A system dynamic analysis of China’s oil supply chain: Over-capacity and energy security issues

Abstract

Over-capacity problem in refining sector and energy security for oil supply are critical issues for China’s oil industry. As governmental intervention plays a significant part in current and future development of oil industry, over-capacity problem would not be solved without macro-regulatory. Though China is promoting large-scale strategic reserve of crude oil, there is rare quantitative evaluation on the capability of the oil industry in dealing with import disruption. In this paper, a system dynamic model is established for oil supply chain analysis. Based on the model, a quantitative measurement is proposed to evaluate the over-capacity extent of refining industry. The over-capacity extent is classified into three levels, according to varied demand fluctuation the supply chain is expected to deal with. By comparing the modeling results and historical data of 2012 and 2013, we conclude that over-capacity in China’s refining industry is in the severest level. The measurement reveals the driven-force of over-capacity from supply chain perspective, and demonstrates a quantitative method to figure out the proper capacity of energy supply industry. Second, the model simulates how oil supply chain responds to crude oil import disruption and the subsequent impacts. The modeling results indicate that the current configuration of China’s oil supply system is able to maintain sustainable supply under a less-than-180-day crude oil import disruption. The model provides a supply chain perspective in looking into energy security issues, and reveals the relationship between strategic petroleum reserve and the capability to cope with supply risks. In summary, the system dynamic model proposed in this paper is applicable for analysis on capacity planning and reserve strategy design of oil supply chain, providing valuable suggestion for the future development of China’s oil industry. The design concept and method of the model can be used for analysis of other energy industry.