Global Energy Review

China: Driving World Demand?

A Report by Dr Paul McDonald
Consulting Editor, Oil and Energy Trends

Contents

List of Tables

Introduction

China produces 3.6 mn bpd of oil and consumes 6.8 mn bpd, making it the second-largest consumer in the world after the US. Its net imports of 3.2 mn bpd make it Asia's second-largest buyer of foreign oil after Japan. Until 1992, China was a net exporter of oil, but slow growth in domestic production combined with a strong and sustained growth in the economy have propelled imports to a level that has alarmed both the Chinese and much of the rest of the world.

China's proven reserves of 18.25 bn bbl suggest that the country does not have all that much scope to increase its output. The early promise of the little-explored continental shelf and far north-west failed to materialize during the late 1980s and 1990s as domestic demand began to take-off. In the last ten years, oil production has risen by only 0.4 mn bpd, whilst demand has gone up by nearly 2.8 mn bpd.

The country's crude distillation capacity is formally reported as 4.7 mn bpd. There is a considerable volume of extra distillation capacity, however, that lies outside the state sector and the joint-venture export refinery at Dalian, including many small, private refineries, municipally-owned plants and a host of illegal pipestills. The total capacity available to the domestic market is around 6.5 mn bpd, but this is still 0.3 mn bpd below 2005's estimated consumption, necessitating the import of at least some refined products.

China is also short of upgrading capacity, particularly hydro-cracking units, which are increasingly required to produce middle distillate of the required sulphur level. Chinese refineries have traditionally run on sweet domestic crudes supplemented by low sulphur blends imported from elsewhere in the Asia/Pacific region. The supply of these, however, has failed to keep pace with the growth in Chinese demand. As a result, China has been obliged to import increasing quantities of Middle Eastern crude, which is mainly sour.

Chinese policy is to reduce reliance on imports of both crude oil and refined products. The latter will mainly be achieved by increasing crude distillation and upgrading capacity. Reducing the country's reliance on foreign crude will involve rather more strenuous measures. These include trying to increase domestic oil production, purchasing oil reserves outside China and substituting other fuels-notably natural gas-for oil.

Consumption

China is expected to consume 6.8 mn bpd of oil in 2005. This is 3.2 mn bpd more than the estimated production for the year. Between 1994 and 2004, Chinese demand grew annually at 7.8%. There are signs that the rate of increase is slowing down. Consumption in 2005 looks to be only 4.9% above the previous year's level. Growth nevertheless looks likely to remain strong over the next few years.

Pattern of Consumption

Chinese demand in 2004 amounted to 6.4 mn bpd, of which some 3.0 mn bpd had to be imported, mostly in the form of crude oil (see Table 1).

Table 1
China: Oil Balance, 2004*
(mn bpd)
Production 3.48
Consumption 6.43
Net Trade
Crude 2.35
Products 0.66
Total 3.01
* Includes adjustment for unreported refinery output,
direct crude burning and smuggling.
Totals rounded.
Source: International Energy Agency (IEA)

The principal product consumed is gasoil, which accounted for 33% of 2004's demand. China has traditionally had a high consumption of heavy fuel oil (HFO). In recent years, however, the sharp rise in motor car ownership has boosted the consumption of gasoline, which is now the country's second-largest product group (see Table 2).

Table 2
China: Oil Demand, 2004
(th bpd)
Light ends 633
Naphtha 684
Gasoline 1,069
Kerosine 239
Gasoil 2,150
Heavy fuel oil 829
Others 828
Total 6,433
NB: Totals rounded.
Source: IEA

Of the refined products imported in 2004, HFO was by far the most important, accounting for just over three-quarters of the country's net imports (see Table 3). Much of the HFO was required for use in the country's booming electric power sector.

Table 3
China: Crude Oil & Product Trade, 2004
(th bpd)
Crude Oil 2,346
Products & Feedstocks
LPG 201
Naphtha (33)
Gasoline (125)
Kerosine 16
Gasoil 43
Heavy Fuel Oil 506
Other 52
Total 661
Total Net Imports 3,008
Exports in parentheses
Totals rounded.
Source: IEA

Liquefied petroleum gas (LPG) is becoming increasingly popular as a space-heating fuel in large cities as a replacement for more heavily-polluting coal. The rate of increase in the consumption of both LPG and HFO, however, is showing signs of slowing down, which may also curb the rate of increase in imports of these two fuels.

The principal increase in demand in percentage terms in the next year or so is likely to come from naphtha, followed by middle distillate and motor gasoline. The export of both gasoline and naphtha could soon very well cease.

China's switch to being a net importer of naphtha may occur as early as the end of 2005. The country is traditionally an exporter of the feedstock, supplying Japan and South Korea, but has begun to experience a tightness in supply since the commissioning of two new steam crackers earlier in 2005: one belonging to BP Secco and the other to BASF. Both are principally supplied from nearby refineries, at Zhenhai and Jinling, respectively. They will, however, be joined around the end of the year by a third new plant being developed by CNOOC and Shell at Huizhou, in Canton. There is unlikely to be sufficient domestically-produced naphtha to supply yet another petrochemical cracker, especially since a shortage of gasoline in the country's southern and eastern coastal provinces is forcing refineries to process more naphtha into motor spirit.

The gasoline shortage has been particularly acute in the province of Canton. Following shortages there in September 2005, the government asked CNPC, Sinopec and the Wepec joint-venture refinery in Dalian to curtail exports. Supplies in other provinces appeared to be on a knife-edge. An influx of visitors to the Tsingtao Beer Festival in late summer caused major gasoline shortages there, according to local press reports. Gasoline consumption in the first half of 2005 stood nationally at 1.1 mn bpd: some 4% above year-earlier levels. Refinery output of motor spirit, on the other hand, was up by only 3% over the same period, leading to localized shortages. The situation looks set to deteriorate in 2006, when demand is forecast to rise by over 8% (see Table 4).

Table 4
China: Forecast Oil Demand, 2005-6
2005 2006 Change
(th bpd) (%)
Light Ends 660 697 5.7
Naphtha 743 823 10.8
Gasoline 1,110 1,203 8.4
Kerosine 257 282 9.8
Gasoil 2,295 2,470 7.6
Heavy Fuel Oil 827 875 5.8
Other 857 908 6.0
Total 6,750 7,529 7.5
Totals rounded
Source: IEA

Measuring Demand

Chinese figures for the first half of 2005 show an increase in oil demand of less than 5% compared with the same period in 2004. This, in turn, is less than one third of the annual increase between 2003 and 2004. Economic growth, on the other hand, appears unchanged since 2002 at 9.5% per annum. It is not entirely clear why this discrepancy between economic growth and the rate of increase in oil demand has appeared.

A number of explanations are possible:

High international prices appear to have been the main cause of the lower demand reported for the first half of 2005. It looks likely that this state of affairs will be corrected-at least in part-during 2006, when strong demand growth is likely to resume.

OET ARCHIVE

'China struggles to satisfy oil demand' Focus Feb03

'Chinese demand attracts exporters, alarms importers' Focus Feb04

'Asia looks for new power station fuels' Looking Ahead Feb05

'Subsidies distort markets in Asia' Looking Ahead Aug05

Outlook for Oil Demand and Imports

The IEA expects China's oil demand to grow by 4.9% in 2005 and a further 7.5% in 2006 (see Tables 2 and 5). After that, demand is likely to keep on growing by 5-6% for the remainder of the decade, giving a consumption level of around 8.9 mn bpd by 2010 (see Table 5). Most of the increase is expected to come from naphtha, kerosine, diesel and gasoline. HFO use is likely to grow only slowly as it becomes increasingly substituted by imports of natural gas.

Table 5
China: Oil Demand 2005 & 2010
2005 2010 Change
(mn bpd) (%)
Light Ends/Mogas/Naphtha 2.5 3.3 5.7
Middle Distillate 2.6 3.8 7.9
HFO and Others 1.7 1.9 2.2
Total 6.8 8.9 5.5
Totals rounded
Source (2005): IEA
(2010): GER Forecast

Such a level of demand growth is likely to be accompanied by a rise in the import of refined products. The actual volumes will depend to a considerable extent on how much new refining capacity can be brought into operation between now and 2010. Product imports amounted to nearly 0.7 mn bpd in 2004 (see Table 3). The Chinese are likely to want to refine as much as they can domestically. Even so, they look like having to increase their product imports considerably.

Product imports are likely to be in a range of 1.5-2.0 mn bpd by 2010. Heavy fuel oil and LPG could well continue to make up the bulk of the import slate, driven respectively by the increase in electricity demand and the desire for cleaner fuels for use in major urban areas. Whilst the use of HFO itself may not increase all that rapidly (see above), its production may well fall as Chinese refiners increase the amount of residue they convert into distillate products.

Product Exports

Chinese product exports consist mainly of gasoline and naphtha which, up until recently, have been surplus to domestic requirements. Their export has been further encouraged through what is in effect a government subsidy. Refiners and traders have received a rebate on their value added tax (VAT) of between 11% and 13%, according to the product exported. The rebate applied to motor gasoline, aviation gasoline and naphtha.

VAT is levied on all refined products consumed in China, at a rate of 17%. Exporters have been able to reclaim 11% on exports of gasoline and 13% on naphtha exports. Since 1st September, 2005, however, the government has removed the export subsidy-initially until the end of the year-in order to ease local shortages of gasoline (see above) which have led to shortages and rationing in several coastal provinces.

The government's move recognizes a more fundamental change in the Chinese market. Rising motor car ownership and the extension of the roadway network are boosting sales of motor gasoline considerably. Demand for naphtha, both as a feedstock for gasoline reformers and petrochemical crackers is also rising. China's gasoline and naphtha surplus is due to disappear soon anyway, in the same way its gasoil surplus did in 2004. By mid-2005, China was already importing gasoline in some months, and net exports of naphtha are likely to disappear during 2006 as new petrochemical capacity is commissioned.

The first half of 2005 shows a small export of gasoil and diesel fuel (see Table 6), but this is a temporary phenomenon caused by a combination of high inventory levels and high international prices compared with the lower, controlled prices pertaining in the domestic market. In the three months immediately preceding the first half of 2005, China imported nearly 80,000 bpd of gasoil and diesel.

Table 6
China: Refined Product Exports, First Half, 2005
(th bpd)
Naphtha 59
Gasoline 157
Gasoil/Diesel 17
Total 233
Source: GER estimate based on IEA

Outlook for Exports

Net product exports are likely to cease by the end of 2006. After that, product exports will consist mainly of the sale of short term production surpluses from individual refineries or the disposal of excess inventories. A few specialist products or feedstocks may be exported and there will probably be exchanges with foreign refineries under which Chinese refiners and their overseas counterparts swap products in order to meet temporary supply shortages. A few refineries, designated as 'export refineries' will also be able to export products, such as the joint-venture Wepec refinery at Dalian.

Product Balance Outlook

Chinese refined product demand is forecast to be somewhere in the region of 8.9 mn bpd by 2010 (see Table 7). Around a quarter of that might have to be imported. The precise volume will depend on how much new refinery capacity is added between now and 2010.

Based on the plans so far announced, it appears that China's refineries might be able to produce an extra 1.2-1.7 mn bpd by then (see next section). That would still involve an increase in product imports of nearly 190% in the higher case, compared with 2004, to 1.9 mn bpd (see Table 7).

Table 7
China: Product Balance, 2004 & 2010
2004 2010 Change
(th bpd)
Consumption 6.43 8.90 2.47
Refinery Production/Stock Change 5.77 7.00-7.50 1.23-1.73
Trade
Imports 0.82 2.00-1.50 1.18-0.68
Exports 0.16 0.10 (0.06)
Net Trade 0.66 1.90-1.40 1.24-0.74
Totals rounded
Source (2005): IEA
(2010): GER Forecast

Domestic Refining

Chinas Refining industry lies principally in the hands of two large, vertically-integrated national oil companies:

Both have subsidiaries quoted on the stock exchanges of Hong Kong and New York. In addition to these companies there are four other downstream companies, as follows:

In addition to all the above, there are the refinery businesses belonging to a plethora of small companies and local authorities. These amount to perhaps 1 mn bpd or more of distillation capacity, to which must be added an unknown number of unofficial and illegal refineries. Most of these plants are small-scale topping units, many located on or near oilfields. Others are splitters designed to run on semi-refined feedstocks. Capacities of individual units can range from a few thousand barrels a day to less than a hundred barrels a day.

Many of these refineries are in the hands of local governments, which found themselves saddled with them following a reorganization of the Chinese oil industry in 1998, which gave the main refineries either to Sinopec or CNPC. Those in the north of the country were allocated to CNPC, whilst Sinopec received the rest. Fearing labour unrest if the remaining small units were closed down, the government and local authorities kept them open. Since then, they have provided a vital supplement to the state-owned refining sector as demand has continued to climb.

It is difficult to state accurately what China's effective distillation capacity is at present. Table 8 gives the estimates of the authoritative Oil & Gas Journal, but its totals underestimate the capacity actually available to Sinopec and CNPC. The two national companies can probably produce around 5.0 mn bpd between them plus a further 0.1 mn bpd from Wepec. A further 0.7-0.9 mn bpd may be available from other domestic refineries at any one time, giving a national total of up to 6.0 mn bpd. Whilst the total capacity in existence may indeed be as high as this, some of it-perhaps as much as 0.5 mn bpd-is unusable for technical reasons or because of the operators' inability to source crude oil and feedstocks for their plants.

Hyper-links:

Capacity Constraints

It will be clear from the above that China does not have a refinery infrastructure capable of meeting its domestic needs. Apart from a shortage of usable distillation capacity, China also has insufficient upgrading capacity, which leaves it short of middle distillate. It also does not have enough desulphurization capacity to enable it to meet the new and growing demand for low sulphur transport fuels.

Chinese refineries have traditionally run on domestically-produced crudes, which are mainly low in sulphur. Imports, however, are mainly of sour Middle Eastern crudes (see Table 9). In order to meet new sulphur standards, many refineries are being forced to run more expensive sweet crudes instead from West Africa. The situation is set to become more serious as the proportion of sour crude imports rises over the next few years, reflecting a worldwide tendency towards the production of sour crude oil.

Apart from capacity shortages, Chinese refineries are hampered by logistics. Many refinery units are located in the north-east of the country, close to the main oil-producing areas. Demand, on the other hand, is growing most rapidly in the south and east. Pipeline links across China are inadequate to move refined products from the north-east to the south and east. Nor is it possible to send them easily by coastal tanker in many cases, owing to the draught restrictions at some southern Chinese ports.

Table 8
China: Refinery Capacity, 2004
Refinery Capacity (th bpd)
Distillation Cracking
FCC Hydro
CNPC
Fushun 185 66 8
Dalian 143 70 -
Daqing 121 - -
Dushanzi 121 12 -
Jinzhou 111 16 -
Lanzhou 111 24 -
Jinxi 100 24 -
Others 865 79 8
Total CNPC 1,757 291 16
Sinopec
Zhenhai 345 28 -
Maoming 274 32 16
Gaoqiao 219 38 -
Jinling 213 44 16
Qilu 213 46 42
Shanghai 178 - -
Yangzi 162 - 24
Yangshan 162 48 -
Guangzhou 156 44 -
Anqinq 112 24 -
Changling 101 - -
Jinmen 101 20 8
Jiujiang 101 24 -
Luoyang 101 40 -
Wuhan 101 20 -
Tianjin 100 35 -
Others 154 40 -
Total Sinopec 2,793 483 106
Wepec
Dalian 100 37 -
Total Wepec 100 37 -
Total China 4,650 811 122
Number of Refineries
CNPC 37
Sinopec 18
Wepec 1
Total 56
Totals rounded.
Excludes small, non-state refineries.
Source: Oil & Gas Journal.
Table 9
China: Source of Oil Imports, 2005
Country/Region Share
(%)
Middle East 42
Asia/Pacific 25
West Africa 18
Other Africa 5
Former Soviet Union 9
Others 1
Total 100
Estimated Net Imports: 3.2 mn bpd
Source for percentages: Pearl Oil Ltd

Expanding Refining

China will need up to 2 mn bpd of additional crude distillation capacity by 2010 if it is to meet its likely demand level by then without a massive increase in refined product imports. Even with such extra capacity, China would still need to import over 1 mn bpd (see Table 7).

For China to increase its distillation capacity by 2 mn bpd will require the construction of rather more than this amount since the government's policy is to close down most of the small refineries outside the networks of CNPC and Sinopec. If China is to have a comfortable cushion of refinery capacity by 2010, it may well have to build nearly 3 mn bpd of new capacity by then.

A large building programme of distillation and other units is already planned (see Table 10). Included in this are proposals for 1.8-2.1 mn bpd of new distillation capacity (see Table 11). Not all of it is under construction, however, and three projects, amounting to 610,000 bpd of crude distillation capacity, are still awaiting approval.

One new source of distillation capacity may emerge from a series of partnerships now being proposed between local governments and private investors. Their aim is to build a number of mini-refineries, each having a capacity of 10,000-15,000 bpd. Most would be simple topping units. The main areas of interest for these units are the rapidly growing southern and eastern coastal provinces. Whilst such units might temporarily relieve refined product shortages in these areas, they might, in the long run, inhibit expansion elsewhere by Sinopec and CNPC, both of which have asked the government to close down small, independent refinery units, which the two state giants say are taking market share from them.

Table 10
China: Refinery Expansion Plans
Refinery Unit(s) New Capacity On-Stream*
(th bpd)
Beihai Refinery 160 N/A
Dagang Refinery 200 N/A
Dagang Refinery 250 N/A
Dalian Refinery 250-400 2006
Dalian Hydro-cracker N/A 2006
Platformer 1 2005
Danqing Platformer 6 2005
Dushanzi Refinery 200 2009
Fujian Refinery 160-240 2008
Fushun Hydro-treater 24 2005
Hainan Refinery 160 2007
Huabei Hydro-treater 20 2005
Huizhou Refinery 240 2008
Jinling CDU 150 2005
Hydro-cracker 20 2005
Coker 20 2005
Jinxi Hydro-treater 20 2005
Platformer 12 2005
Karamay Hydro-treater 9 2005
Liaohe Hydro-treater 8 2005
Maoming CDU 132 2005
Nanjing Hydro-cracker 30 2005
Coker 16 2005
Qingdao Refinery 200 2009
Yongping Platformer 20 2005
Yumen Hydro-treater 10 2005
* Estimated date
CDU = Crude Distillation Unit
N/A = Not available
Source: Oil & Gas Journal; Chinese press reports
Table 11
China: Proposed New Refineries, 2005-2010
Company Refinery Capacity Status Completion
(th bpd)
Sinopec Beihai 160 Awaiting approval N/A
CNPC Dagang 200 Awaiting approval N/A
Sinopec Dagang 250 Awaiting approval N/A
CNPC Dalian 250-400 Under construction 2006
CNPC Dushanzi 200 Planned 2009
Sinopec/ExxonMobil Fujian 160-240 Under construction 2008
Hainan Ref Co Hainan 160 Under construction 2007
CNOOC Huizhou 240 Planned 2008
Sinopec Qingdao 200 Planned 2009
Total 1,820-2,050
Source: Chinese press reports

In addition to the proposed new refineries, some 282,000 bpd of crude distillation is planned at two existing refineries, Jinling and Maoming, by the end of 2005 (see Table 10) with further additions to existing sites proposed for future years. China will nevertheless be struggling to keep up with demand for refined products all the way up to 2010, if not beyond.

Refining Outlook

Provided all the projects listed in Table 11 go ahead as planned, China should have nine new refineries by 2010 with a total capacity of up to 2.1 mn bpd. Further expansion on existing sites could add some 0.5-1.0 mn bpd of crude distillation capacity, giving China just under 3.0 mn bpd of new capacity to go alongside its existing usable total of around 6.0 mn bpd. The closure of many of the older and smaller units could remove about 1.0 mn bpd by 2010, giving the Chinese a total of 8.0 mn bpd. By operating them at a rate of 94%, the Chinese could produce some 7.5 mn bpd, resulting in product imports of around 1.4 mn bpd. Any slippage in the construction timetable outlined above could reduce production-perhaps by 0.5 mn bpd-to give a net import total of 1.9 mn bpd, compared with less than 0.7 mn bpd at present (see Table 7).

Refining Overseas

Given the urgent need for new capacity, the Chinese may decide to supplement their domestic refinery-building programme with the acquisition of other, existing refining units outside China. These could then be used as captive overseas suppliers focused principally on the Chinese market. Another option is for Chinese refiners to rent space in foreign refineries by means of processing deals.

One Chinese downstream company, Sinochem, has already tried to acquire refining assets abroad. The state-backed trading company attempted to buy a stake in a refinery in Thailand and subsequently made an unsuccessful offer to buy the bankrupt 275,000 bpd Inchon oil refinery in South Korea in January 2005.

The refinery is nevertheless likely to be used primarily to supply the Chinese market. The preferred bidder, South Korea's SK Corporation, said it planned to export Inchon's output to China. The transfer to SK is awaiting finalization.

China can also hire capacity in foreign refineries on either a short term or long term basis by means of processing deals under which the Chinese would supply crude oil and pay a processing fee in return for an agreed quantity of refined products to be delivered to China. This method has been used in the past with refiners based in Singapore and elsewhere in Asia.

Improving Security

Chinese refining policy is heavily driven by a desire to improve the country's energy security. There is a long-standing reluctance to rely heavily on foreign countries for the supply of oil, which has existed ever since the Sino-Soviet split in 1960, when, following ideological disagreements between China and the USSR, the latter cut off economic aid, including all support for the development of China's fledgling oil industry.

The principal project affected was the Daqing oilfield, then in its infancy but later to become the country's largest producing-area. The Chinese Communist Party (CCP) determined that the field should be developed regardless-and as rapidly as possible. The official newspaper, Renmin Ribao, declared that China was being "bullied by imperialists (the West) and revisionists (the USSR) because of its dependence on foreign oil".

Since then, the energy policy of the CCP has been strongly influenced by the desire for China to be as self-sufficient as possible. Once the country became a net importer of oil in 1993 the policy shifted to one of securing production assets overseas that could be developed primarily to supply the Chinese mainland.

China produces 3.5 mn bpd and consumes 6.8 mn bpd. By 2010, consumption is forecast to have risen to 8.9 mn bpd. Offshore production is growing but, at just over 0.3 mn bpd, accounts for only a small proportion of total output. Onshore output appears to have peaked. The one large, mainly undeveloped oil province onshore, the Tarim Basin, in western China, has failed to produce oil in the large quantities once forecast by the Chinese. There have been several disputes and misunderstandings between the Chinese state authorities and major foreign oil companies over upstream terms and the financing of a pipeline to the east of the country.

The national oil companies, led by CNPC, have begun to invest in reserves and production outside China, so that they now have producing assets of 0.6 mn bpd. Foreign acquisitions may in future absorb increasing proportions of their budgets at the expense of the domestic sector. Another distraction for the national oil companies is the increasing interest in natural gas production, both at home and abroad. The best therefore that may be hoped for therefore is that Chinese oil production can be stabilized around 3.5 mn bpd until about the end of the decade.

OET ARCHIVE:

'Chinese gas market draws investors' Gas & Power May05

'Chinese bid for Unocal sparks fears of global clash' Focus Jul05

Outlook for Oil Supplies

China's net imports of oil look set to rise from 3.0 mn bpd in 2004 to 5.4 mn bpd by the end of the decade. Given the country's plans to add some 3.0 mn bpd of crude distillation capacity, it looks as if most of those imports will be in the form of crude oil rather than refined products. A shortfall in refining capacity will nevertheless ensure that around a third of China's total imports will be in the form of refined products.

Based on the oil demand forecast presented in Table 12, China looks like importing 5.4 mn bpd of oil in 2010: a rise of 2.4 mn bpd compared with 2004. Of this 5.4 mn bpd, around 3.8 mn bpd is likely to be in the form of crude oil and NGL, though the figure could be higher if there are delays to some of the refinery expansion schemes (see 'Product Balance Outlook').

Such import levels will almost certainly make China Asia's largest importer of oil, replacing Japan in the number one spot, and making China the second-largest oil importer in the world, after the United States of America. China's influence on world oil markets will nevertheless not be confined to the demand side. The disappearance of Chinese exports of naphtha and gasoline will be felt in certain parts of Asia. China's growing demand for refined product imports, on the other hand, could help refining margins across Asia considerably and for many years to come.

Table 12
China: Proposed New Refineries, 2005-2010
2004 2010 Change
(th bpd)
Demand* 6.43 8.90 2.47
Domestic Crude Oil Production 3.48 3.50 0.02
Net Imports
Crude Oil 2.35 3.75 1.40
Refined Products 0.66 1.65† 0.99
Total 3.01 5.40 2.39
* Figure excludes stock changes
† Mid-range of forecast from Table 7
Totals rounded
Source (2004): IEA
(2010): GER Forecast

OET ARCHIVE:

'China competes for crude supplies' Focus Oct04

'Caspian producers contemplate excess of export routes' Looking Ahead Sep05

Latest Developments

Refining

OET ARCHIVE LINK: ‘Refiners reassess projects as recession deepens’, Looking Ahead, Feb09

Previous:

Oil Prices

China remains wary of increasing fuel prices in case it sparks protests in the run-up to the Olympic Games in August. China, though, is facing fuel shortages as its small, independent refiners cut runs in response to high feedstock prices and uneconomic, government-controlled retail prices.

Oil Imports

Crude oil imports soared to a record 3.29 mn bpd in 2007, according to official figures: up 12.4% versus 2006.

Product imports were down year-on-year by 7.1%, to 695,000 bpd.

Oil Exports

Crude oil exports fell by 38.4% versus 2006, to 78,000 bpd.

Product exports rose by 25.6% to 320,000 bpd.

Stockpiles

China has announced that it has filled its first strategic petroleum stockpile, at Zhenhai. The reserve holds 33 mn bbl. Further stockpiles are planned.

Refineries

China National Petroleum Corporation is to build two refineries in Shandong and Yunnan provinces, each with a capacity of 200,000 bpd.

Gas Imports

Turkmenistan has reconfirmed its intention to supply China with 2.9 bn cfd of gas by pipeline from 2009. It is not certain, however, that the line can be built by then. Turkmenistan has also agreed to supply Russia with an additional 2.9 bn cfd by 2010, which would bring its total deliveries to Russia to 7.7 bn cfd. It is not clear that Turkmenistan can fulfil both these obligations, given present uncertainties about its production plans.

Refining & Marketing

South Korea’s GS Caltex has announced plans to enter China’s retail oil market, whilst ExxonMobil says it will move into the wholesale products sector. The country’s state refiners failed to meet new gasoline and diesel fuel specifications by the 1st July deadline for new, lower sulphur limits. Shortages of biofuels have also been reported.

Consumption

China’s National Bureau of Statistics reports oil and gas consumption for 2006 as follows:

Oil6.4 mn bpd (up 7.1% versus 2005)
Gas5.4 bn cfd (up 19.9% versus 2005)

Oil & Gas Production

China’s oil production rose by 1.7% in 2006 to 3.67 mn bpd, according to official figures.  Crude oil imports rose by 3.5% to 2.54 mn bpd.

Gas production rose by 19.2% in 2006 to 5.66 bn cfd.

Oil Production

Output fell at Daqing , China 's largest oilfield, for the fourth year in succession during 2006, to 870,000 bpd. Daqing's gas production was little changed at 237 mn cfd.

Natural Gas

China 's first LNG import terminal was officially inaugurated on 28th June, 2006. The Dapeng terminal, at Shenzhen in Canton Province is designed to receive 500 mn cfd of LNG from Australia 's North-West Shelf.

Pipelines

China has opened a 1,170-mile, 400,000 bpd pipeline from Urumqi in the north-west to the Lanzhou refining and petrochemical complex in Gansu.

Refining

OET ARCHIVE LINK: 'World's refiners plan massive increase in capacity', Focus May06

Oil Imports

China has said it will not increase imports of crude oil in 2006, keeping them at last year's level of around 2.6 mn bpd. It has also begun to raise refined product prices in a bid to slow down the rapid growth in consumption, though prices will be kept low for farmers and public transport.

Imports

Russia is to step-up energy links with China. The two governments have agreed in outline to build a 6-8 bn cfd gas pipeline link from Siberia to China and to add a branch to China from the proposed 0.6 mn bpd oil pipeline from Taishet to the Russian Pacific port of Skovorodino.

Oil

Oil production in 2005 is provisionally estimated at 3.62 mn bpd. Net imports were around 2.8 mn bpd.

Energy Security

Russia may be starting to favour Japan rather than China as the destination for a proposed export pipeline from Eastern Siberia. Russia and Japan have begun talks on building a 1 mn bpd pipeline from Taishet in Eastern Siberia to the Russian Pacific port of Perevoznaya, from where the oil could be shipped to Japan. China wants a similar-sized pipeline built from Taishet. The Russians say there is not enough crude for both schemes.

Consumption

The Chinese government has stopped approving the construction of new oil-fired power stations, in an attempt to curb the rise in oil imports. Some 30 GW of new generating capacity will be built in 2006, of which around 28 GW will be coal-fired.

Refiners have been ordered to ensure that they have 10-15 days' forward cover of gasoline and gasoil. Low domestic fuel prices encouraged them to export products during the summer, reducing forward stock cover to 2-3 days, causing shortages, especially in the south of the country.

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