China’s diesel fuel exports rise as refinery expansion outpaces demand

China’s diesel exports could rise five-fold in 2013 as hefty refining capacity expansion keeps domestic supply ahead of demand, keeping down regional fuel prices and eating into Asian refinery profits.
An expanding Chinese economy will require more diesel fuel for transport and industry in 2013, but the growth rate this year is likely to remain below the five-year average and is unlikely to absorb all the additional supply.
China will have a diesel fuel surplus of about 60,000 barrels per day (bpd) this year, according to industry and analyst forecasts, compared with 10,000 bpd in 2012. That is equivalent to the diesel output of a mid-sized refinery.
“The economy is recovering, but it’s not bullish enough,” said a source with a Chinese refinery, declining to be identified as he is not authorized to talk to the media.
“Production is continuing to rise as new refineries start, together with capacity expansion in the older ones. This means the supply surplus and demand are not rising at the same pace.”
Diesel fuel demand in 2013 will grow 4% to 3.61 million bpd as economic growth accelerates, according to forecasts by CNPC, parent of the second-biggest refiner PetroChina.
That will still lag behind diesel fuel output of 3.67 million bpd, according to CNPC. Refinery capacity will rise another 7% in 2013, CNPC said, after rising 8% in 2012.
“Overall diesel will be in surplus this year, with shortages only occurring in some specific short time period[s],” Qian Xingkun, the deputy president of CNPC Research Institute, told Reuters.
The world’s second-largest oil consumer became a net diesel fuel exporter in mid-2012 as the weakest pace of economic growth in 13 years pared annual demand growth for the fuel to less than 2% last year. That was one of the lowest annual growth rates on record, according to energy consultant Wood Mackenzie.
The surplus has already prompted China to tap new markets. Unipec, the trading arm of top refiner Sinopec Corp., participated in a tender by Sri Lanka’s Ceylon Petroleum Corp. (Ceypetco) for the first time. PetroChina sold term barrels to Ceypetco for the first time as well.
Most analysts and consultants interviewed for this story declined to forecast if China would remain in surplus beyond 2013, as this will depend on the speed of economic growth.
Oil consultant FACTS Global predicted a steady rise in surplus to 70,000 bpd in 2014 and 90,000 bpd in 2015.
China added 840,000 bpd of new refining capacity in 2012. Diesel fuel usually accounts for about 30 to 40% of refinery output in China.
Overall, China is expected to add 820,000 bpd of refining capacity this year and another 350,000 bpd in 2014 and 490,000 bpd in 2015, said Suresh Sivanandam, a senior oil analyst at Wood Mackenzie.
“The supply impact will be felt in 2013, but overall demand is growing which could lead to China going into deficit in 2015,” he said.
The surplus has been boosted by unusually cold weather in the early part of 2013. That led to lower farming, fishing and construction activity, and subsequently less diesel fuel demand from those sectors.
Exports have continued even as China approached its New Year break and factories increased activity ahead of the festival period shutdown. (February 6, 2013)