The economic influence of oil shortage and the optimal strategic petroleum reserve in China

Strategic petroleum reserve (SPR) plays an vital role in ensuring energy security. China initiated the strategic petroleum reserve in 2004. The optimal scale of SPR has become a concern to policymakers. The paper adopts a computable general equilibrium (CGE) model to examine the influence of oil shortages on the economy. It is revealed that when the shortage rate reaches 25%, the price of domestic crude oil will rise by 121.2%, the price of refined petroleum products will rise by 67.8%, and the GDP will decline by 0.7%. The GDP loss is accelerated with the shortage rate rises. The output of coal, electricity and other energy will increase, and most non-energy sectors will decline. There is an inverse U-shaped curve between net export and oil shortage. Based on the result of CGE, we further develop a framework to determine the optimal SPR. The results indicate that the optimal stockpile is 389 million barrels, which is higher than the current reserve scale. At least an additional 198 million barrels of reserves are required. In addition, a sensitivity analysis is conducted to quantify the impact of exogenous variables. The findings of this paper can provide reference information for the policy maker to formulate SPR planning.