Uygur could be turned into a national strategic petroleum reserve (SPR) base, said analysts.

 

Built, owned and operated by CNPC subsidiary Xinjiang Oilfield Corp, the terminal in Shanshan county in eastern Xinjiang will have the country’s largest storage capacity of eight million cubic metres when it is fully built up over a 32-hectare site over the next few years. CNPC has allocated 6.5 billion yuan for the entire project. (US$1=6.85 yuan).

The project’s first phase comprising 10 tanks of a total of one million cubic metres of capacity was launched earlier this month.

Shanshan, located 300 km from Xinjiang’s capital of Urumqi, is shaping up as a regional oil transport hub in remote western China. It is now being used to store crude imported by pipeline from China’s oil-rich neighbour, Kazakhstan and Xinjiang’s domestic oil fields.

While CNPC insists it will remain a commercial property of the company, analysts believe it will eventually be turned over to the government or will be contracted out as a national stockpiling facility given its proximity to Kazakhstan.

 

China has been nurturing political and commercial ties with Central Asia’s hydrocarbon-rich countries that once were under the rule of the former Soviet Union. Its ties with Kazakhstan have blossomed to the extent that the government has allowed CNPC to buy a stake in Petrokazakhstan and build a pipeline to deliver crude oil into China.

Both countries share a common concern over Russia’s unstable politics and want to reduce their reliance on Moscow’s goodwill. Kazakhstan is trying to build up export infrastructure that will bypass Russian territory while China wants to develop new supply sources to reduce dependence on oil and gas imports from Russia and the Middle East.

The Chinese government has completed the first phase of its oil stockpiling bases with two sites in Zhejiang and one each in Shandong and Liaoning provinces. It has filled up two sites and is buying crude oil to fill up the third.

Last month, it announced it is planning to develop the programme’s second phase, and is scouting for new locations that will store up to 26.8 million cubic metres of crude. Xinjiang is a favourite as the country has no strategic storage base out in its western frontier.

Chinese planners and oil executives are in a hurry to build up their oil stockpiles given the current weak state of the markets. They are buying crude oil at around $35 per barrel now compared with an average of more than $100 for the first nine months of the year.

In addition, the government is under pressure to dispose of its huge holding of US dollars from its $1.9 trillion worth of foreign exchange reserves. With the dollar expected to slide further next year, buying oil has become the most viable way to invest the surplus.

China’s strategic oil reserves have just passed the 100-million barrel mark, and could reach 150 million barrels a year from now, and exceed 500 million barrels by 2013. The world’s second largest oil consumer now uses more than eight million barrels per day.