China, US will enhance energy cooperation

Joint measures planned to bolster nation's strategic crude oil reserves

China's National Energy Administration and the US Department of Energy inked an agreement on Thursday that will see the two sides work together to bolster China's strategic crude reserves.

Wu Xinxiong, head of the NEA, and Ernest Moniz, US secretary of energy, signed the memorandum of understanding and discussed cooperation opportunities in sectors like shale gas, liquefied natural gas trading, nuclear projects and non-fossil energy.

"China and the United States have many cooperation opportunities in the energy sector, which is significant for both countries," Wu said. He said the two sides should further expand energy cooperation.

Moniz said efforts should be made to strengthen cooperation and find solutions for existing problems through China-US strategic and economic dialogues.

As China's economy grows, the country's crude oil demand has been increasing rapidly with an estimated annual growth of 6.7 percent during the last 10 years.

In 2013, China used 487 million metric tons of crude, up 2.8 percent year-on-year. Up to 58.1 percent of the supply came from imports, according to the CNPC Economics and Technology Research Institute.

According to experts, creating an oil storage system is crucial for China's energy security, especially when weighed against the growing demand and rising dependency on foreign supplies.

According to the institute, by the end of 2013, China had established 24 crude oil storage bases with total capacity of 46.23 million cubic meters for commercial use.

Earlier reports indicated that the US was keen to be a part of China's crude reserve system development as it felt it would help stabilize the international crude market.

The agreement gave further evidence that the two nations were keen on stepping up energy cooperation.

According to a report released on April 10 by the US Energy Information Administration, crude oil reserves in the US reached their highest level since 1976 in 2013. Proven crude reserves in the US rose for the fourth consecutive year in 2012 to 33 billion barrels, a 15 percent year-on-year growth.

"The cooperation between China and the US on crude reserves will help balance the energy output and consumption to some extent," said Wang Haohao, an analyst with energy consultancy Shandong Longzhong Information Technology Co.

She said the US has already charted plans to export more LNG.

"The US is scheduled to start LNG exports in 2015, and this will affect the international LNG prices ... It is difficult for China to import LNG from the US because China is not within the US free trade agreement. However, the newly signed agreement paves the way for future deals," she said.

On Wednesday, China's largest offshore oil and gas producer CNOOC Ltd announced that it has signed a 10.1 billion yuan ($1.63 billion) deal to build equipment for an LNG project in Siberia.

China Merchants Energy Shipping Co Ltd said on Thursday it has signed a series of contracts with Daewoo Shipbuilding & Marine Engineering Co for construction and charter of six liquefied natural gas carriers with a total value of $1.9 billion.

The deal follows China Shipping Development Co's announcement earlier this week that it was ordering three LNG carriers from the same South Korean ship manufacturer for the Yamal LNG project in Russia.

The LNG industry in China, comprising LNG terminals, shipbuilding and trading businesses, is seeing a boom on the back of rising natural gas use and imports.

The new deal was signed by CMESC's 50-percent controlled subsidiary China LNG Shipping and six singlevessel joint ventures it established with Teekay LNG Partners LP, the world's third-largest independent owner of LNG carriers.

The six 173,000-cubic-meter LNG carriers will be built at DSME with deliveries scheduled between the first quarter of 2018 and the first quarter of 2020. As China's shipping industry was suffering from overcapacity during the past two years, many companies including CMESC lost money last year.

However, the company announced a profit of 250 million yuan ($40.36 million) for the first half of this year. It attributed profits to the warming shipping market.