Keywords: dynamic programming, energy security, optimal strategy, cost estimation, strategic petroleum reserve, SPR, China, acquisition strategy, net oil imports, strategic stockpiling, energy policy
Optimal acquisition strategy for China's strategic petroleum reserve: a cost estimation study through dynamic programming
China is currently establishing a strategic petroleum reserve (SPR) to ensure its energy security. The stated government goal is to build up an SPR equivalent to the amount of 90 days of net oil imports by 2020. To build up an SPR needs a large amount of funds. How to determine the optimal acquisition strategy to reduce the total cost as much as possible is a challenge for China. Furthermore, in the process of establishing the SPR, there are many uncertain factors. This paper employs the dynamic programming (DP) method to determine an optimal acquisition strategy and to evaluate the total cost for establishing China's SPR. The impact of varying a number of uncertain factors on the results is also examined. The results would be helpful for policymakers in China to develop a better scheme for strategic stockpiling for China's SPR.