BEIJING - China has started "preliminary work" on the second phase of its emergency oil reserves in Guangdong to help bolster energy security and meet demand, the head of the province's economic planning agency said.

Construction of storage bases in the cities of Zhanjiang and Huizhou in Guangdong will begin "as soon as possible," Li Miaojuan, director of Guangdong's development and reform commission, said after attending a parliamentary meeting in Beijing on Monday. "Everything is progressing as planned."

The world's second-largest energy-consuming nation is embarking on a three-phase project to build emergency reserves, taking advantage of oil prices weakened by the global slowdown. The government said last year it's planning to build the second phase in the northeast and work on storage tanks in the western province of Xinjiang has commenced.

"By the time these new storage tanks are ready, oil prices could be trading well above $80 a barrel," Gordon Kwan, head of regional energy research at Mirae Asset Securities in Hong Kong, said in an email. "We also expect that the yuan could be revalued higher by at least 10 percent before 2013, thus offsetting the increase of crude import bills."

Oil in New York fell to a low of $33.55 a barrel on Feb. 12 last year after reaching a record $147.27 in July 2008. Since then, prices have more than doubled to $80. China has kept the yuan little changed around 6.83 per dollar since July 2008.

Li declined to comment on the scale of the storage tanks in Guangdong and their construction schedule.

The first phase holds the equivalent of about 16.4 million cubic meters of oil, or about 30 days of net imports, China's energy administration said in June. The stockpiles are located in Zhenhai and Zhoushan in Zhejiang province, Dalian in Liaoning province and Huangdao in Shandong province.

China will build oil reserves equal to 100 days of net imports before 2020, China Petrochemical Corp, the nation's top refiner, said on Sept. 23, citing a plan approved by the State Council, or Cabinet.

Chinese oil demand doubled in the last decade to 8 million barrels a day last year, with imports meeting 45 percent of requirements, BP Plc's Statistical Review shows. In 2009, overseas shipments accounted for more than half of the country's oil needs.

Crude oil imports may rise 15 percent this year as China starts building the second phase of its reserves, China Oil, Gas & Petrochemicals, the fortnightly newsletter published by the official Xinhua News Agency, said in January.

Bloomberg News

(China Daily 03/09/2010 page16)