-win deal in energy cooperation between China and countries such as Australia and Russia," he said.

At the press conference, Zhang also revealed that China boasts "better-than-expected" oil reserves, and particularly good natural gas reserves, according to a new survey conducted by his commission and the Ministry of Land and Resources.

China will not set up an energy ministry in the foreseeable future, as the central government has already agreed to strengthen the powers of the energy bureau under his commission. "The highest leadership believes that it is rational for an economic and development department to be in charge of energy issues in China," he said.

Energy Independence

Speaking at the China Business Summit 2005 held in Beijing on September 10, Zhang pointed out that China is the world's second largest energy consumer and also the second largest energy producer. In 2004, China's primary resource independence rate reached 94 percent, with only a 6 percent dependence on imports.

Last year, China produced 175 million tons of crude oil and imported 120 million tons, a dependence rate of 40 percent.

Zhang added that China's crude oil import in 2004 only accounted for 6 percent to 7 percent of the world's total crude oil trade volume. In the same year, China exported 80 million tons of coal accounting for 56 percent of total international trade volume.

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