September 15, 2015 [Reuters] - CEFC China Energy has signed a preliminary agreement with an state energy company to provide oil storage for 12.6 million barrels of commercial state crude reserves, two senior sources at the privately held CEFC China said on Tuesday.
The deal, in which the un-identified state company will lease space enough for about two days of China’s crude oil imports, lends some near-term support to global oil prices, which have been weighed down by a persistent supply glut.
China has been taking advantage of oil prices more than 50 percent lower than their 2014 peak above $115 a barrel to build up reserves, and in April this year imported more crude than the world’s No.1 buyer, the United States.
CEFC China’s new tanks, being built in Yangpu port on Hainan island off southern China, will have a total capacity of 17.6 million barrels and are to open at end-2015, several months behind an earlier plan and after a nearby oil terminal is ready for use, the sources said.
Under the heads of agreement signed for the deal, the state company will lease its portion of the tanks for up to six years, said the CEFC China sources, declining to name the state firm involved.
A final contract will be signed after the state company receives government approval to lease the storage, they said.
Just across a road from the CEFC facility is an 8.2-million-barrel crude storage site owned by Vopak – the world’s largest independent tank terminal operator – and the State Development Investment Corporation (SDIC).
Commissioning at the Vopak site started early this month, and Vopak confirmed on Tuesday that one large crude oil cargo has been discharged.
The CEFC and Vopak facilities are next to a tank farm owned by state refiner Sinopec Corp, and the three have agreed to connect the depots with pipelines to optimise operations, said one CEFC executive.
The Sinopec farm is also linked with its 160,000 barrel-per-day Hainan refinery.
China’s state reserves are split into two categories: strategic petroleum reserves for which the state builds tanks and pays the full cost of storage and oil, and commercial state reserves whereby the state leases tanks and shares the cost of buying oil with companies.
Most of the commercial storage tanks along China’s coast are nearly full, and the CEFC and Vopak sites could be among the last available for stockbuilding before China’s next strategic storage units are ready, storage and trading sources said.
