IEA expects China's oil imports to double within eight years

Nov 07, 2007 01:00 AM

PetroChina's recent oil find in Bohai Bay will only slow the decline in China's domestic crude output, meaning the country must rely heavily on imports going forward unless it makes further finds, the International Energy Agency said. In its World Economic Outlook through 2030, the IEA said China's net oil imports will double from 3.5 mm bpd last year to 7.1 mm bpd in 2015 unless the government's energy policy changes.
"In 2030, China will import as much as the European Union," the IEA said, forecasting volumes of 13.1 mm bpd in that year.

Foreign cargoes will be needed as China's conventional oil output will level off at 3.9 mm bpd in 2012, around the time that the Jidong Nanpu field in Bohai Bay yields its first crude, the IEA said. Despite the $ 260 bn that China will likely invest in its upstream oil industry over the next two decades, the country's daily crude oil output is projected to fall to 2.7 mm barrels by 2030, the IEA said.
Output will slow as China seeks to expand its strategic oil stocks so that the country can cover 75 days of its net imports in 2015. Filling of its first facility at Zhenhai in the eastern province of Zhejiang began last summer. As a result, 80 % of China's crude oil needs will be met by net imports in 2030, up from nearly 50 % at present. China's dependency on foreign oil will be even higher by then if its domestic coal-to-liquids production falls short of expectations.

Jidong Nanpu is China's biggest oil discovery in 40 years and led PetroChina's shares to surge more than 10 % when management formally announced the scale of reserves to the Hong Kong Stock Exchange in May. Following its listing in Shanghai, PetroChina has leapfrogged ExxonMobil to become the world's largest company by market value despite being less profitable.
According to the IEA, output at Jidong Nanpu will reach an average of around 270,000 bpd following its build-up phase, with a peak of about 300,000 bpd before production declines by a third by 2030. The IEA made its assumptions on a 40 % recovery rate at Jidong Nanpu, although other analysts expect the rate to be nearer 20 % due to geological faults at the field which lower the chances of using more productive drilling and injection technology.

The importance of developing Nanpu is magnified by the rapid depletion of China's existing oil producing hubs, with the Tahe oil field in Xinjiang region alone among the 11 biggest fields in not having passed its peak.
"About half of proven and probable reserves from known fields have been produced," the IEA said. As a result, around a quarter of China's production by 2030 is expected to come from fields discovered recently and awaiting development, the IEA said. Converting coal to liquids is forecast to add a further 750,000 bpd by the same date.

Car use an engine of growing oil demand
In its baseline expectation -- a reference scenario which assumes no fresh government action to stall unsustainable hydrocarbons demand or emissions growth -- China's oil demand will reach 16.6 mm bpd by 2030. Growing affluence among the Chinese will trigger a surge in car ownership, contributing to demand.
"The total number of light-duty vehicles on the road is projected to soar from about 22 mm in 2005 to more than 200 mm in 2030 in China," the IEA said.

In addition, a large expansion in coal output for power generation will bring more trucks on to the roads to counter bottlenecks in the country's shipping and rail networks. To feed this additional demand for oil products, China will need to build 20 new refineries over the next five years to boost installed capacity to 9.9 mm bpd in 2012, the IEA said.
"Beyond 2012, up to 2030, refining capacity is assumed to increase in line with oil demand," the IEA said.

But Chinese refiners will face the challenge of adapting their output to the changing structure of oil demand at the same time as meeting stricter fuel quality requirements.
"The projected increase in the share of refineries' crude oil slates of medium to heavy crude supplies from Middle Eastern exporting countries calls for increased complexity in China's refineries over the projection period," the IEA said.

Refinery expansions in China could be underpinned by a convergence of interests with major oil producers that are concerned about the prospects for oil product demand, the IEA added.
"To us, security of demand is a key issue," said Organization of Petroleum Exporting Countries President Mohammed al-Hamli, who is also oil minister for the United Arab Emirates, in a speech at the second Asian ministerial energy roundtable in Riyadh in May.

Saudi Arabian Oil Co., known as Saudi Aramco, signed a deal with ExxonMobil and China Petroleum & Chemical, or Sinopec, earlier this year to triple the capacity of a refinery in coastal Fujian province to 240,000 bpd. The refinery will primarily process sour Arabian crude supplied by Saudi Aramco.
In addition, Kuwait Petroleum is examining potential refinery invest in southern China with Sinopec, which could also be accompanied by an oil supply deal.

Source: Dow Jones & Company
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