The National Development and Reform Commission, China's top planner, recently commissioned China Shenhua Energy Co, the nation's largest coal producer, to build 10 storage facilities for coal across the country, a senior company executive said.

"Right now, we are still picking sites (for the facilities)," Hao Gui, vice-president of China Shenhua Energy Co, or Shenhua, said on Saturday at a seminar to discuss the development strategy for the newly-built Yangkou Port in Jiangsu province. He did not elaborate on the specific candidate sites of the 10 coal reserve bases or their reserve capacity.

Since August 2008, the Chinese government has started revising coal legislation to include a strategic coal reserve by 2015. Currently, there are no national strategic coal reserves in China and only some enterprises keep a certain quantity of coal in stock.

It has been reported that Zhejiang and Shandong, the two major coal-consuming provinces, have already started building pilot coal reserve bases.

Shenhua's 10 coal storage facilities would be built next to China's major power producing regions, Hao told China Daily. Coal reserve is divided into spot and resource reserves, and Shenhua's responsibility is to build spot reserves.

"We can look into the possibility of building one of the reserves in Yangkou Port, because transportation is convenient here and it is close to the power-consuming Jiangsu province," Hao told officials of the Yangkou Port.

Huang Shengchu, president of China Coal Information Institute, believes an annual coal storage capacity of between 150 million tons and 200 million tons could help to balance the market demand and supply of coal in China as well as help stabilize market prices.

"The market has to keep some coal inventory, but an inventory above 200 million tons would be too much," Huang said, adding that such coal reserve facilities are usually based in seaports. China's coal output in 2008 was 2.7 billion tons, and the number is expected to grow to 2.8 billion tons this year, Huang said.

However, some are challenging the economic viability of building spot coal reserves.

"China does not need a national spot coal storage facility as we have abundant coal resources," said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University.

The country is busy scheduling the building and filling up of more national strategic oil reserves to ensure oil supply security, as its oil import dependency is currently around 50 percent.

As the world's biggest producer and consumer of coal, 70 percent of China's power supply comes from coal-fired power plants.

"One of the problems of coal consumption is high transportation cost, and building up spot coal reserves is not helpful in solving this problem," Lin said. "Plus, maintaining a spot coal reserve is very expensive, as it takes up huge space. Steam coal is also prone to spontaneous combustion and efflorescence."

(China Daily August 11, 2009)