China shines as net fuel exporter, to get back to being importer in a few months

China was a net fuel exporter in December for the first time since at least 1993, but the trend promises to be short-lived as economic growth barrels along in the workshop of the world, stoking its appetite for fuel in 2010.

China’s status as Asia’s top buyer of fuel oil, its strong international purchases of liquefied petroleum gas and its petrochemical sector’s growing need for naphtha are expected to pull it back into net imports overall within a few months.

“I maintain China will stay as a net fuel importer, albeit a smaller one,” said Kang Wu of the Hawaii-based East-West Centre.

With China’s economy expected to keep growing fast, after its stimulus-boosted rally of 8.7 per cent last year, the world’s No2 oil user is not about to upend nearly 300,000 barrels per day (bpd) of net fuel imports in 2009.

China has already surpassed Japan as the world’s No2 crude oil buyer and imports will rise again in 2010 after a surge of 14 per cent last year, and a record five million bpd in December.

Refiners plan to add 450,000 bpd of new crude run capacity in 2010, on top of 700,000 bpd they brought on line last year.

“Similar to 2009, 2010 will be a crude-led market, not products-led, because of the huge amount of spare refining capacities… It will be another year of very weak cracks for light products and middle distillates,” said Mike Wittner of Societe Generale.

The rise in actual crude processed will be even higher, a Reuters survey of 22 top refiners showed. The plants polled by Reuters, representing 60 per cent of the existing refining base, plan to run at more than 90 per cent of their operating capacity this year and to process 560,000 bpd more than last year.

That increase, equivalent to 7.5 per cent of the national total, compares with a rise of less than 400,000 bpd in 2009. That will maintain China’s net surplus in gasoline and diesel, keeping exports flowing. China’s gasoline exports were up two and a half times last year and diesel exports rose sevenfold.

“It looks like the decision has been made to build domestic refining capacity and import crude rather than products,” said Wittner of Societe Generale. “China’s current set-up of pricing that guarantees a fixed margin at home is obviously in favour of such strategy.”

China’s return to being a net importer will hardly reassure rival suppliers to Asia’s products markets, such as Japan, which has been debating over the past year whether to permanently shut its swelling spare capacity or keep exporting in a fiercely competitive market.

Analysts started 2009 forecasting oil demand would stay flat or even contract amid a slowing economy reeling from the spreading pains of the global financial crisis, but eventually concluded demand had grown by a fairly robust five to seven per cent.

In 2010 analysts expect another year of five-seven per cent growth, as the economy has rebounded so fast the government has begun reining in money supply, worried about inflation.

In its mid-January report the International Energy Agency, which is seen to represent a market consensus, pegged China’s 2009 demand growth at 572,000 bpd, or a rise of 7.2 per cent, after several upward revisions last year. It also upped its estimate of 2010’s incremental demand to 360,000 bpd, or 4.3 per cent, to a total of 8.8 million bpd, assuming that the government stimulus programme continues.

 

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