Center

Wisdom of strategic oil reserves

By Niu Li (China Daily)
Updated: 2006-11-07 09:09

Finally, the world's oil resources can easily meet the global need in the decades to come. The world's verified oil reserves will not dry up in 40 years, measured by the current extraction pace. In Saudi Arabia, the largest oil producer in the world, petrol reserves can be extracted for more than 100 years. When potential and unverified deposits and deposits in non-typical forms are included, the earth's oil resources could last 130 years.

In view of all this, the petrol price on the international market is likely to move in a downward curve. The price of US$60 a barrel is still much too high.

Starting to pump or ship oil into the Zhenhai strategic pool does not necessarily mean that China has already completed setting up its strategic reserves. Nor does it indicate that the country is going to embark on the massive strategic-reserve undertaking in the immediate future.

The establishment of the strategic reserve system is a herculean task, involving formulation of laws and regulations, setting-up managerial bodies, securing oil sources and capital needed by the storage, choice of the sites and so on.

The strategic petrol stockpiles of the United States, Japan and European countries have been set up and improved step by step over three decades or so. Similarly, establishing and rounding off China's own strategic petroleum pool takes a long time, which means that China's hoarding of oil is unlikely to impact the international oil market. On the contrary, the Chinese storage will help stabilize the global oil supply.

It should be borne in mind that the strategic storage, designed exclusively for coping with energy crises arising from war, natural disasters or other emergencies, has no responsibility or capability to help keep down the international petroleum price. So, the stockpile's effect on price control should never be exaggerated.

The author is an economist with the State Information Centre