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China issues draft rules for strategic oil reserves

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China is planning changes to the way it handles oil reserves by allowing private companies to build and operate some of its strategic stockpiles, while also requiring companies to maintain compulsory inventories, potentially boosting its future imports.

[BEIJING] China is planning changes to the way it handles oil reserves by allowing private companies to build and operate some of its strategic stockpiles, while also requiring companies to maintain compulsory inventories, potentially boosting its future imports.

Beyond allowing private companies to build and operate some strategic petroleum reserves (SPR), draft rules issued by the National Energy Administration (NEA) on Tuesday will also oblige companies to keep compulsory oil reserves.

These stocks must be kept separately from commercial reserves, and the draft states that such compulsory reserves could only be used at the direction of the state council or cabinet.

The government determines the size of such mandatory reserves based on oil consumption, the rules published on the NEA website said.

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Although no specific volumes were published and no implementation timetable given, traders said that such requirements would boost China's oil imports further, if implemented.

"Potentially it is supportive of the oil market as it may increase imports and reduce exports of products. However, the devil is in the detail so we need a clearer picture," said Oystein Berentsen, managing director for crude at oil trading firm Strong Petroleum in Singapore.

China is the world's second-biggest crude importer, importing 32.58 million tonnes (or around 8 million barrels per day) and challenging the United States' for top spot.

China is expected to add 70-90 million barrels to its strategic crude oil purchases in 2016 as it takes advantage of low prices, a Reuters survey has shown.

By mid-2015, China had stockpiled about 190.5 million barrels under its SPR programme, or roughly one month of net crude imports.

Beijing's goal is to stockpile reserves amounting to 90 days of net imports, which is the standard for SPRs in most western countries.

In the draft rules, the government defines the country's SPRs as including government stockpiling and companies' compulsory stockpiling reserves.

China's stockpiling programme has so far been led largely by state-owned energy giants Sinopec and CNPC, with ChemChina recently striking a deal with privately-run CEFC China Energy to lease out tanks in the southern island province of Hainan.

Approval to use strategic oil reserves must come from the state council, the draft rules stipulated.

Circumstances under which the reserves may be used include during an unexpected emergency when oil supplies are either blocked or significantly reduced, or when macro-economic adjustments are needed.

The strategic oil reserves include crude oil and oil products like gasoline, diesel and jet fuel.

The NEA is seeking public feedback on the draft rules until June 18.

REUTERS

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