January 23, 2014 (Chinavestor) Economic reality: Chinese crude oil consumption increased to 10.2 million bbls/d in 2012, with the nation demanding only less than the US who consumed 19 million bbls/d in 2012.
The mechanics that are keeping a supply-demand economic equilibrium with the commodity is not their domestic production of the crude oil, but the fact they are becoming the largest net importer of the product. China has increased their imports of the commodity considerably in the past decade, with notable correlations with their GDP growth.
GDP the driving factor
The rising ownership of automobiles is a significant factor pertaining to imports outstripping domestic supply. Whilst industrial use of crude oil has outweighed the need for everyday use of the resource in prior years, the rise in GDP per capita has triggered a surge in automobile purchases, prompting a need for the commodity. This has been even more apparent in the Eastern provinces. GDP growth is expected todecrease from 7.8% in 2012 to 7.3% in 2013, due to the monetary easing and PRC stimulus packages.
NDRC impositions will only hurt the major oil players; SNP and PTR
However, with the NDRC playing a pivotal role in the product purchase costs of end users, natural gas consumption has been encouraged, with prices been lowered to increase natural gas use. However we estimate that China could increase crude oil consumption to 13-14 million bbls/d by 2015, increasing imports 32% and enabling CNOOC Ltd. (NYSE:CEO) to capitalise from the increase in PRC demand.
CNOOC holds more than 70% of LNG capacity
LNG accounts for nearly half of China’s natural gas imports, with high domestic prices the only real downside to the commodity being consumed more than lower quality natural gases. With an oversupply of LNG in China, contributed greatly by CNOOC’s monopolising the industry and increasing the number of terminals, the NDRC will surely feel no pressure in increasing gas prices in major provinces. Whilst this will affect Petrochina’s natural gas contract with CNOOC Ltd. (NYSE:CEO) and incur further losses for them, CNOOC Ltd. (NYSE:CEO) will aim to boost their LNG capacity and secure extra supply contracts.
Fujian – Tangguh LNG
The Indonesian gas field aims to supply CNOOC’s Fujian LNG terminal with approximately 5.2 mmtpa once Phase II commences. CNOOC Ltd. (NYSE:CEO) owns 60% of the operations of the Tangguh LNG project in West Papua, with the remainder of the JV going to Fujian Investment. Power plants and distribution companies in Xiamen, Putian, Fuzhou and Quanzhou are the main beneficiaries of the LNG from the Fujian terminal.
Dapeng – Guangdong LNG
CNOOC’s 33% interest in the Guangdong terminal acts as one of the key receivers. Sourced from Australia’s North-Western Shelf project and the Qatar III, the FEED contract was awarded to Sofregaz to increase capacity to 6.8 mmtpa, which will branch out of the terminal to provide for Guangdong.