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.
China, which is relatively new to managing petroleum reserves, 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.
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 canceled 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. While 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 Energy Information Administration, an agency under the Department of Energy, 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 after the 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 the country’s influence over global pricing.
The U.S. isn’t alone in pressing China to coordinate its 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.
(blogs.wsj.com, edited by Topco)