China to get 5mln cu m commercial oil storage boost

SINGAPORE, Apr 11 (Reuters) China will have 5 million cubic metres of commercial storage capacity by 2011 as the world's number-two oil user prepares to open up its market, with Titan Petrochemicals Group Ltd. holding stakes in the three projects, company sources said.

The storage facilities cost a total of 4 million, of which the Hong Kong-listed oil trader and transporter Titan has invested about million, while local Chinese authorities and other private firms contributing the rest.

The tanks, whose combined capacity will exceed the 3.6 million cu m (27 million barrels) of current commercial storage in Singapore, Asia's premier storage hub, will start up around August in southern China's Nansha and Fujian provinces, and will be operated by Titan.

The third facility in Shanghai will be run by local port authorities. (For factbox, please click on.

The company is making a large venture into the storage business in China as the move bolsters its position as an ''integrated oil services player'', a Titan spokesman said, even though most international storage operators are wary about the slow pace of China's market opening.

''The storage business enhances our existing oil supply, oil distribution and oil transport business into China, which is a key growth area. Our advantage is that we are integrated, serving a range of services in the downstream sector,'' the spokesman said.

International storage operators such as Royal Vopak and Oiltanking, have been reluctant to move into China despite the obvious growth opportunities -- with oil demand forecast to expand 6 percent this year -- as there are few international trading firms present in the domestic market.

''Put it this way, the storage facilities in China now are dominated by local majors like Sinopec and PetroChina, unlike Singapore where the storages are taken up by a good mix of players with no one really dominating or controlling the market,'' a Singapore-based storage operator said.

''We wouldn't want to go there and have all our tanks taken up by a single party. That wouldn't make economic sense to us,'' he said.

''Titan's case, however, is different -- they have their own oil supply and they will take up space in their own tanks so the venture makes sense for them.'' NO DEALS YET Titan, which has a fleet of 35 tankers, is expected to keep about half the capacity -- mostly for fuel oil storage -- for its own use and lease out the rest to store a mix of dirty and clean oil products, another company source said.

Demand for the tanks has been good, with about 50 percent of the interest coming from international players, including oil majors, the source added.

Titan has yet to sign any deals and is deliberating on how it can maximise returns by balancing long-term with short-term contracts of six months to a year, the source said.

International oil firms are hunting for fuel storages as they seek a foothold in China's lucrative market when the country opens up in line with its World Trade Organization commitments.

Although China is expected to prise open its wholesale market at the end of this year, analysts say a more realistic target is 2010, a timeframe that is in line with the completion of Titan's storage projects scheduled within five years.

Beijing is committed under its WTO deal to increase the amount of oil and refined fuels non-state firms can import by 15 percent annually through 2011.

Typically, storage facilities in China are either owned by Chinese majors or leased by them on long-term contracts, some for up to 10 years, from small operators. The total volume of commercial storages is unclear.

The new storages in China are expected to compete with Singapore, which is also undergoing massive expansion that will see capacity in the city-state more than double to about 8 million cu m in 2008.

''Obviously, the China terminals will draw flows away from Singapore, especially for China-bound cargoes. It would make more sense for traders to sail cargoes directly to China and blend them there rather than to break journey and be blended here as they are now,'' a Singapore-based fuel oil trader said.

''If the entire capacity of 5 million cu m comes up, that's a lot of storage space, especially when you factor in the expansion in Singapore as well. It remains to be seen if trading volumes are going to increase that much.'' REUTERS CS RAI1837