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China’s Demand for Crude and Oil Products:
With this report we reinstate coverage of China’s crude and oil product Demand,
Production and Trade Flows since 2001. Figure 1 of this report outlines China’s
elasticity of demand for crude and oil products relative to GDP growth since 1988.
Figure 2 of this report provides our estimate of China’s growth in crude demand
for 2009F (+400k bpd - spot in line with long term averages). DB Economist MA
Jun is estimating 8.7% GDP growth for 2009.
Deutsche Bank AG/Hong Kong
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LOCATED IN APPENDIX 1. MICA(P) 106/05/2009
Industry Update
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Sinopec (0386.HK),HKD6.95 Buy
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Sinopec (0386.HK),HKD6.95 Buy
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P/E (x) 18.5 9.1 8.3
EV/EBITDA (x) 23.9 5.4 5.0
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PetroChina (0857.HK),HKD10.26 Hold
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P/E (x) 13.5 15.1 13.7
EV/EBITDA (x) 6.5 7.4 6.9
Price/book (x) 1.4 1.9 1.8
Global Markets Research Company
China’s Demand for crude and oil products (Figures 3 - 5)
We expect that China’s demand for crude will grow by 5.4% in 2009F vs. 2008.
This would represent a marginal increase of 400k bpd of consumption. We expect
that China’s demand for oil in 2010F will be stronger than in 2009F as 1H10F looks
nothing like the weakness seen 1H09. We are humbled at the resilience of
gasoline demand in China (Figure 4). The decline in diesel demand makes us
question official GDP figures. We are impressed with consecutive declines in
demand for fuel oil (2007-09F). These declines make us think that just maybe the
government is having success in shutting down the Tea Kettle refineries. In all
probability, declines in fuel oil consumption also reflect increased use of natural
gas for power generation. Naphtha growth booms when new ethylene crackers
come on line (2005-07), but otherwise seems to stagnate. Expect naphtha demand
to boom once again 2010-11F. The growth in Kerosene is a bit perplexing. It
signals increasing demand for aviation fuels and possibly increased demand as a
substitute for home heating fuels (coal, LPG).
China’s Production of crude and oil products (Figures 6 - 8)
Production of crude seems to be on track (2009F) to decline for the first year since
at least 2001. This makes sense as most of the PRC oil and gas producers shut in
expensive fields during 4Q08-09 as oil prices collapsed. We do not expect
production declines in crude to continue 2010-15F. According to our discussions
with PetroChina, Sinopec and CNOOC Ltd, domestic crude oil production should
grow 1-2% on average per year. Fuel oil production is way down reflecting at the
very least a pickup in the use of natural gas for power plants. Production of
Naphtha has declined quite materially year-to-date 2009, reflecting soft chemical
markets around the world. This will turn to growth once global GDP starts to grow.
China’s Trade Flows of crude and Oil Products (Figures 9 - 15)
China’s psyche to be self sufficient in oil products – with the exception of fuel oil -
seems to be holding up quite well. Net / net, oil product exports seem to be
growing, slightly. We question if China’s growing oil product exports will at some
point flood Asian markets and negatively impact the regions refining margins?
Over capacity in China’s refining capacity is not quite the same as over capacity in
Singapore’s refining capacity. Excess refining capacity in China may take years for
the region soak up, if ever China were to slow. Will China’s new refining policy
ensure over capacity in the Asian product market? From recent China refining
capacity announcements, it certainly seems plausible.
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