China oil demand to grow by 5% in 2008

21 October 2008 17:00  [Source: ICIS news]

SINGAPORE (ICIS news)--Oil demand in China is expected to increase by 5% in 2008 to around 375m tonnes/year (7.5m bbl/day), said an industry analyst on Tuesday.

Shen Ping, general manager of petrochemical information service C1 Energy, said China oil demand was expected to grow at around 4.5%-5% annually during 2008-2010, down from 8% annual growth in the preceding six years.

Shen Ping, speaking at a satellite event at the APPEC 2008 conference in Singapore, said it was still too early, however, to assess the impact of the global financial crisis on China’s petroleum demand.

With no major discoveries of crude made in recent years and disappointing levels of output growth from existing fields, China – the second largest oil consumer in the world – is set to become more reliant on imports of oil.

Shen Ping said that China’s crude imports are set to rise by 10% in 2008 and will approach 180m tonnes/year, or around 48% of total requirements.

The larger volume of imports will be required to meet the growth in domestic refining capacity and the need to build up China’s strategic petroleum reserve (SPR), said Shen Ping.

China has been rapidly expanding its refining capacity since 2005 and this growth will continue to 2011 with a total increase of some 3m bbl/day, Shen Ping said.

In 2008 alone, she added, some 1.3m bbl/day of extra capacity is scheduled to come on-stream.

Shen Ping said the main area of demand growth in China will be for gasoil and gasoline.

Gasoil demand, which accounts for 46% of China’s petroleum consumption, is expected to increase by around 12m tonnes/year, which is a net increase of 10% in 2008, said Shen Ping.

Gasoline demand is set to increase by 8m tonnes/year, which is a net increase of 14% in 2008, buoyed by growing car ownership, said Shen ping. However, she added that demand for fuel oil, bitumen and LPG is expected to shrink by around 7%-8%.

China's demand for both gasoline and gasoil in 2008 was also boosted by government moves to increase stocks ahead of the Olympics, she said. In 2008, China became a net importer of gasoline for the first time.

She said she expected China to be a net exporter of gasoline in the next five years due to the marked expansion in domestic refining capacity. Demand for gasoline in the coming three years is estimated to be around 6%-7%, rather than the 14% in 2008.

Boosted by increased production and demand in China, Shen Ping said she expected imports and exports of gasoil in China to shrink in 2008 by 8% and 10% respectively. In the coming years, gasoil demand was expected to grow by around 6% to 123m tonnes/year, said Shen Ping.

The Chinese government still controls pricing for distillates, which are set significantly lower than their international market values, with price changes lagging those in the open market.

Price controls have served to protect domestic consumers from the sharp rise in global gasoil prices earlier this year. But the recent sharp falls in gasoil prices have yet to be passed on to the domestic market, said Shen Ping.

Fuel oil demand in China was expected to decline by 39.8m tonnes this year, said Shen Ping, amid an ease of power shortages, poor margins for independent refineries and increased use of cheap energy sources such as natural gas and coal.

China’s imports of fuel oil are exported to decline by around 9% to 22m tonnes this year, she added. Meanwhile, booming bunker demand and increased output will push exports up by 53% to 5.8m tonnes.

China was set to remain an exporter of naphtha due to expansions in its refining capacity and the increased use of condensate as a feedstock in the petrochemical sector, said Shen Ping.

LPG demand in China was set to fall by 7% to 21m tonnes this year due to increased use of natural gas and DME.

As a result of slackening demand and Chinese refineries producing more LPG, there will be a 30% cut in imports to around 2.8m tonnes this year, Shen Ping said.

Shen Ping said she believed that the Chinese government is slowly loosening its controls on the domestic energy market and creating a more free market approach. She highlighted recent import tax cuts, such as the abolition of government rebates for oil product exports.

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By: James Dennis
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