Chinas Parliament Demands Action on Oil Crisis


2004.03.25
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China's lawmakers have called on the government to deal quickly with the country's soaring oil demand by enacting new laws to curb demand and creating emergency oil reserves. But experts interviewed by RFA raised questions about the timing and rationale for building a petroleum reserve now.

"Prices are controlled. They broadly reflect international prices, though sometimes with a bit of a delay," China energy expert at the University of Dundee Philip Andrews-Speed told RFA. "I think when it comes to private car transport fuels, then there is almost no taxation on top, so there's very little incentive for drivers to use their cars less or to not buy cars."

He said the calls for more legislation surrounding the petroleum market were understandable, given international norms. "Most countries do have a petroleum law. China doesn't have one... There is no formal legal framework outside the Mineral Resources Law for managing the exploitation of Chinese petroleum resources, and it would be very reasonable to have such a law."

Other analysts raised questions about the timing of building a reserve, and the wisdom of seeking to further control prices instead of relying on market forces. "They're starting at the top of the market, a very expensive time to be doing it, and the question that they have to confront is whether it's important just to start to get it done or whether they should wait until a later point in time when the market is softer," said Edward Morse, executive adviser at Hess Energy Trading Company in New York.

The United States first starting filling its reserve in the 1970s, after an Arab oil embargo brought the nation to the brink of crisis. The reserve now contains 648 million barrels, enough to cover 53 days' worth of imports. When combined with oil company stocks, the United States has protection for over 150 days, according to official data. But the average price of buying the oil has been a little over $27 per barrel, compared with over $38 in the past week, a 13-year high.

Morse also pointed to the conflict in China about using a stockpile to bringing prices down instead of providing for genuine emergencies. "It is the case that the entire debate over the last two years in China has been a debate that's focusing on the domestic price of energy, and they have confused the two," he said.

"But...there is a substantial body of people in the Energy Bureau in China who understand the energy security needs of this. So, while there may no clear national consensus on the issue and confusion about the uses of strategic stocks, it is clear that there's a substantial group of people within the Energy Bureau and the Energy Research Institute who do understand the uses of strategic stocks in the way that IEA countries do," he said.

Andrews-Speed also doubted the effectiveness of using a reserve to control prices. "If China buys lots of oil now to put in a strategic oil reserve, it'll only drive oil prices higher. This focus on an urgent need to fill oil reserves now seems to be not necessarily a very rational approach," he said.

The debate suggests that no clear government policy has yet emerged, analysts said. Edward Chow, a visiting scholar at the Carnegie Endowment for International Peace in Washington, said China was unlikely to start buying for a reserve now. "I think it is something worth considering in the long run, but most folks would want to buy at a dip in the market, which may come in a year or two, and not be considering starting a large strategic stockpile program in today's market," he said.

He said as China became a major importer, it was likely to find its policies on creating and using an oil stockpile would be more effective and welcome internationally if it consulted with the International Energy Agency (IEA). "I think there's a larger strategic question, which is that as an oil importing country, you would want to be associated and coordinated in your policy with other major oil importing countries, specifically the countries who belong to the International Energy Agency in management of strategic stockpiles and not want to do that on your own," Chow said.

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