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China Faces Fuel Glut as Refineries Add Capacity, CNPC Says

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Jan. 30 (Bloomberg) -- China faces a fuel glut this year as new oil-refining capacity outpaces demand growth even amid a government drive to use more natural gas, according to the nation’s biggest oil and gas producer.

The nation’s crude-processing capacity will increase by 39.5 million metric tons a year to 614 million a year in 2013, while actual throughput will climb 5.4 percent to 489 million tons, China National Petroleum Corp. said in an annual report released in Beijing today. Demand for gasoline, diesel and kerosene will expand 5.8 percent to 293 million tons, it said. Crude is also turned into fuel oil and petrochemical feedstock.

China, the world’s second-largest oil consumer, processed a record 10.2 million barrels a day in December, according to data from the Beijing-based National Bureau of Statistics. Refiners have stepped up operations amid a rebound in economic growth just as the government encourages the use of cleaner-burning gas to curb pollution. Gas demand will advance 12 percent to 165 billion cubic meters this year, CNPC said

“If refining rates keep rising, the domestic fuel market might witness an obvious oversupply,” CNPC said in the report. “Gas demand for power and industrial use will grow steadily.”

Higher Imports

Apparent oil demand, or domestic processing plus net imports of refined products, will increase 4.8 percent to 514 million tons this year, CNPC said. Net overseas purchases of crude will advance 7.3 percent to 289 million tons and account for 58 percent of consumption, it said. Imports will be capped at 61 percent of total demand through 2015, the State Council, or cabinet, said in a statement on Jan. 24. The ratio averaged 57 percent in 2012.

China had an oil-storage capacity equivalent to 42 days of supply in 2012, comprising space for 245 million barrels of commercial inventories and 141 million barrels of strategic reserves, the report also showed.

“2013 will be a robust year for capacity addition in China and there is a little bit of concern about that,” Sijin Cheng, an analyst with Barclays Plc in Singapore, said by telephone. “China is likely to export a bit more. As long as domestic demand remains strong, the concern will be more limited.”

The nation’s economy will expand 8.1 percent in 2013, according to the median estimate in a Bloomberg survey this month. Growth was 7.9 percent in the three months ended December, snapping a seven-quarter slowdown.

Gas Purchases

Imports of gas by sea and pipeline will rise 24 percent to 53 billion cubic meters in 2013 and account for 32 percent of total consumption, according to the report. Liquefied natural gas shipments are predicted to increase 15 percent to 16.5 million tons, while pipeline deliveries will gain 32 percent to 30 billion cubic meters.

Myanmar will sell gas to China by pipeline for the first time, the report showed. The link from the Southeast Asian nation is designed to carry 12 billion cubic meters annually, CNPC said on its website in September 2010.

“Recently many regions in China are having severe pollution and this will lead to an increasing gas apparent demand,” Qian Xingkun, a deputy director at CNPC’s research institute for economics and technology, said in Beijing when presenting the report.

The city’s government today warned its 20 million residents to prepare for at least another day of smog, and officials closed some factories and ordered government cars off the road as pollution remained at hazardous levels. A U.S. Embassy pollution monitor showed that air quality reached hazardous levels for the 19th time in 25 days.

Global Oversupply

Global crude output will exceed demand by 800,000 barrels a day in 2013, CNPC said. Spare production capacity will rise to 4 million barrels a day from 2 million, and the world’s oil-processing capacity will increase by 64 million tons a year to 4.64 billion a year, it said. Spending on oil and gas development will jump by more than 10 percent to $670 billion.

The price of Brent crude, the benchmark grade for more than half the world’s oil, will average $105 to $115 a barrel this year, CNPC predicted. The price was at $114.56 on the ICE Futures Europe exchange in London today.

West Texas Intermediate, the U.S. marker price, will average $95 to $105 a barrel, CNPC forecast. Benchmark gas at the U.S. Henry Hub will average $3.5 per million British thermal units, while U.K. National Balancing Point prices will average $8 to $10 per million Btu, it said.

To contact Bloomberg News staff for this story: Sarah Chen in Beijing at schen514@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net

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