(EnergyAsia, August 28 2017, Monday) — With oil prices seemingly stuck in the US$40-to-$50 a barrel range, China has been in a hurry to import crude at increasingly higher high rates. Chinese crude imports rose to an all-time high of 9.2 million b/d in March, compared with 7.6 million b/d for all of 2016, according to estimates by the US Energy Information Administration (EIA) and Reuters.


Stockpiling, rather than consumption, is driving China’s rush to buy as much crude as possible even though the world is forecast to remain glutted in oil and gas supplies for some years.

 

TABLE: China vs World Oil Data. Source: BP 2006 to 2016 annual growth rate %
2016 2015 2014 2010 2006
China’s Oil Consumption, 000 b/d
12,761 12,354 11,545 9,795 7,741 5.13%
Global Oil Consumption, 000 b/d
96,558 95,003 93,025 88,722 85,777 1.19%
China as % of Global Consumption
13.22% 13.00% 12.41% 11.04% 9.02% – –
China’s Oil Production, 000 b/d
3,999 4,309 4,246 4,077 3,711 0.75%
Global Oil Production, 000 b/d
92,150 91,704 88,826 88,722 83,251 1.02%
China as % of Global Production
4.34% 4.70% 4.78% 4.56% 4.46% – –
China’s Oil Reserves, billion barrels
25.7 25.7 18.5 14.8 20.2 2.44%
Global Oil Reserves, billion barrels
1,706.7 1,691.5 1,700 1,383.2 1,388.3 2.09%
China as % of Global Reserves
1.51% 1.52% 1.09% 1.07% 4.46% – –

 

 

So, why is the world’s second largest oil consumer is hoarding like a survivalist?

BP’s latest annual review of energy statistics offers some clues. China’s relatively small domestic oil production and reserves have stagnated over the past decade while its consumption has surged by 65% to reach a record 12.76 million b/d in 2016.

Despite government support and a reported 12.6% increase in domestic upstream investment between 2012 and 2016, China’s oil reserves and production remain insignificant on the world scale. Its reserves continue to account for just 1.5% of the world’s total while its production has never risen above five percent.

Commenting on this year’s trend, investment bank Jefferies Hong Kong Limited said China has made a net draw of crude and products totalling 1.04 million b/d from the global markets in the first seven months.

“China’s ‘net draw’ of crude and petroleum products from global markets is now over twice as high as that of the US,” said the bank’s analyst Laban Yu in a research note.

 

China’s oil self-sufficiency on path of “structural decline”

Chinese planners are coming around to the grim conclusion that the country’s oil self-sufficiency will deteriorate as the country’s consumption will continue to grow while production and reserves stagnate or even decline.

China’s oil appetite may have slackened in recent years on account of improved energy efficiency and slower economic growth, but it remains strong by world standards.

BMI Research, a unit of US ratings agency Fitch, confirms the opposing trends.

“Despite concerns of slowing demand, China will remain a formidable consumer of crude oil and refined fuels, with demand for jet fuel, LPG and petrochemicals particularly set to outperform,” BMI said in an upcoming report.

At the same time, it expects China’s crude oil production to continue on the path of “structural decline due to asset maturity and shifting investment towards natural gas. This will drive greater reliance on oil imports over the next decade.”

Transportation fuels will drive China’s oil market growth as an expanding middle class will be undertaking more land, sea and air travel.

Reflecting its position as the world’s largest motorised vehicle market, China will continue to experience strong demand growth for gasoline and diesel fuels.

According to a 2016 working paper by Rice University energy scholar J.D. Gabriel Collins, transportation accounted for 91% of China’s gasoline consumption and nearly 70% of its diesel demand. In 2015, Chinese consumers bought 21.2 million new passenger cars and 551,000 new heavy trucks.

Collins, who wrote the paper at the university’s Baker Institute for public policy, estimates that each million new passenger cars will add another 10,000 b/d to China’s gasoline demand.

He concludes that gasoline is “decisively driving incremental oil demand growth in China”.

This, in turn, means “China’s oil demand will remain influential even as the global market remains oversupplied.”