2009 Review and 2010 Preview on China's Petroleum Market       

1. Petroleum products demand keeps rising, but at slower pace, in 2009

China's GDP achieved an annual growth of 8.7% in 2009, with its economy trend of restraining in the start of last year and rising afterwards. Closely related to the GDP, the demand for petroleum products also showed the same pattern. The petroleum products prices slowed down in early 2009 and subsequently rose, with signs of slowing increase for petroleum products prices. The nation's apparent consumption (the sum of production plus imports minus exports) of petroleum products rose 4.6% from a year earlier to 408 million tons in 2009. The growth rate was 0.9 percentage point lower than the previous year. The apparent consumption of crude oil was 388 million tons, up 6.2% year-on-year, which indicated 0.7 percentage point higher than the year before, but fell short of the average growth of 7.9% during 2003-2008.


2. Demand growth for petroleum products

Different oil products vary in demand growth. In 2009, the apparent consumption for refined oil products (gasoline, diesel and kerosene) rose 2.5% year-on-year to 221 million tons, of which, 67.05 million tons for gasoline, up 5.5%; 138.6 million tons for diesel, down 0.2%; and 14.97 million tons for kerosene, up 17.0% respectively.
   As varieties of oil products are used in respective industries, and various industries differed from each other against the backdrop of the global financial crisis and government stimulus policies, the demand for varieties of oil products showed differences in China for 2009.

Gasoline demand: As vehicles and motorcycles are main consumer, the impact on these sectors from the financial crisis is limited. Meanwhile, the stimulus measures by the government to spur auto demand also led both the production and sales of vehicles to grow rapidly, which supports the growth in gasoline demand. China sold 13.6 million vehicles in 2009, up 46.1% from a year earlier; vehicles production jumped 47.8% from a year earlier to 13.8 million. It is worth mentioning that the although the vehicle sales and production rose significantly in 2009, the growth in gasoline demands is not that significant, with annual growth below both that in the first half of 2009 and the average in the previous years. The following reasons may explain: the lower fuel consumption for new cars; the jump in sales and production of auto do not necessarily mean more distance driven, as vehicle transport is related to economic activities and the economic growth; a relatively active market for blending gasoline in 2009. China issued the national standards for "Vehicle-use Fuel Methanol" on April 8th, 2009 and "Vehicle-use Methanol Gasoline (M85)" on May 18th, 2009, and enacted them on November 1st, 2009 and December 1st, 2009 respectively. The pilot program for methanol gasoline use is being expanded across the nation. In Shanxi province, more than 1 000 pump stations began selling M15 methanol mixture gasoline. The methanol gasoline replaced some pure gasoline.

Diesel demand: Besides transportation demand, a lot of fields consume diesel, ranging from industry, farming and forestry to animal husbandry, fisheries, water conservancy and construction. Hit by the financial crisis, diesel demand in these fields, especially in industry and transportation sector, dropped significantly at the beginning of 2009. Though demand decline slowed since March 2009, it kept falling in annualized terms in the first eight months of 2009.

Kerosene demand: China's aviation industry is in a fast growing stage, with certain rigid demand in air traffic, and in domestic passenger air traffic in particular. Although the international air market fell victim to the global financial crisis, the domestic passenger air traffic market remained active, which helped kerosene demand rebound in February and gain in the rest of 2009.

Fuel oil demand: The fuel oil market is closely linked to industrial manufacturing activities. The financial crisis has hit the industrial sector, especially in the southeastern coastal regions where export-oriented manufacturers rely on fuel oil as energy source; meanwhile, the hike in fuel oil consumption tax also curbed demand.

LPG demand: About three quarters of the LPG consumption are for residential and commercial uses, with the rest for vehicles and the chemical industry. All the sectors were less affected by the financial crisis in 2009, when lower prices even triggered some rigid demand in the residential and commercial sectors. As LPG is not subject to a consumption tax, the fuel now has some cost advantages in certain fields after the government substantially raised the tax levy on other refined oil products. In addition, as import prices for LNG were higher than domestic prices, and the price gap between dimethyl ether and LPG narrowed - making dimethyl ether less attractive as a substitute - LPG demand rebounded in 2009.

Asphalt demand: Thanks to the government's RMB4 trillion stimulus package, which spurred the infrastructure construction sector, the demand for asphalt soared in 2009, in clear contrast to the demand decline in diesel and other products. In the first quarter when demand for most petroleum products were weak, the apparent consumption for asphalt reached 5.051 million tons in Q1 2009, jumping 41.2% from a year earlier; the apparent consumption rose 47.3% to 27.189 million tons for the whole year. The fast growth also saw asphalt account for 6.7% of total petroleum product demand, a high level.


3. Decline in domestic crude oil output

Domestic crude oil production fell in 2009 due to a weak domestic petroleum market. The nation produced 189.49 million tons of crude oil in 2009, down 0.4% from a year earlier. That is a clear slowdown compared with the average annual growth of 2.3% seen during 2004-2008.


4. Crude oil processing volume rose

China's crude oil processing volume and refined oil production kept growing rapidly in 2009, in a "V" shape accompanied by fluctuations. The domestic refined oil demand had fallen before bouncing back amid fluctuations, forcing the production side to follow suit. The change in China's refined oil products pricing mechanism and the relatively not high international crude oil prices now enable Chinese refineries to make money. The fast expansion in domestic refining capacity will lead to growth in refined oil output.
   China processed 374.6 million tons of crude oil in 2009, up 7.9% from a year earlier; refined oil production increased 9.4% to 228.01 million tons. Growth in gasoline, kerosene, asphalt production picked up while that for diesel and fuel oil slowed. The nation's asphalt production rose 54.6% to 23.54 million tons while kerosene output gained 27.0% to 14.79 million tons and gasoline increased 13.1% to 71.94 million tons, all much faster than growth in previous years; diesel output was up 6.0% to 141.26 million tons, lower than the growth in recent years; fuel oil production slumped 19.0% to 16.89 million tons, the biggest drop in recent years; and LPG production added 4.7% to 17.91 million tons, reversing the decline trend in 2008 but still slower than the average growth in previous years.


5. Petroleum product imports kept growth

Petroleum import volume kept rising in 2009, but at a slower pace. Petroleum products imports rose 12.2% to 251.99 million tons in 2009 while export volume jumped 38.6% to 33.10 million tons. This led to net imports of 218.88 million tons, up 9.1% from a year earlier - 2.7 percentage points down from 2008's growth. Among them, crude oil import rose 13.9% to 203.79 million tons while export volume increased 38.5% to 5.169 million tons. That translated to net imports of 19