China’s 2012 oil demand will support global crude prices

China, the world’s second largest oil consumer, expects its economy to grow at 9% or faster next year. To feed its growing economy, it is adding more refining capacity to allow demand growth to match this year’s expected 6%. The country’s current growth rate is only half of last year’s, but despite the slower rate, the International Energy Agency (IEA) said China’s demand this year represents half of the global incremental demand. Experts predict that the country will have around 600,000 barrels per day (bpd) of incremental oil use in 2012 and this will continue to support global crude prices which averaged more than US$94 this year, around US$20 above the average for the past five years. The world’s top oil consumer, the United States, pales in comparison, according to the U.S. government’s Energy Information Agency (EIA). EIA says that the U.S. is expected to have only 80,000 bpd growth in oil demand. Neil Beveridge of Bernstein Research said, “We expect growth will be faster than consensus estimates over the next five years, which will be supportive of global oil prices.” He emphasized that “China remains at the early stage of a secular growth cycle.”

Summer 2012 power outages in China

By 2012, China plans to complete building the second-phase of strategic oil tanks. Analysts say its demand for foreign crude oil could rise more quickly than this year’s 7%. Chairman of Sinopec, Fu Chengyu, said, “Global oil demand is unlikely to grow strongly due to the economic outlook, but China will see sustainable growth next year, similar to this year. Despite plans to add more refining facilities, China could experience severe power outages next summer. Zhou Xizhou, a power analyst at IHS Cambridge Energy Research Associates, said that a thermal power squeeze in the eastern provinces during next year’s summer months could force factories to use stand-alone diesel generators which could in turn increase demand for fuel, which happened in 2004, when more than half of the provinces in China had power outages in what was considered the country’s worst power crisis in decades. The outages triggered high demand that exceeded generation capacity. “It will be a lot worse than this year and may look more like 2004,” Zhou predicted. So far, most of those hit by this year’s shortages have been the hydro-dependent southern and central regions caused by less than normal rainfall. Eastern China resorted to creative measures like juggling shifts, and was thus less affected by the shortages. But Zhou said that a severe shortage next year, which could be as much as 50 gigawatt, could raise diesel fuel demand, but it would not reach the 2004 level because there are now more power stations which are fired up by natural gas. (October 12, 2011)