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Oil and Gas Emergency Policy: China 2012 update

Oil and Gas Emergency Policy: China 2012 update

Although coal is the dominant energy source in China, accounting for some 70% of the country’s Total Energy Consumption (TEC) in 2009, oil and gas are also essential energy sources. Despite strong growth in consumption of oil, its share of TEC fell from 22% in 2000 to 18% in 2009, as coal use rose even faster to meet burgeoning demand for electricity. A strong policy push boosted natural gas supplies, particularly to residential customers, so that the share of natural gas doubled from 2% in 2000 to 4% in 2009.

China is one of the important oil and natural gas producing counties in the world. In 2010, China’s crude oil production exceeded 4 million barrels per day (mb/d). However, with strong and sustained economic growth, its demand for oil has also increased, from 4.6 mb/d in 2000 to over 8 mb/d in 2009. In the New Policy Scenario (NPS) of the IEA World Energy Outlook (WEO) 2011, China’s primary oil demand rises to 12.2 mb/d in 2020. Although China is now the world’s fifth largest oil producer, the country has been a net oil importer since 1993. In 2011, China imported over 5 mb/d of crude oil, accounting for about 54% of its total demand. More than 50% of the total crude oil imports came from counties of the Middle East.

To prevent a potential shock to the economy caused by an oil supply disruption, the Chinese government has been steadily pushing building an oil stock reserve system. China has completed four stockpiling facilities with a capacity of around 103 mb in the first phase of its Strategic Petroleum Reserve (SPR) plan, and has begun construction of its second phase, which comprises eight storage sites that will reportedly have a combined capacity of around 207 mb. Among them, two sites were completed in the second half of 2011 and the Tianjin site is reportedly set to be completed in 2012. According to unofficial reports, the remaining four SPR-II sites are expected to become operational by 2013. The third phase is expected to boost total SPR capacity to  approximately 500 mb by 2020. Stockholding obligations for industry may be considered, but are not now a formal part of the emergency response system, authorising legislation for which is still in preparation.

Domestic natural gas production surged from about 27 bcm in 2000 to 96.8 bcm in 2010, or a compound average growth of 14% annually. In 2010, domestic supplies met 90% of domestic consumption. As natural gas use has grown, China started importing LNG in 2006 and became a net importer in 2007. In 2010, gas demand reached around 106 bcm (290 mcm/d), while it is estimated to have increased to 130 bcm in 2011. China imports natural gas both in the form of LNG and through gas pipelines. By country, China imported LNG from Australia (5 bcm), Qatar (3.2 bcm) and Indonesia (2.7 bcm) in 2011.

The key elements of China’s approach to gas security are to further promote domestic production from conventional and unconventional resources, to expand reserves, to construct gas storage facilities, and to accelerate construction of LNG terminals and interregional gas pipelines in order to strengthen supply of gas imports. Although China does not have government gas stocks or mandatory industry stocks, the government promotes the expansion of commercial inventories. So far, some storage facilities have been built for coping with seasonal demand fluctuations.

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Released Date 4 July 2012
Pages 19
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