China is in the process of  completing  the construction of its first four strategic oil reserves having a total capacity of 16.4 million cu.m by end of this year, a senior government official said yesterday.

China Daily quoted Zhang Guobao, administrator of the National Energy Administration (NEA), as saying after a press conference in Beijing, "The progress has been smooth and all the four bases will be completed by the year end,"  He added that the total capacity of gthe four reserves would be 16.4 million cu m. Zhangis, who is also the vice-minister of the National Development and Reform Commission (NDRC), is China's top economic planner after the administration came into being as part of the reshuffle of government agencies in March.

In order to fend-off the risk of oil shortages and reduce the impact of oil price fluctuations, China started to build its strategic oil reserves in 2004, at an investment of $725 million for the four locations.

China will build these strategic reserves in three phases over 15 years, involving an estimated investment of 100 billion yuan ($14.61 billion). The plan envisages building up fuel resources including oil reserves to reach 10 million to 12 million tons in the first, and a 28-million capacityy addition in the second and third phases. Every 10 million tons of oil equals China's 30-day domestic demand, which these four oil reserves will take care of by 2010.

The first four reserves situated at Dalian, Qingdao, Ningbo and Zhoushan, are expected to maintain strategic oil reserves equivalent to 30 days of imports in 2010.

All of these strategic oil reserve bases are built in coastal provinces, mainly because they rely on imported oil.

The reserve in Ningbo, a coastal city in Zhejiang province, the largest of the first four reserves, with a total storage capacity of 5.2 million cu m was put into operation in late 2006.

China used its own oil for decades from domestic oil fields, but became a net importer in the 1990s. It is the world's fifth-largest oil producer. Driven by a booming economy, it has quickly risen to become the world's third-biggest oil importer, after Japan and the United States. The United States operates a similar reserve.

Oil reserves are often built slowly over a period of several years to avoid upsetting the demand-supply equilibrium of the oil market. The US, which has the world's biggest reserve, started its crude storage in 1975. China has developed the first phase its oil reserves in a span of only five years.

The Chinese government is now reportedly selecting locations for the second phase of strategic oil reserves to stockpile 28 million tons oil. Cities including Tangshan and Guangzhou are understood to be vying for the projects, but Zhang declined to comment on this.

The newly established NEA oversees the nation's oil reserves and monitors the domestic and overseas energy markets and is also responsible for mapping out China's energy development strategy and formulating rules and regulations for the energy sector.

Commentators have said China's major consideration for stockpiling oil reserves since 2003 has been to reserve enough fuel to support a certain scale of military conflict to sustain a large-scale assault operation.

A more peaceful spin-off for China to establish an oil reserve with foreign oil and paying for it in foreign currency, could reduce US and European pressures on Beijing to revalue the yuan.

The US especially wants China to revalue its currency upward, arguing that the current rate of valuation is too low making Chinese goods underpriced.

Analysts say the reserve-building by the world's fastest growing economy could add more pressure to oil prices. Assuming China's imports rise by 5 per cent a year, in line with current estimates, imports will reach close to 4 million barrels a day by 2010.