Singapore — China is expected to import a record amount of crude oil in 2023 due to increased demand for fuel as people travel more following the dismantling of COVID-19 controls and as a result of new refineries coming onstream, analysts said.
The prospect of strong demand from the world’s biggest importer will be another bullish factor for an oil market already supported by the OPEC+ producer group’s output cuts and western sanctions on Russian exports.
Their estimates are in line with the latest forecast by the International Energy Agency.
Since the removal of COVID controls in December, China’s demand for gasoline and jet fuel has risen.
Sun Jianan, an analyst at Energy Aspects, reckoned gasoline and jet fuel would account for around 50% and 30% of total growth in demand for liquid fuels, respectively. Jet fuel consumption, according to Sun, would reach 90% of pre-COVID levels by end-2023.
Demand for diesel – a key industrial and transportation fuel – and petrochemical feedstock naphtha, may grow more slowly as it will take longer for the recovery in China’s manufacturing and property sectors to materialize, said FGE analyst Mia Geng and Energy Aspects’ Sun.
With domestic consumption rising and lucrative export markets to supply, the four consultancies saw Chinese refineries raising crude throughput by between 850,000 to 1.2 million bpd over 2022 levels, for an increase of between 6% to 9%.
Last year, China’s refineries posted their first annual decline in throughput since 2001.
Chinese consultancy Longzhong said state-run refineries were lifting throughput during the first week of February by 5.5% from January to an average of 74.5% of capacity.
“We’ve been trying to maximize our operations in January and February, as margins have improved on lower crude cost and sharply rebounding gasoline sales,” a Beijing-based state-oil official said.
In a sign of the trends, Unipec, the trading arm of Asia’s top refiner Sinopec (600028.SS), snapped up at least 8.5 million barrels of Abu Dhabi Upper Zakum crude so far in February, as its buying spree entered a second straight month.
NEW PLANTS
Apart from meeting growing domestic demand, refiners will also be incentivised to boost runs to keep profitable export shipments flowing and supply more feedstocks to the petrochemical sector, analysts said.
Two new refineries – PetroChina’s Guangdong Petrochemical and Jiangsu Shenghong Petrochemical with a combined capacity of 520,000 bpd – are expected to enter commercial operation in coming months, industry sources said.
A third greenfield refinery, the 400,000 bpd plant being built by Shandong Yulong Petrochemical, may also begin crude imports for possible test runs at end-2023, a company source told Reuters.
For all the bullish factors, analysts did cite some reasons to be cautious of demand forecasts.
“While increased household saving (during the pandemic) is leading to release of pent-up demand, people may remain wary about the economy, especially in the short term,” said Woodmac analyst Lin Yitian.
“There are also external headwinds, as a weak global economic outlook would put pressure on China’s export sector.”
Other risks included the possibility of a resurgence in COVID infections, and uncertainty over China’s fuel export policy, analysts said.
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