The proposed legislation on energy focuses on fuel security by regulating commercial oil reserves at the corporate level, China Daily has learned.

The law is being drafted as the country's energy demand, and dependency on imports are increasing.

"We are seriously weighing the option of constituting national oil reserves, both at the strategic and commercial level," said Wu Zhonghu, one of the core law drafters.

The law will require state-owned large and medium-sized oil companies to establish corporate reserves to maintain effective oil supplies, he said.

Wu said he hoped the State Council would review the draft law by year's end.

According to figures released by the Ministry of Commerce, China imported 138.84 million tons of crude oil in 2006, up 16.9 percent over the previous year.

Industry observers warn that more than 50 percent of the crude oil the country uses will come from imports "in just one or two years".

Since oil reserves are crucial for strategic and commercial purposes, oil reserves should be set up both at the state and corporate level, just as in some foreign countries, Wu said.

He said companies that build reserves may expect to get state subsidies to cover operating and management expenses.

Wang Xiaochuan, deputy director of the Department of Commercial Reform and Development, affiliated to the Ministry of Commerce, said recently that along with the gradual opening-up of the oil wholesale sector, commercial oil reserves at company level should be established to cope with emergencies and to stabilize supply.

Jiang Xinmin, an analyst with the Energy Research Institute under the National Development and Reform Commission (NDRC), the top economic planner, also said that as oil wholesale sector is dominated by state-owned giants, such as Sinopec and China National Petroleum Corporation (CNPC), it is natural for them to shoulder the responsibility of setting up commercial oil reserves.

"The government can give some incentives. But it is also the oil companies' duty to help the government leverage oil supply and demand. It is a common practice in market-oriented countries," said Jiang, also an advisor to the draft energy law.

Han Xuegong, a veteran analyst with CNPC, agreed.

"Chinese oil giants are all state-owned and are supposed to shoulder both economic and social responsibilities. Therefore, they should take the lead role in setting up commercial reserves," Han said.

The experiences of industrialized countries prove that commercial oil reserves at company level are effective in balancing supply and demand, said Zhao Yumin, with the Chinese Academy of International Trade and Economic Cooperation, a ministry think-tank.

The NDRC announced recently that the country's first strategic oil reserve base in Ningbo, east China's Zhejiang Province, had been put into operation.

The government approved four national strategic oil reserve sites in 2004. The other three are in Daishan, also in Zhejiang; Huangdao, in east China's Shandong Province; and Dalian, in northeast China's Liaoning Province.

Han said that compared with state-level reserves, commercial ones operated by oil companies could be more reasonably allocated.

"CNPC's oil fields are spread all over the country, and commercial reserves can be set up at those sites to meet needs in different places," he said.

(China Daily February 15, 2007)