China's oil stockpile 'nearly as big as US reserve'

Storage tanks at a strategic oil reserve complex in Zhoushan, China.
Storage tanks at a strategic oil reserve complex in Zhoushan, China.PHOTO: BLOOMBERG

US firm uses satellite images and algorithms to gauge inventory size

WASHINGTON • One of the mysteries of the oil market is the question of how much crude oil China has squirrelled away in commercial and strategic stockpiles.

Now a satellite imaging firm called Orbital Insight claims to have an answer. It says that in May, Chinese inventories stood at 600 million barrels, substantially larger than commonly thought and nearly as big as the US Strategic Petroleum Reserve.

Chinese storage capacity, which includes working inventory, is four times greater than widely used estimates, the firm says, adding that it has not only been able to count storage tanks but also used imaging techniques to figure out how much oil is in the tanks.

The issue could influence expectations in oil markets. If China has built larger reserves than previously estimated, that means much of what looked like oil demand over the past couple of years was not a result of higher consumption but of strategic planning.

It would make Opec's task of cutting output to drive up prices harder. And it could provide a buffer for China in the event of a sudden disruption in imported supplies.

The new estimate comes from a firm founded by Mr James Crawford, who formerly worked on Google's book-scanning project.

Mr Crawford said he left Google because the price of Earth-orbiting hardware was falling and the amount of satellite images soaring, so he recruited some Nasa scientists and started a business.

He has received backing from investment firms Sequoia and Goo- gle Ventures. The firm pays a percentage of its revenues to satellite image providers.

"The broad vision is to take large volumes of satellite imagery and make sense of what we're doing on the Earth and what we're doing to the Earth," Mr Crawford said.

For its Chinese analysis, Mr Crawford said, the firm went back to images taken from 2010 to 2014 and counted the number of oil storage tanks built and destroyed and came up with a figure of 2,100 tanks, far higher than the 500 tanks in the industry standard database in TankTerminals.com.

Orbital also used its own algorithms to calculate how much was in the tanks.

"Floating roofs sit on top of crude oil tanks for a variety of reasons, for example, to minimise breathing and evaporative losses," the company said in a release.

"As the reservoirs are filled and emptied, the roofs rise and fall, reflected in the crescent moon-like shadows from the walls of the reservoir. The size and shape of the shadow are a sensitive metric of the volume of oil held in the tank."

But the firm cannot discern if there are underground storage facilities. The dispute over Chinese inventories will likely continue.

Orbital's estimate far exceeds the figure given in a rare glimpse of China's oil supplies by its government. On Sept 2, the state- owned news agency Xinhua said China had 287 million barrels of oil in strategic storage sites in eight cities and in commercial facilities at the start of the year.

Started in 2004, the stockpile would only be enough to cover 36 days of oil imports, Xinhua said.

China aims to have large enough strategic stockpiles to cover 100 days of imports, a target that its five-year plan said might not be reached by the 2020 goal.

The US reserve is enough to cover about 150 days of imports. However, with low prices, China has been on a buying spree, many analysts believe. The nation has been importing a record 7.5 million barrels a day.

WASHINGTON POST

A version of this article appeared in the print edition of The Straits Times on October 01, 2016, with the headline 'China's oil stockpile 'nearly as big as US reserve''. Print Edition | Subscribe