Beijing's cut-price oil binge stretches storage tank capacity to limit
China imported on average 6.2 million barrels per day (bpd) in 2014 -- the rough equivalent of three VLCC full loads -- with 90 per cent of it seaborne
Beijing's bid to capitalise on a collapse in oil prices to fill up its petroleum reserves has put storage capacity at full stretch, leaving millions of barrels at sea on board at least a dozen supertankers and raising uncertainty about the pace of imports in coming months.
The data shows all 11 VLCCs, each with a deck space equivalent of three soccer fields and able to carry two million barrels of crude, were fully laden. So was the smaller suezmax vessel, which can carry more than one million barrels.
China imported on average 6.2 million barrels per day (bpd) in 2014 - the rough equivalent of three VLCC full loads - with 90 per cent of it seaborne.
Logjams are not uncommon in the winter peak season when heating oil is in demand, but this year's has been compounded by the surge in strategic imports, industry sources told the .
"The oil tanks are almost full," said an executive at a state-owned shipping firm, who declined to be identified. "It is a state secret in terms of how full they are," said the executive, without further elaboration.
State secrets are closely guarded by Beijing. Revealing them is a crime carrying heavy punishment - including the death sentence.
A Singapore-based VLCC chartering broker shared a similar observation about capacity.
"The land tanks are very full, especially in Qingdao and Ningbo, which is causing vessel delays," said the broker, who declined to be identified.
Beijing broke with tradition and revealed the level of China's strategic petroleum reserve (SPR) for the first time in November, when it stood at 91 million barrels, equivalent of nine days' consumption. Combined with commercial stockpiles, total reserves equate to 40 days of imports, according to Xinhua. China imported 308 million tonnes of crude last year, up 9.5 per cent, the highest growth in four years.
"Given China's oil demand was up only 1.5 per cent in 2014, it's clear that the extra imports are to help fill the SPR, which is very low, at 40-day usage," said Simon Powell, CLSA head of Asia oil gas research.
"If China were to increase SPR to [the recommended] 90 days, it means 500 million barrels. Even if China imports one million bpd more to fill the reserve, it couldn't possible be filled until early 2016, based on the premise of continuous low oil prices" Powell said.
Unipec, the trading vehicle of Sinopec, was the world's largest VLCC charterer on the spot market last year, according to data from US consultancy Poten & Partners. Unipec imported 177 million tonnes of oil from the spot market alone, 30 per cent more than Shell and Vitol, the second and third largest charterers, combined.
The momentum appears to have continued in January, say industry sources who describe the firm's activity as "prolific".
And that casts further doubt on the ability of existing storage capacity and supply chain capability to keep up with demand.
"Two storage projects in China's second phase of emergency stockpiles will likely be filled within the first quarter," analysts at ANZ wrote in a report. "Capacity constraints could hinder stockpiling until more storage facilities are built in [the second quarter of] 2015," ANZ said.
Ricky Huang, general manager at Johnasia Shipping, a port agency, said oil tanker delays at mainland ports were worse in 2014 than 2013.
"Overall, southern China ports tend to be more congested than northern ports. In some ports, it has been common to wait for three to five days before oil tankers can discharge cargo," he said.
