China may be producing less oil, but it is refining more, fresh statistical data from Beijing has revealed, suggesting that Asia’s biggest oil consumer will continue with its international upstream push and imports will continue to increase as domestic demand expands.
Last year, crude oil production in China fell by an annual 4 percent to 191.51 million tons — or about 3.85 million bpd — to the lowest in nine years on the back of maturing fields and few viable new discoveries at home. This was largely offset by imports, which continued to rise, booking a 10.1-percent annual jump to 8.43 million bpd. In November, these hit a record-high of over 9 million bpd.
Analysts interviewed by Bloomberg expect the decline in local oil production to continue in the near term, but China’s maturing fields will not be the only or even main reason: China is shifting to natural gas. In December, gas imports hit an all-time high, as the country fought a cold spell amid efforts to reduce its dependence on coal and replace it with gas. At 7.89 million tons—including pipeline flows and LNG shipments—the December figure beat the previous record, booked in November, by 20 percent.
Local gas production is also on the rise as Beijing fights pollution, at 147.4 billion cu m last year — yet another record that China broke last year.
So, if the country is firmly moving in the direction of natural gas and away from oil in terms of hydrocarbons production, this means it will come to rely even more heavily on imported crude because households and factories may get heat and electricity from gas, but cars overwhelmingly drive on gasoline, and petrochemicals production is set for further growth.
Last year, oil refining in China went up by 5 percent to another record of almost 568 million tons.
Now China’s state-owned oil and gas giant CNPC has just added fuel to already strong price optimism on oil markets by forecasting that crude oil demand in China will jump by 4.6 percent this year to 12 million barrels per day. Refiners have plans to add some 36 million metric tons in annual refining capacity, which equals about 723,000 bpd. The country’s total, then, will reach 808 million tons annually, or 16.23 million barrels daily.
All this is good news for oil exporters and not so good news for fellow refiners in Asia. The United States is exporting growing amounts of crude oil to China. So is Russia: An extension of the East Siberia-Pacific Ocean oil pipeline between Russia and China began operations on January 1, doubling the crude oil export volumes from 15 to 30 million tons annually, or almost 220 million barrels.
Meanwhile, China is exporting more and more oil products, undermining other Asian refiners’ already depressed margins because of the higher crude oil prices. The trend looks stable for now: China will gobble up more oil this year and in the next few, and most of it will be imported. This year, the rate of oil refining is set for another record, according to at least one analyst, as petrochemical majors expand into refining to make sure they have sufficient feedstock levels for their main business.
Again, China looks like the biggest market swinger in oil.
By Irina Slav for Oilprice.com