The Guangzhou government in Guangdong Province is lobbying the State Council to place the second-phase of the national strategic oil reserve in the province.

The South China province failed to be selected among the first four locations for the national oil reserve worth US$722 million.

The central government granted those spots to Aoshan and Zhenhai in East China's Zhejiang Province, Huangdao in Shandong Province and Dalian in Liaoning Province. At least 10 million tons of crude oil will be stored at these locations as part of the first stage of a national reserve to prepare for any sudden severing of the oil supply.

The Guangdong government, which believes the oil reserve will help stabilize its oil supply, has recommended Huizhou, Maoming and Zhanjiang as candidates for the second-phase.

Under the government's plan, the total storage capacity of the three locations will total 63 million cubic meters, and require an investment of more than 13 billion yuan (US$1.57 billion).

The provincial government hopes at least one of the three oil reserves will be picked up for the second-phase of the State oil reserve, which is still under discussion.

A survey conducted by the Guangdong Provincial Economic Research and Development Center indicates that the three cities are equipped with favorable conditions, including qualified oil storage facilities and large refineries.

Private companies finance most of the storage facilities.

"The establishment of oil reserves will safeguard the oil needs in Guangdong which have suffered a lot from the oil shortage," said Zhang Lianbi, a researcher at the Guangdong Gas Trade Association.

"It is also expected to balance the oil price among private oil suppliers in the future." Zhang added.

Guangdong is the largest oil consumer in China, though it faces constant shortages in supply.

Statistics show that 63 percent of crude oil consumption and 84 percent of refined oil consumption was imported by the province in 2003.

By 2005, Guangdong Province is expected to consume 39.5 million tons of crude oil, most of which will have to be imported.

Without an oil reserve, experts worry that the economy will run out of fuel in a few days in the event of a breakdown in the supply of oil imports.

Zhang said the provincial government is also considering favorable policies, such as tax breaks for private oil suppliers to encourage them to participate in the set-up of the oil reserves.

But the details of these incentives are still under discussion, said Zhang.

According to Li Jianhua, director of the Guangdong Provincial Economic Research and Development Center, the province is also mulling over plans to build its own refined oil reserves to safeguard its huge consumption.

(China Daily February 9, 2004)