The Optimal Drawdown Policies for China’s Strategic Petroleum Reserve based on a Dynamic Programming Model

To protect the security of energy supplies, China is building a national strategic petroleum reserve (SPR). Here we present a dynamic programming model to determine the optimal drawdown strategies for SPR under various scenarios, focusing on minimizing cost. In a natural disaster scenario, the optimal strategy is rapid drawdown of ~10% of the reserve to stabilize oil prices and ease supply shortages. In a financial crisis scenario, the optimal strategy is to quickly stockpile to take advantage of low oil prices and reduce the total reserve cost. In an armed conflict scenario, the optimal strategy is sustained rapid drawdown of ~30% of the SPR to ensure oil supply security. Although the model has made some assumptions, it provides a methodologically robust indicator for studying optimal SPR strategies in China for potential oil supply shortages.