China oil imports likely to rise more in second half: Clyde Russell

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Some of China's top refineries plan to raise crude runs by about 4 percent in 2013. (Reuters) Some of China's top refineries plan to raise crude runs by about 4 percent in 2013. (Reuters)
SummarySome of China's top refineries plan to raise crude runs by about 4 percent in 2013.

The easy thing to predict about China's crude oil imports this year is that they will be higher than in 2012, the trickier question is by exactly how much.

Once again it appears that the major factors determining the extent of the gain will be how much new refining capacity comes online and how much new strategic storage is commissioned.

These two factors are uncertain, making an estimation of likely gains in crude demand a bit of a guess, but there is enough information to help make some early forecasts.

Some of China's top refineries plan to raise crude runs by about 4 percent in 2013, according to a Reuters poll of 18 major plants, which have a combined capacity of 4.83 million barrels per day (bpd) or 44 percent of total capacity.

If this 4 percent increase in runs is applied to the total refining capacity, it implies an increase in crude processed to 9.73 million bpd from 2012's 9.36 million.

This means a jump of about 375,000 bpd in crude processed, and it's likely that this will mainly be met by increased imports as domestic oil output is likely to be little changed at around 4.1 million bpd.

However, it's worth noting that refinery runs reached a record 10.493 million bpd in December, well above what the poll suggests they may average for the whole of 2013, suggesting there is upside risks to crude demand if operating rates continue at near last month's levels.

In what may just be little more than coincidence, the Reuters poll figure of a 4 percent rise in refinery runs is exactly the same as the International Energy Agency's latest forecast for China's oil-product demand growth in 2013.

The agency expects China's demand to rise to 9.984 million bpd in 2013, up from 9.595 million last year.

The IEA figures, being product demand, doesn't correlate exactly to crude demand, but suggests that crude and net product imports will have to total almost 6 million bpd this year.

Crude imports averaged 5.42 million bpd in 2012, a gain of 6.8 percent over 2011, while net product imports were around 300,000 bpd.

Together, crude and net product imports were around 5.72 million bpd in 2012, meaning to reach 6 million bpd, an additional 280,000 bpd would have to be imported.

Given the refiners polled say they will process about 375,000 bpd more, this implies that net product imports will decline in 2013.

This is likely to take the form of lower imports of fuel oil and higher exports of diesel that would be enough to offset a likely decline in gasoline exports.

Fuel oil imports may decline as small refineries, known as teapots, are allowed to import crude directly, while increased refinery runs will boost the diesel surplus.

Rising vehicle sales will boost gasoline demand and maybe by more than the increased refining capacity, thereby cutting the surplus of the motor fuel available for export.

In addition to higher refinery runs on units that were operating by the end of last year, China is likely to add more capacity in 2013.

PetroChina's Sichuan complex is slated to add 200,000 bpd by the end of the first quarter, and Sinochem and Sinopec may add another 340,000 bpd between them by the end of the year.

However, for the bulk of this year, it's only the PetroChina facility that is likely to boost crude imports, and then probably not even by as much as the full 200,000 bpd capacity.

However, building up inventories for the new refining capacity will also serve to boost crude demand over the year.

Another X-factor is strategic storage, with some second stage facilities due for completion in 2013.

It's by no means certain that even if the tanks are ready, that China will decide to lift imports to fill them, but it's nonetheless an upside risk to crude demand, especially for the second half.

Putting together what is known and speculating on what's likely, and a picture emerges of additional imported crude demand of at least 300,000 bpd in 2013, but more likely closer to 400,000 bpd.

This will meet the planned increase in refinery runs, which is turn will meet the gain in actual demand from higher economic growth.

If oil is bought for strategic storage, it will most likely be in the second half, meaning demand may rise more in that period than in the first half.

(Clyde Russell is a Reuters market analyst. The views expressed are his own.)

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