China's Crude Oil Imports Surge Despite Slow Demand

An analysis by Michael Lelyveld
2014-10-27
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An oil storage base of state-owned giant China National Petroleum Corporation in Huai'an city, east China's Jiangsu province, Sept. 1, 2013.
An oil storage base of state-owned giant China National Petroleum Corporation in Huai'an city, east China's Jiangsu province, Sept. 1, 2013.
Imaginechina

As China's economic growth slows, the country is buying more oil abroad, a seeming contradiction that may add to the world energy market's unease.

Asia's economic powerhouse has reported that its gross domestic product (GDP) growth, the broadest index of economic expansion, in the third quarter slipped to 7.3 percent, its weakest rate in five years.

China's growth in oil demand has also been declining, edging up only 1.8 percent in the first nine months of the year, Platts energy news service said in a report Monday.

Despite an uptick in September, the pace is down from apparent demand growth of 6.7 percent in 2011, 3.4 percent in 2012, and 2.5 percent last year.

Meanwhile, domestic crude production has been virtually flat since 2010 at about 4.1 barrels per day, according to data from the National Bureau of Statistics (NBS).

But China's net imports of crude oil this year have taken a more bullish track, climbing 8.8 percent through September to 6.1 million barrels per day, Platts reported earlier.

Imports in September were the second highest on record despite lax demand this year.

Last month, apparent oil demand rose 7.4 percent from a year earlier to 10.35 million barrels per day, its strongest gain in 15 months, according to Platts.

Too soon to tell

The sudden jump may be a sign of economic recovery or refinery activity, but the news service cautioned against drawing conclusions from one month of data.

One explanation of high imports so far this year is that China has been taking advantage of falling prices to build commercial inventories and fill its strategic petroleum reserve.

During the nine-month period, Platts calculated that China has been putting an average of 391,000 barrels of oil per day into storage, or over 80 percent more than a year before.

Platts estimated earlier that China had added an average of 665,000 barrels to its inventories in September.

The large volume of stockpiling may make recent readings of the world oil market more difficult to interpret.

On Oct. 14, the Paris-based International Energy Agency (IEA) cut its forecast of global demand growth by 200,000 barrels per day from its previous monthly estimate, quickening the recent price plunge.

The IEA cited "lower expectations of economic growth and the weak recent trend."

Among many uncertainties now is the question of whether demand may look even weaker if China's buying spree stops.

Despite the September pickup, Reuters estimated that China's oil consumption has risen only 2 percent so far this year.

The drop in China's demand growth may also raise concerns that the country's economic slowdown has been even steeper than official GDP figures suggest, putting further pressure on world outlooks.

Oversupply of natural gas


Economic weakening may also account for what may be a growing oversupply of natural gas.

While China's total gas supplies rose 9.6 percent in the first half, apparent consumption increased by 8.9 percent, Reuters reported, citing data from the National Development and Reform Commission (NDRC), the top planning agency.

The surplus widened in nine-month figures reported by the NDRC as total supplies climbed 8.3 percent, while apparent consumption edged up 6.7 percent.

High gas prices in Asia are also having an effect.

The PetroChina unit of China National Petroleum Corp. (CNPC) has reportedly cut spot purchases of imported liquefied natural gas (LNG) and closed two unprofitable liquefaction plants, Reuters said.

China's effect on world oil markets may be watched more closely, however.

For the past decade, China's growing demand has been seen as a major force behind rising world prices. The country's crude consumption climbed some 75 percent between 2003 and 2013, based on Chinese and U.S. government data.

But the dimming of demand may challenge perceptions that China's expansion will continue to support price growth.

Stockpiling questions

Peter Ogden, director of international energy and climate policy at the Center for American Progress in Washington, said it may be hard to draw firm conclusions from China's oil data, in part because it is unclear when or if China will use stockpiled oil.

"Whatever they're stockpiling now is probably not going to go back into immediate circulation but will be kept in abeyance for some real rainy day down the line," said Ogden.

"Or, it may just be that those barrels are being taken off the market altogether."

Philip Andrews-Speed, an energy expert at National University of Singapore, noted that China has also been buying crude far in excess of demand to feed its surplus refining capacity for fuel exports.

"China has vast refining overcapacity and is now exporting increasing quantities of oil products, and so some of the incremental crude oil import is being processed, then exported," said Andrews-Speed.

In August, China's exports of oil products rose to their highest level since December 2009, the Energy Intelligence Group said.

China's surge of product exports is said to be hurting other regional refiners and pushing down fuel prices, raising further questions about how long it can last.

But even if China's real growth in demand for crude oil has waned, it may still be a major force in supporting world prices.

"I don't know who else would take that position from them at this point. Even with a decrease in the growth of energy demand, they may continue to be the driver globally," Ogden said.

More can be done

So far, slower growth in oil demand has not been reflected in environmental improvements, judging by recent bouts of heavy smog in Beijing and the northeast.

Ogden said a smaller rise in oil consumption is still an increase, but he stressed that there are steps that China can take without waiting for decreases in energy use to reduce smog.

"I think they could do a lot to clean up the air around Beijing short of having to make absolute cuts in energy demand," he said.

Beijing has outlined a series of anti-smog measures that will be taken to clear the air for the Asia-Pacific Economic Cooperation (APEC) meetings in the capital on Nov. 5-11.

Authorities plan to shut down coal-fired furnaces, enforce odd-even license plate restrictions on traffic and cut production at high-polluting businesses, the official Xinhua news agency said.

The plan suggests that authorities are well aware of the kinds of measures needed to get air pollution under control.

"They could have been doing that all along with minimal economic cost and see significant social benefit," Ogden said.

I think now they're doing it and they're wishing they had made that calculation a little earlier, because now whatever efforts they take, they're looking at years of cleanup."

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Hue

from Canada

It's obvious. They're preparing for war.

Oct 28, 2014 12:42 PM

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