China's strategic petroleum reserve (SPR) depot in Jinzhou officially started filling in August 2018, bringing the existing depot capacity to a total of 249.1 million barrels, according to ESAI Energy's new released China Watch report. The launch of this site suggests that Beijing is slowly progressing towards the end of its Phase II SPR, and that filling the government depot alone could add 70,000 b/d to Chinese crude demand between now and the end of 2018 and another 150,000 b/d in 2019.
According to the report, which analyzes important developments issues impacting China's future petroleum market fundamentals, the last Phase II depot in Zhanjiang should be completed in early 2019, and it is likely to start receiving crude in the second half of 2019. Phase III, however, remains preliminary at best. Because of the delayed development of the three-phase plan, which was supposed to be completed by 2020 with a total capacity of 457 million barrels, Beijing has been relying on industry tanks to build up its SPR. Since 2007, the Ministry of Commerce has granted crude storage licenses to over 40 companies, which makes them eligible to hold SPR. Indeed, as of mid-2017, Beijing must have injected at least 76 million barrels of its SPR into leased industry tanks to make up the announced 275-million-barrel strategic stocks, since the total depot capacity at that time was 199 million barrels.
“Chinese crude imports have averaged 9 million b/d between January and July. With GDP growth slowing down to 6.8 percent in the first half of 2018, Beijing could not have maintained record-high crude imports without significant stockpiling,” commented ESAI Energy Analyst Yao Wu. “Though existing and potential U.S. tariffs could further impact the economy, tensions between Beijing and Washington will encourage inventory building and hence imports.”