Daily Times

Some oil-hungry Asian nations are taking advantage of the collapse in prices caused by the coronavirus pandemic to build up their crude stockpiles.

Here are some questions and answers about strategic reserves and the region’s oil supplies:

What are strategic oil reserves and why do countries need them?

Strategic reserves are stockpiles of oil and other fuels held by governments in secure storage facilities to cover unexpected disruptions to energy supplies. Major economies such as the US, China and Russia began to build up reserves after oil shocks in the 1970s, according to Ravi Krishnaswamy, regional senior vice president for energy and environment at consultancy Frost & Sullivan. The events that spurred them to take action were principally the 1973 Yom Kippur War between Israel and the Arab nations, and the 1979 Iranian revolution, which fuelled worries about supplies.

How big are the strategic reserves across the region?

China is believed to have the biggest in the Asia-Pacific. Beijing does not give an official estimate but analysts say it is at around 550 million barrels. In comparison, the United States’ strategic reserves currently hold around 630 million.

State-owned China National Petroleum Corporation said recently that the country’s reserves were “obviously insufficient, and have not yet reached the international standard ’90-day safety line'”. The International Energy Agency requires its members to hold emergency oil stocks equivalent to at least 90 days of net oil imports. China is an associate member, but not a full member. Japan’s oil reserves were around 500 million barrels at the end of February, equivalent to national consumption for more than seven months, according to the latest official data, while South Korea had around 96 million barrels in strategic reserves as of December 2019, enough for 89 days.

India, by contrast, has reserves with storage capacity of approximately 40 million barrels — which would last just 10 days in the country of 1.3 billion people.

How are reserves stored?

Strategic reserves are stored largely in secure underground depots like natural rock caverns. The US Strategic Petroleum Reserve, the world’s largest supply of emergency crude, is stored in huge underground salt caverns along the Gulf Coast.

But building underground storage is challenging as it needs to have the right geological formation, and countries also need to build infrastructure to pump oil in and out.

The high cost of building reserves has stopped many countries developing them to sufficient levels.

In Asia, India uses caverns to store its reserves but other countries, such as Japan, put theirs in above-ground tanks.

Which Asian countries are pouncing on low prices to build up stockpiles?

Australia, which has long had one of the lowest levels of emergency stockpiles in the developed world, said it will take advantage of the fall in prices to develop a strategic reserve in the United States. The country’s own storage capacity is already full but it has an agreement with the US allowing it to lease space in its Strategic Petroleum Reserve.