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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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China Looks To Increase Oil Imports

xi

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. Related: New Breakthrough Boosts Solar Fuel Efficiency

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

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  • Jeffrey J. Brown on January 22 2018 said:
    It would be more accurate to say that China looks to continue to increase their oil imports.

    Some definitions:

    GNE = Global Net Exports of oil, Combined net oil exports from (2005) Top 33 net oil exporters (BP + EIA data, total petroleum liquids)

    CNI = Chindia’s Combined Net Imports (BP, total petroleum liquids)

    ANE = Available Net Exports, GNE less CNI

    In regard to China & India ("Chindia") using the BP data base Chindia's Net Impots (total petroleum liquids, excluding biofuels & refinery gains), or CNI, increased from 5.1 million bpd in 2005 to 12.0 million bpd in 2016, which I would round off to 5 and 12 million bpd respectively.

    Following is a link showing my GNE/CNI chart for 2002 to 2011, using EIA data:

    http://i1095.photobucket.com/albums/i475/westexas/Slide1_zpsu5daownl.gif

    Note that the extrapolation (based on the 2005 to 2011 rate of decline in the GNE/CNI Ratio) shows the ratio falling to just below 4.0 in 2015, on track to approach 1.0 (the Chindia region theoretically consuming 100% of GNE) by 2030.

    Using the updated data, the GNE/CNI Ratio fell to 3.8 in 2016, on track to approach 1.0 by the year 2033:

    http://i1095.photobucket.com/albums/i475/westexas/GNECNI%20Ratio%202002%20to%202016_zpswuwvgp8m.jpg

    What I define as Available Net Exports (ANE, or GNE less CNI) fell from 40 million bpd in 2005 to 33 million bpd in 2016. This is the volume of Global Net Exports of oil available to importers other than China & India.

    An article on China's 2017 oil imports:

    China Sets New Records for Gobbling Up the World’s Commodities (January, 2018)
    https://www.bloomberg.com/news/articles/2018-01-12/world-s-commodity-engine-roars-to-another-record-with-xi-at-helm

    Except:

    Oil Coronation

    The crown of the world’s biggest oil importer now sits firmly atop China after the nation’s shipments surpassed the U.S. on an annual basis for the first time ever. What’s more, it’s also one of the largest buyers of American crude.

    Inbound shipments from across the globe -- Russia to Saudi Arabia and Venezuela -- jumped about 10 percent to average 8.43 million barrels a day in 2017, data from China’s General Administration of Customs showed on Friday.

    The unprecedented purchases may be bettered in 2018, if import quotas granted by the government to China’s independent refiners are a signal. The first batch of allocations was 75 percent higher than for 2017.
  • petergrt on January 22 2018 said:
    Most of the discussion is about the increases of Chinese oil imports, while only in passing mentioning that China is expanding its refining capacity and exporting huge quantities of the final products to Asia and Europe, where refineries are all but going under . . . . . In other words, China is importing oil as row material and exporting it as a value added manufactured product, just as they have been doing with all manufacturing.

    The point is that the thrust of most such articles is to form a basis for increased demand for oil and thus justification for higher prices, whereas if the exports are taken into account the big picture would be considerably different.
  • Jeffrey J. Brown on January 23 2018 said:
    I usually exclude refinery gains from net export calculations, because it's a net energy loss, i.e., the energy output from the refinery is less than the energy input, and it tends to distort the export numbers from a net oil importer. However, it is of course a necessary step. In any case, if we define net exports as domestic production less domestic consumption, this calculation takes into account refined product exports.

    And based on the extrapolation of recent data, the Chindia region's net imports (taking into account product exports) alone would theoretically consume 100% of Global Net Exports of oil (GNE) in about 15 years, theoretically leaving nothing for about 155 net oil importing countries. Of course, that's a point that we cannot arrive at and still have a functioning global economy, but that is the trajectory that we are on.

    In any case, given an ongoing, and inevitable, decline in GNE, unless the Chindia region cuts their net imports of oil at the same rate as, or at a rate faster than, the rate of decline in GNE, it's a mathematical certainty that the rate of decline in ANE (GNE less Chindia's Net Imports) will exceed the rate of decline in GNE and that the rate of decline in ANE will accelerate with time.

    I've used the following example to illustrate the differences between gross and net exports:

    Production Land (P) has 2.0 Million Bpd of production, but no refining capacity.  Refinery Land (R) has 2.0 Million Bpd of refining capacity, but no production.

    Ignoring refinery gains and other minor issues, P has consumption of 1.0 Million Bpd, and R has consumption of 1.0 Million Bpd. 

    P's gross exports to R are 2.0 Million Bpd. R's gross imports from P are 2.0 Million Bpd. 

    R refines 2.0 Million Bpd, consumes 1.0 Million Bpd, and exports 1.0 Million Bpd of refined product to P. 

    P's net exports are production (2.0) less consumption (1.0) = +1.0 Million Bpd. 

    R's net exports (actually net imports) are production (zero) less consumption (1.0) = -1.0 Million Bpd.

    Alternatively, you get the same answer if you define net exports as gross exports less gross imports.
  • Jeffrey J. Brown on January 23 2018 said:
    Re: The 64 Billion Barrel Question

    In regard to the US, we still remain quite dependent on crude oil imports. Based on the most recent four week running average EIA data, US refiners were dependent on gross crude oil imports for 45% of the Crude + Condensate (C+C) inputs into US refineries, and they were dependent on net crude oil imports for 39% of the C+C inputs (taking into account C+C exports).

    But here is the root of my problem--the vast disconnect between the conventional wisdom top line focus on production numbers, versus what my projections suggest for remaining post-2005 Available CNE (Cumulative Net Exports of oil), i.e, the remaining supply of CNE available to importers other than China & India.

    Note that GNE = Global Net Exports of oil. CNI = Chindia's Net Imports. ANE = GNE less CNI.

    If we extrapolate the rate of decline in the GNE/CNI Ratio, we get an estimate of when the Chindia region alone would theoretically consume 100% of GNE, and we can get a rough estimate of remaining Available CNE (remaining CNE available to about 155 net oil importing countries).

    By definition, we have depleted the volume of post-2005 Available CNE; the only question is the magnitude of that depletion. The problem is that my data suggest that the magnitude of the depletion has been enormous.

    The GNE/CNI Ratio chart suggests that we have already consumed, through 2016, about two-thirds of post-2005 Available CNE. Based on the 2005 to 2016 rate of decline in the GNE/CNI Ratio, I estimate that remaining Available CNE are down to about 64 GB (billion barrels). This is the estimated remaining volume of Cumulative Net Exports of oil available to about 155 net oil importing countries.
  • Frank the Tank on January 24 2018 said:
    Never mind that ICEs are effectively banned in China and India after 2030 and the transition to the majority of new cars being EV will tip around 2023.

    Also of no interest is China's absurd capacity for electric bus manufacturing. Half their bus fleet will be over to EV by the time half the new cars sold are EV. That is a mindblowing amount of demand disappearing in 3-5 years.

    We can have these conversations for another 18 months or so, but after that it'll start getting ridiculous. There's no angle to maintaining global oil demand growth past 2025 or so, and these 1M+ growth figures for 2022 are almost physically impossible.

    China added 54GW of solar capacity in 2017 to a total of 130GW or 7% of national electricity demand. They're projected to be at 250GW or more in total by 2020, though current growth rates puts them at more like 400GW. No need to pay for oil when you have EVs sucking up all that "variable generation".

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