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Page added on October 31, 2013
U.S. Asks China to Team Up on Oil
Over the past five years, China has amassed hundreds of millions of barrels in strategic petroleum reserves.
Now the U.S. wants China to work with it to coordinate releases of those barrels when needed to help ensure oil market stability.
U.S. Secretary of Energy Ernest Moniz said Wednesday during a trip to Beijing that China is willing to discuss a coordination agreement on the use of strategic petroleum reserves. Mr. Moniz said he expects both countries to hold “stronger” and more “active” discussions about that coordination in the coming year.
- Associated Press/Xinhua
China is relatively new to managing petroleum reserves, and is building its capacity in three phases. The first phase, holding 100 million barrels, was completed in 2008. The second phase was finished last year, bringing the reserves to 270 million barrels, enough for about 50 days of cover. A third phase, to be finished by 2020, will boost them to 500 million barrels.
In contrast, the U.S. strategic petroleum reserve holds 727 million barrels – enough for about 90 days of coverage. A plan to boost capacity to 1 billion barrels was cancelled in 2011 due to concerns over the environmental impact of constructing a new facility.
A U.S. coordination agreement with China won’t be easy. Although the U.S. Department of Energy manages the U.S. strategic petroleum reserve, China’s strategic reserves are maintained by its four largest state-owned oil companies, making it difficult to sort out what is considered strategic versus commercial. Also, China has been reluctant to provide regular data about its strategic and commercial oil inventories and stopped publishing most of this information in 2009.
Mr. Moniz said the U.S. has offered to provide China with “as much insight as desired” into how the U.S. Energy Information Administration collects and reports oil-inventory data, which comes out weekly. “Knowing what major oil consumers are doing and what their reserves are is important for traders, analysts and the global market,” he added.
As the world’s second-largest oil consumer behind the No. 1 U.S., China is trying to play a much larger role in global oil markets. In addition to building its own strategic reserves, the Chinese government is hoping to launch its own crude-oil futures contract in Shanghai, which could help Chinese companies cope with volatile oil prices and increase China’s influence over global pricing.
The U.S. isn’t alone in pressing China to coordinate use of strategic reserves. The International Energy Agency, whose main role is to promote energy security, has for years pressed China to improve the transparency of its oil data and sign a coordination agreement with its 28 member countries to release stockpiles during periods of intense shortages.
Although China still hasn’t agreed to coordinate with the IEA, its role in global oil markets can’t be ignored. In 2011, for example, the IEA said it consulted with China and other non-member countries for input before announcing the release of some strategic reserves, for only the third time, due to supply disruptions in Libya.
– Wayne Ma
6 Comments on "U.S. Asks China to Team Up on Oil"
bobinget on Thu, 31st Oct 2013 6:55 pm
One can only wish the US could get China, Korea and Japan to share expertise and possible resulting oil.
In the following typical story on this ongoing dispute
one can’t help but notice the three letter word ‘oil’ is NEVER mentioned. Google: China/Japan island dispute (BI)
China and South Korea have slammed Japan over two videos posted online claiming sovereignty over disputed islands. South Korea’s Foreign Ministry has demanded Japan delete the 87-second video which claims Japan has ownership over the islands, which are called Takeshima in Japan and Dokdo in South Korea.
“Our government strongly protests against Japan’s attempt to damage our ownership over the Dokdo Islands by distributing this video, which was produced by the Japanese Foreign Ministry, containing absurd claims over our territory, Dokdo. We strongly demand they delete the video immediately.” Said Cho Tai-Young, Spokesman, South Korean Foreign Ministry.
The spokesman says the Japanese government must realize that its anachronistic and provocative actions have become a significant factor blocking progress in the two countries’ relationship. South Korea’s Yonhap news agency says the country has released its own video on YouTube that refutes Japan’s claims.
Chinese Foreign Ministry spokeswoman Hua Chunying urged Japan to stop all provocation detrimental to China’s sovereignty over the Diaoyu Islands. She said Japan should make concrete efforts towards properly handling and resolving the issue. Hua stressed that historical and legal evidence show the Diaoyu Islands are part of China’s inherent territory.
bobinget on Thu, 31st Oct 2013 7:00 pm
It would be completely in US traders interest to get even monthly consumption and storage data from China. IOW’s: not gonna happen. Chinese oil people know OUR storage information the second we do.
Where is the advantage to China?
Norm on Thu, 31st Oct 2013 8:34 pm
Its fair to have a strategic deserve. That said, its still sort of a joke. Cause his much is it really? Maybe 20 days? Its nothing.
LTJ on Fri, 1st Nov 2013 3:43 am
Re: Comment from “Norm”. The article says that the US reserve is 50 days supply. Perhaps this will exceed Norm’s definition of a joke. It certainly would not be such a joke if Norm went out to buy his tank of gasoline on Day 42 of a future crisis.
BillT on Fri, 1st Nov 2013 10:52 am
Norm, we do not know how much of any resource China has in storage. They could have mountains of coal and lakes of oil. We would have no idea. We know that they are importing huge quantities but are they using it or…? I suspect that China is much better off than the US or any of the West as for resources.
rockman on Fri, 1st Nov 2013 12:18 pm
Pretty clear to everyone that neither China nor the US can store enough oil to deal with a supply problem lasting more than a few months. For long term it’s clear IMHO what China’s strategy is: locking oil up. Long ago I made up one more silly acronym: LOU. Save times typing. LOU involves four primary components.
First, long term oil purchase contracts with exporters like Venezuela. China used loans to Vz as one of its big bargaining chips. They appear to be cutting similar deals with Brazil on their Deep Water trends.
Second, direct ownership of reserves in the ground. I believe China is now the largest owner of offshore Angolan oil. And again used their very fat wallet to buy into the trend just as they’ve been doing elsewhere in Africa and around the globe.
Third, financing pipeline and field development…most notably with Russia with regards to its Siberian reserves. Piping oil and especially NG out of that rather isolated region is a huge cost advantage for the Russians. It also gives them more leverage dealing with the EU when they have an alternate market.
Forth, refinery JV’s with exporters. The Chinese will build and operate a 600,000 bopd refinery on the Red Sea in partnership with Saudi Arabia. Not difficult to assume that the KSA will always supply this plant with its feedstock. And if KSA production doesn’t increase in lock step then some refineries will lose their current supply of 600,000 bopd. And then there’s the odd situation of China’s plan to build big refineries in countries with little or no oil exports. China has cut a deal to build the largest refinery ever in Egypt which has no capability of meeting its needs. But on any given day there are 2 to 4 million bbls of Persian Gulf oil that transits through Egypt via the Suez Canal and two major pipelines. Very easy for the PG producers to sell their oil to the Chinese plant instead of their current EU customers. Given their lower transport costs China cold ay a little more than an EU refiner. And if the EU refiners can’t meet EU product demand it’s just a short sale from the Chinese refinery in Egypt to the EU markets. And then there’s the even more curious Chinese plan to build the largest refinery ever on the African continent in South Africa. In a country with virtually no oil exports but sits on a major transit path for oil coming out of the Persian Gulf to refineries around the world.
When one looks at the global chess board it isn’t difficult to see all the moves that China has been able to make thanks to the structure of its govt and relationship to energy companies. They are clearly the LOU master. It’s also obvious to see why the US can’t compete with China in the game. There is no USANOC…United State of America National Oil Company. At best there is zero synergism between US oil corporations and our govt. At worst there’s an adversarial relationship on some matters. Even a huge company like ExxonMobil brings chump change to the table compared to what the Chinese govt can front. In 1Q of 2012 alone China had a net gain in foreign currency equal to XOM’s combined budgets for the next 5 years. And when XOM sits down at the negotiations table they don’t have the sovereign guarantee backing them as most Chinese companies have.
IMHO the US lost this chess match before the first pawn was moved.