New Bureau of China's Petroleum Reserves: Rules have not yet established a complete process

The establishment of the National Petroleum Reserve Center marks a significant step in China’s energy strategy, but many questions remain about its operations, structure, and long-term goals. As a key implementing body, the center must determine what actions to take first, how much capital it has, who will lead it, and what role it will play in managing national oil reserves. These issues are critical as the country moves into a new phase of energy security planning. Last year, after years of anticipation, the National Petroleum Reserve Center was finally announced at the end of the year. Meanwhile, the Zhenhai Petroleum Reserve Base, which had been operating in trial mode for nearly a year, was officially recognized by the state just days after the center's formation. The NDRC stated that this development signals a new stage in China’s oil reserve management. However, the regulatory framework is still under construction. The "Regulations on the Management of State Petroleum Reserves," which had been widely anticipated last year, have yet to be formally released. Similarly, the draft Energy Law is still in the public consultation phase. While the institutions for oil reserves have been established, clear rules governing their operations are still missing. On December 18, 2007, the State Council Development and Reform Commission announced the official establishment of the National Petroleum Reserve Center. According to the press release, the agency is responsible for the construction and management of national oil reserves. It serves as an executive body within China’s oil reserve system, aiming to safeguard national economic security through strategic petroleum reserves. Its duties include overseeing the collection, storage, rotation, and use of reserves, as well as monitoring domestic and international market trends. According to sources from the oil industry, the center is expected to function as a bureau-level entity, possibly structured as a company. Some insiders suggest it may operate similarly to the state grain reserve system. The Zhenhai base, currently managed by Sinopec, already operates as a limited company, indicating a trend toward commercialized management. Experts like Han Xuegong from the oil industry compare the center to the National Development Bank in the financial sector, emphasizing that it is not a profit-driven organization. Cao Xiao, deputy chief engineer at Sinopec’s Institute of Economics and Technology, noted that unlike the previous National Petroleum Reserve Office, the new center is an operational agency, with funding coming directly from the government. It can purchase oil from various sources, not just the three major state-owned companies. The Zhenhai base is currently entrusted to Sinopec for management, meaning the new center does not directly oversee the facility. Instead, it collaborates with Sinopec, PetroChina, and other major players. “They gave us the money,” said a Sinopec official, highlighting the shift in responsibility. The timing of the announcement raised questions among analysts. Professor Cha Daojun from Peking University questioned why the center was established now, pointing out that strategic reserves are meant to address supply disruptions, not just price fluctuations. He also noted that China’s move may align with international energy cooperation efforts, especially given recent discussions at the International Energy Agency. While some believe the announcement could create an information premium in the market, others, like Cao Xiao, argue that it doesn’t necessarily mean immediate action or market volatility. The process of developing comprehensive regulations and policies remains ongoing. The Energy Law, which includes provisions on petroleum reserves, is still under review. If passed, it could serve as the foundation for future oil reserve management. However, as Han Xuegong pointed out, the final structure of the system depends on several variables, including legislative progress and institutional changes. Despite these uncertainties, the center’s operations cannot wait. Internal documents from the NDRC are being used as temporary guidelines. In the broader context, China’s growing reliance on oil imports—now around 50%—underscores the urgency of building a robust reserve system. Currently, China’s oil reserves are far below the international standard of 90 days’ worth of consumption. With only a few reserve bases in place, the path to full capacity is long. Whether through policy reforms or practical implementation, the journey toward a complete and effective oil reserve system is just beginning.

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