State news agency Xinhua reported on Sunday that the Daxie commercial oil reserve project in Ningbo, Zhejiang province, would be the first commercial facility of its kind in the country and more cost-efficient than traditional methods.
Once completed, the water-sealed cavern system excavated in a fractured rock below groundwater level will be able to store 3 million cubic metres, or about 2.5 million tonnes.
Online news outlet The Paper reported the cost of the project to be roughly 3 billion yuan (US$42 million).
The project by state-owned China National Offshore Oil Corporation (CNOOC) will be 20 per cent cheaper to build and cost half as much to operate compared to above-ground oil storage facilities, according to the Xinhua report.
Other storage and transport facilities will be built above ground and construction is expected to be completed and operations begin by 2026.
Liu Daping, chairman of CNOOC Petrochemicals Import & Export, said the project would help ensure energy security in the area.
“It will provide a stable supply of crude oil to eastern China and along the Yangtze River,” Liu said.
“[It will be important] for dynamically balancing local oil supply and demand, responding to major energy supply crises, and the digital transformation of the energy industry.”
China is the world’s biggest buyer of crude oil and imports most of what it needs.
As a result, energy security is high on its policy agenda, especially with geopolitical tensions fuelling volatility in oil and natural gas prices.
Last year, China imported 508.2 million tonnes of crude oil. Saudi Arabia was its top source of the fuel, supplying 87.5 million tonnes, followed by Russia with 86.2 million tonnes.
To stabilise supplies, China has also made more frequent exchanges with other Gulf states to deepen oil and gas cooperation.
It also established a strategic crude oil reserve in 2007.
While it is not known how big the reserve is, China is widely believed to have stockpiled a significant amount of crude oil when prices plunged in March and April in 2020, and to have increased the rate of stockpiling in recent months.
China has also invested in commercial crude oil reserves and began operating its largest commercial on-the-ground storage facility in eastern city of Dongying in February.
The Dongying facilities, also invested by CNOOC, can store about 5 million cubic metres, or about 4.25 million tonnes, of crude oil.