(EnergyAsia, January 11, 2017, Thursday) — China’s influence on the world’s oil markets is growing, thanks in part to the increasing role of its refiners in boosting both crude imports and product exports at the same time.
The rest of Asia is feeling the impact most as Chinese refiners are outbidding other crude buyers and competing to sell the products into the international markets.
According to investment bank Jefferies Hong Kong Limited, China’s crude imports surged 11.9% in the first 11 months of 2017 over the same period in 2016, while natural gas imports were up 27%.
Despite the record crude purchases averaging nearly nine million b/d, Jefferies analyst Laban Yu said China still had to draw down its oil inventories as domestic consumption growth remains strong. The supply shortfall has been worsened by Chinese refiners increasing throughput to export products.
This has led to a crunching fuel and natural gas shortage in many parts of the country just as demand for heating is rising over the winter season.
“We believe oil product and crude inventories will fall in November and can only be replenished with increased crude imports feeding refinery throughput,” said Yu in a research report.
With Chinese oil demand growth racing well ahead of International Energy Agency estimates, Yu posed a significant question: is this the start of a new supercycle for the global oil markets?
“In the past, the media dismissed growing China imports as strategic petroleum stockpiling. This is erroneous,” he wrote.
“We believe growing imports reflect real demand. The market will soon need to reckon with a higher estimate for China’s oil demand.”
“In the long term, we believe the only sustainable solution will be higher prices.”
China’s crude import dependence is expected to exceed 70% in 2018 since breaching the 50% mark 10 years ago. The IEA expects it to top 80% by 2040.
Chinese refiners: a new force in the global oil markets
With a combined capacity of 4.3 million b/d, China’s independent refiners, have emerged as a new force in global oil markets, said Oxford Institute for Energy Studies (OIES).
In a study released last May, OIES said the refiners came into reckoning in July 2015 when Beijing allowed them to directly import crude to compete against the country’s five state-owned firms.
Known as ‘teapots’ as many are small operators with 20,000 to 50,000 b/d of capacity, the independent refiners have accounted for much of China’s recent incremental crude buying.
In recent years, they have been expanding capacity as well as investing in plant upgrades to produce higher-value lighter and greener fuels.
To the dismay of other Asian refiners, the expanded and upgraded teapot plants have become formidable competitors for crude supplies from Russia, the Middle East, Vietnam and Indonesia.
At the same time, their rising product exports are causing oil refiners in other Asian countries to lose market share.
“In 2015, (China’s) diesel exports surged to average 150,000 b/d, an 80% rise year-on-year while jet fuel, fuel oil and gasoline exports were also extremely strong compared to 2014. In 2016, diesel exports doubled to 320,000 b/d,” said OIES.