International Energy Newsletter: It is not difficult to find data on China's crude oil imports in recent years. China's crude oil imports from 2009 to 2011 have increased significantly compared with 2006-2007. After the financial crisis, China’s monthly crude oil imports have recovered in April 2009, and set a historic record in September 2010, with monthly imports approaching 24 million tons. The import momentum of China's crude oil volume has continued until 2011, and monthly crude oil imports have basically remained at around 20 million tons. Market participants generally speculate that China’s large import of crude oil may be related to the government’s move to increase strategic oil reserves.

Zheng Mianquan increase rebound market or start the market and policy game high price of sugar oscillating in the market Confidence is not even the PVC will be the main strategy for the shock Oil reserve system originated during the 1973 Middle East war. At that time, as the OPEC oil-producing countries imposed an oil embargo on Western developed countries, developed countries joined forces to establish the International Energy Agency (IEA). Member countries have stockpiled oil in response to the oil crisis. At that time, the International Energy Agency required member countries to reserve at least 60 days of oil, mainly crude oil. After the second oil crisis of the 1980s, it was also stipulated that the number should be increased to 90 days, mainly including government reserves and corporate reserves. At present, only a few countries in the world have more than 90 days of strategic oil reserves. It serves the country's energy security in order to ensure the continuous supply of crude oil, and it also has the function of suppressing abnormal fluctuations in domestic oil prices. At present, the US strategic oil reserve has reached 727 million barrels of crude oil, which allows the United States not only to effectively protect the oil supply security, but also to use crude oil reserves as a weapon to compete with OPEC for international crude oil pricing power. In contrast, if China does not have a complete strategic oil reserve, it will not be able to fully guarantee the safety of the country’s crude oil, nor will it be able to win the right to price the international crude oil price.

As early as 1993, as China became a net importer of oil, China began its first discussion on whether it needed to establish a strategic oil reserve. Since then, the question of how China's development strategy oil reserve will affect the market has always been endless. The discussion of China's establishment of strategic oil reserves officially began in 2000. In the same year, China’s net import of crude oil was 60 million tons, and its foreign dependence was still less than 30%. At the time, 80% of imported crude oil came from the Middle East, and imports depended on a single, long sea route. Based on the consideration of avoiding shortage or interruption of crude oil supply, the National Development and Reform Commission, the Ministry of Transport, shipping companies, and oil companies formed discussion groups to conduct special studies on the diversification of oil sources and the establishment of oil reserves. In the 10-year plan of 2001, China officially proposed a plan for building a strategic oil reserve. Since 2003, China has started the first phase of the National Strategic Petroleum Reserve Plan. It has begun construction of four major oil reserves on the coast along the coast of Qingdao Huangdao, Dalian Xingang, Ningbo Zhenhai, and Zhoushan Lushan. At the same time, it began to investigate the second phase strategy. Depot selection.

Before starting to establish an oil reserve plan, China could only rely on Sinopec and CNOOC's commercial reserve stocks to adjust domestic oil demand, and these companies' inventory levels are much lower than the international energy agency standards. According to China's petroleum strategic reserve construction plan, the third phase of the 2020 project will be completed, with a total investment of about 100 billion yuan. By then, the total size of China's reserves will reach about 100 days of net oil imports, and the national oil reserve capacity will rise to about 85 million. Tonnes, equivalent to 90 days of net oil imports, which is also the “reaching mark” of the strategic oil reserve capacity prescribed by the IEA.

The first phase (2004-2009): The first phase of the oil reserve base project is mainly concentrated in the eastern coastal cities. The crude oil storage capacity of the first phase of the project is 103 million barrels. The first phase of the national oil reserve plan includes the Zhenhai base and Zhoushan. Bases, Huangdao Base, Dalian Base and other four projects have a storage capacity of 5.2 million cubic meters, 5 million cubic meters, 3.2 million cubic meters and 3 million cubic meters, and a total of four major bases with a total storage capacity of 16.4 million cubic meters. According to the domestic oil consumption level in 2008, it can be used for 13-14 days of oil use, or net oil imports for 25-26 days.

The location of the first phase of the project is mainly due to the following considerations: the ease of oil injection; the convenient transportation; the distance from the oil refining facilities; and the ability to respond quickly to emergencies.

The selection of the first oil reserve project in Zhenhai is very good in line with the above criteria. It is located in the Yangtze River Delta region and is China's most economically developed region. It has a large number of warehousing and logistics facilities and is adjacent to major state-owned refinery projects such as Sinopec Corp., Shanghai Petrochemical Corp., Yangzi Petrochemical, and Yizheng Chemical Fiber. In addition, the Zhenhai project is also adjacent to the planned Sinopec oil commercial storage facility. The construction of the Zhenhai oil base has important strategic significance for stabilizing the supply of crude oil in the Yangtze River Delta region.

The second phase (2009 - present): Following the full commissioning of the four bases for the first phase of the petroleum strategic reserve (including Zhenhai of Zhejiang, Shaoshan of Zhejiang, Huanghai of Shandong, and Dalian of Liaoning), the second batch of strategic reserve bases have started construction. The second strategic reserve base currently under construction and planning includes Liaoning Jinzhou, Qingdao in Shandong, Jintan in Jiangsu, Zhoushan in Zhejiang, Huizhou in Guangdong, Dushanzi in Xinjiang, and Lanzhou in Gansu, etc. The total energy storage is expected to reach 26.7 million cubic meters. The amount of crude oil stored is about 168 million barrels, equivalent to 21 days of China's net crude oil imports. The completion of the second phase of the project will increase the total national oil strategic storage capacity by 163%.

Compared with the first-phase reserve base, the second phase of the national strategic oil reserve began to tilt toward the central and western regions in Xinjiang and Gansu. The first phase of the strategic oil reserve base is located in the coastal area. Considering its economic function is more to ensure the supply of energy in China. Sufficient to ensure the needs of economic development. The layout in the central and western regions may be more for strategic and tactical considerations to prepare for emergency energy security issues such as extreme events such as wars. Reserve costs and transportation costs are also considered factors. Crude oil imported from Central Asia and Russia can be stored directly in Gansu and Xinjiang. And once oil shortage occurs, it will be nationwide. China has a vast territory, and transportation is time-consuming and requires huge costs. Therefore, establishing reserves in various places is in line with our country’s actual needs.

The site of the second-phase crude oil strategic reserve is a subterranean oil depot. Compared with the above-ground storage bases, underground oil depots have lower construction costs, large storage space, and low maintenance costs. From the 50s to 60s of the 20th century, many countries in Northern Europe, such as Sweden, Finland, Asia, Japan, South Korea, and Singapore, used underground caverns as a national crude oil strategic reserve pool. This method has a large amount of storage, a large depth of burial, generally 500-1500m, and a low cost, and is widely adopted by countries with geological conditions for the construction of salt beds. In the United States, Germany, France and other countries, underground oil reserves mainly use underground salt caverns. Jiangsu Jintan used the existing cavernous cavity for storing natural gas to transform into 2.5 million cubic meters of crude oil storage base. In addition, Zhanjiang, Guangdong Province, is also a underground oil depot.

Xinyuezishan is the first base to complete the construction. Lanzhou is expected to be the second completed project and is expected to be completed in the first half of 2011 and start oiling. China's specific use of oil imports is strictly confidential, so the outside world has speculated about this. According to industry sources, it is not ruled out that the second phase has been completed, but there are currently no publicly available data on oil concerns.

The third phase of strategic inventory is still under planning. The scale is slightly higher than the second phase. It is estimated that the total number will be 36.2 million cubic meters, about 232 million barrels. All three phases of the project will increase China's total strategic inventory to 500 million barrels of capacity, reaching 90 days of net crude oil imports.

Impact of China's Petroleum Strategic Reserve Injection on Crude Oil Prices We expect that most of the second-phase strategic inventory projects will go online in the next two years. The additional demand for new oil injection projects has naturally become the focus of investors in the crude oil market. In this regard, the experience of the first phase of the National Strategic Petroleum Reserve can be used for reference.

Zhenhai’s first oil reserve project began construction in 2004. From August 11, 2006, Sinopec Group injected 3 million barrels of crude oil purchased from Russia into the Zhenhai base, and the purchase price was 50 US dollars per barrel. The Huangdao oil reserve project was completed in the second half of 2007. However, the oil depots were empty in late 2007 and early 2008. Because crude oil prices were at a historically high level at that time, buying crude oil was clearly not a worthwhile purchase. The remaining two reserve bases of the project, Dalian and Zhoushan, were completed in 2008. In the second half of 2008, affected by the financial crisis, crude oil prices fell sharply. In late 2008 and early 2009, the two crude oil depots began purchasing large quantities of reserve oil. As of June 2009, a total of 102 million barrels of crude oil was injected into the four reserve bases of the first phase of the project. The government announced an average purchase cost of US$58/barrel, which indicates that most of the crude oil inventories occurred in the second half of 2008 to 2009. During this period of half a year, it means that the possible increase in demand for PetroChina during this period is about 280,000 barrels per day.

The second phase of strategic stock injection operations and the first phase of the project may not be the same. Assume that within 7 months after the completion of the second phase of the project, all strategic inventories are filled, which can be regarded as equivalent to an increase of 140,000 barrels per day for China's crude oil consumption in 2012. If other factors do not change, we believe that the increase in crude oil prices will be around US$3.5.

However, judging from the country's experience in handling the first-phase strategic inventory, the deposit can be postponed completely and it is chosen to proceed when the oil price is low. The actual new demand caused by oil injection in 2011-2012 will be less than the previously analyzed scenario. The impact of a series of inventory construction on oil prices in the next two years will be more supportive.