China Intends to Ship Domestic Oil Supply in its Flagged Vessels

In a plan to protect the vulnerability of its oil supply, China is now considering shipping half of its domestic crude in Chinese flagged ships by 2005. Currently, only 10 percent is moved by the domestic fleet. The new Chinese government program is estimated to cost $10 billion.

The intent of utilizing its flagged fleet is to increase its national energy security. The long range government plan includes building its strategic oil reserves, which includes a national geological survey for oil reserves.

The Ministry of Communications has said its flag fleet is expected to ship 50 million tons of imported crude or half of the nation?s total imports by 2005, which will increase to 75 million tons by 2010 and 130 million tons by 2020.

The government has directed domestic shipping companies to increase their tonnage capacity to around 10 million tons by 2005. The government intends to provide favorable policies, tax rebates, and subsidies to finance the shipbuilding.

The issue at hand for the Chinese Government is to persuade oil companies to use the domestic fleet, because many oil companies have their own economics. However, the government states that it?s more than economics at stake; it is national security.

The Chinese shipyard built an estimated six million deadweight tons in 2003. The shipyards are increasing their ability to meet the demands of the government.

Last year, Chinese shipyards built 18 percent of the world?s tonnage, up from 13 percent in the previous year. However, new orders obtained in 2003 total 18 million tons, which is a 173 percent increase.

The overall backlog to be delivered by Chinese shipyards stands at 25 million tons. And, the yards must work at full capacity until the end of 2006 to deliver the ships ordered by domestic and overseas clients.