Oil demand grows by only 1.1% overall – Crude imports driven by SPR needs – Products imports down by 43% – gasoline exports down, gasoil and jet up – Oil consumption to grow by 4.1% in 2015 – Gasoil exports may rise by 50% in 2015, and by a factor of 7x by 2020.
Supply and Demand in 2014
China’s apparent petroleum consumption is expected to reach 503m tonnes in 2014, up by 1.1% year on year, the lowest growth for the past ten years.
The country’s economic focus continues to shift in the direction of service industries and increased urbanization, away from investment in energy-intensive industrialisation, and the search continues for a new source of momentum to boost the economy to an extent comparable with growth over the past decade.
Diversification of the economy has seen bottlenecks develop in meeting growing demand for gasoline, gasoil, jet fuel, bunkers, industrial fuel and fuel LPG; demand for feedstock crude oil and LPG will likely remain firm as a result, driven by investment in the chemical industry whose returns currently outperform those from straight oil-refining.
China’s crude throughput is expected to hit 492m tonnes in 2014, up by 2.8% year on year. That represents slower growth, but is still ahead of the rise in the demand for distillates products, suggesting China’s distillates products exports are set to rise.
That said, growth in distillates products output has been limited by lower operating rates at most major and independent refineries in 2014, even with the newly built Sichuan and Quanzhou refineries running at close to 75% of capacity.
China’s net crude imports will likely come out at 300m tonnes in 2014, up by 7.8% year-on-year. There was a major boost in imports in the first half of the year as Beijing moved to meet its strategic petroleum reserve target for the Twelfth Five-year Plan period (2011-2016), even though simultaneously operating rates at many major Chinese refineries fell. Meanwhile the China National Chemical Corporation, ChemChina, which owns a number of independent plants, raised crude imports and diversified crude sources in 2014 after being allocated a crude import quota for the first time in 2013.
China’s net imports of distillates products slumped by 43% year-on-year in 2014, the lowest level in the past ten years. Net imports of fuel oil, especially, plunged in 2014 as independent refiners diversified their feedstocks and competition hotted up in the Asian bunker fuel oil market. Net imports of naphtha have also dropped, and China’s reliance on imported distillates products will have been just 2% in 2014, with virtually all demand met by domestically-refined products.
LPG and bitumen consumption continue to rise on the back of demand from LPG deep-processing plants and investment in road construction. Petroleum coke consumption continues to drop on the back of a lacklustre industrial fuel market.
Changes in China’s gasoil and gasoline consumption structure have forced domestic producers to reduce gasoil and gasoline production ratios and at the same time seek export outlets, operate flexible inventories and switch to more competitive marketing strategies.
That said gasoline exports have actually declined in 2014, while net exports of gasoil and jet fuel have risen significantly. China as a whole is on course to become a net exporter of most major distillates products except naphtha.
As a result of all this, the country’s decision-makers are waking up to the fact that it is no longer sufficient simply to monitor supply for potential shortfalls. The dangers of oversupply mean both increasingly the supply-demand balance is what’s being tracked.