China will finish building its first strategic oil reserve base by the end of this month, said sources with the National Development and Reform Commission.

The Zhenhai reserve base in East China's Zhejiang Province includes 52 tanks, which engineers will begin filling with oil in October.

About 3.7 billion yuan (US$462 million) has been invested in the reserve. With a capacity to store 5.2 million cubic metres of oil, the base will provide energy security for the Yangtze River Delta, China's economic heartland.

Zhang Guobao, the commission's vice-minister, said during a recent visit to the reserve that its completion would mark a milestone for China.

In 2004, the government committed 100 billion yuan (US$25 billion) to the construction of a strategic oil reserve system by 2020.

The new Zhenhai reserve is part of the first set of four to be constructed. The remaining three are under construction in Daishan in Zhejiang Province, Huangdao in East China's Shandong Province, and Dalian in Northeast China's Liaoning Province.

They are scheduled to be completed by 2008 with a storage capacity equal to 10 days of China's current oil consumption.

The commission did not disclose the intended locations of the future storage sites in the reserve system.

Niu Li, a researcher with the China Information Centre, said that China should now begin to buy oil for the reserves, since oil prices are projected to continue increasing.

Niu also said China can draw from its domestic supply for storage and also use oil pumped by China's oil companies in foreign countries.

However, he added that either option would increase oil prices.

Nonetheless, "No matter how high or low prices are, it's critical for China to reserve oil for strategic purposes," said Gao Shixian, director of the Energy, Economy and Development Research Centre, a body affiliated to the commission.

China last year imported 127 million tons of crude oil, more than 40 per cent of its total oil consumption. During first half of this year, the country imported 70 million tons, up 17.6 per cent compared with the same period last year.

According to the commission's website, sites for the second set of reserves in the system are currently being sought.

A base in Tangshan, in North China's Hebei Province, might be planned, supporting the country's attempt to build Tianjin into a northern economic hub, an unnamed source with the commission said. He also said reserves were planned for western China.

"Guangdong Province, another major economic powerhouse, may soon play host to a new national oil reserve base," the official added.

The central government should consider putting reserves near Guangdong's Pearl River Delta, which produces nearly one-10th of China's economic output, said Zhou Yongzhang, director of the Centre for Earth, Environment and Resources at Zhongshan University in Guangzhou.

Zhou, a member of the Guangdong Provincial Committee of the Chinese People's Political Consultative Conference, said a reserve supporting the delta would be prudent, given that it relies on raw material and energy imports to sustain its development.

Source: China Daily/Agencies