10.27.2018

Japanese petroleum demand has decreased to same level as 1960's

Refinery crude oil throughputs in Japan during the first half of October dropped below 2.5 million barrels per day for the first time since the late 1960's, according to data released by the Petroleum Association of Japan. 


The nation's petroleum demand basically has shown a downward tendency after peaking out in the middle of the 1990's. Even so, recent slump presents an impression that irreversible direction led by the change of social structure is accelerating the decrease regardless of the economic cycle.



The real gross domestic product in Japan indicates relatively steady growth after lowered by the global financial crisis in 2008 and the regional heavy earthquake in 2011. However, crude oil throughputs keep apparent decrease since even before the financial crisis. 


The recent breakdown for petroleum products shows that motor gasoline accounts for 31% of the total production, while 24% are gas oil outputs followed by fuel oil that is used for electric generation and industrial fuel, then petrochemical naphtha etc. Thermal power generation also uses low sulfur crude oil besides the fuel oil. Typically, 20-30% more amounts of fuel oil than crude oil are utilized for the purpose.


Regarding automobile fuels that are the majority of Japanese petroleum products, we have concerns about slowing down of domestic car sales especially for young generations. Although the number of passenger vehicles owned keeps steady growth since the beginning of this century despite the slow sales, fuel demand doesn't track the same path. Gasoline production has deepened decrease after the 2011 earthquake.  Constriction of household spending seems to be one of the major causes as well as increasing hybrid cars. Meanwhile, gas oil output is not impacted by a gradually decreasing number of tracks owned. Track utilization rate in the transportation industry looks to be rising. Industrial efficiency is improving but consumer spending is shrinking.


The petroleum industry is also pursuing efficiency. The total oil refinery capacity in Japan has been scrapped by 25% in the 2010's after utilization rates had dipped to the 70% level in the late 00's. The operational efficiency in the oil industry has improved significantly through the aggressive streamline of facilities.

What has occurred about electricity generation fuel that is the next major usage following motor fuel? There were 59 nuclear units with a total of 51 million kW of power generation capacity before the serious earthquake in March 2011. All those units ceased operations due to damage or security inspections. Then only 9 nuclear units have been approved to resume. Current total available capacity is 9.1 million kW. 22 units including those in Fukushima-1 and 2 nuclear power plants will be scrapped, and no specific restart plan has been decided for rest of units. Nuclear power accounted for 27% of the total electricity generation in Japan in 2010; however, it was merely 3% in 2017.



Electricity supply in Japan was in the severe turmoil after losing the entire nuclear power generation. There were many aged thermal power units urgently resumed from the idling status. However, such high necessities for oil-burning power was finished in 2012, and it was already backing to the normal level in 2014 despite all nuclear units were still suspended. Petroleum demand for electricity generation is declining further due to lower entire power demand, steady growth of generation with burning coal or liquefied natural gas, and resume of some nuclear units. The era that needs petroleum for electricity generation is going to end.


Japanese manufacturers have moved their factories overseas and domestic infrastructure and lifestyle are changing to that need less energy usage. Meanwhile, as the country requires importing almost all of the primary energy resources, such transition could reduce the vulnerability of its security.

8.27.2018

China crude oil production declining with no shale oil development

Although China is one of the major countries that have shale oil reserves, about 48 billion tonnes of her proven reserves have almost not developed yet. Overall Chinese crude oil production with the downward tendency has recorded 29 consecutive months of year-on-year decrease since November 2015, according to the National Bureau of Statistics. The nation’s crude oil demand, however, increased by 13% during the same period. Thus, import dependency is growing to fill the gap between supply and demand. As the declining self-sufficiency is critical, China was unable to include crude oil in the tariff list for retaliate round of the trade war with the U.S.


In July 2018, China produced 3.75 million barrels per day of crude oil, while the General Customs data shows that imports reached 8.5 million bpd in the same period. Imported amount of crude oil was 2.3 times than domestic outputs. The import dependency is extraordinarily high for crude oil among energy supplies in China. Coal production in July was 282 million tonnes compared with 29 million tonnes of imports, and natural gas outputs were 13 billion cubic meters against 1 billion cubic meters of imports. China's coal and natural gas imports stay at about 10% level of domestic production respectively. However, monthly coal production already has peaked out at around 300 million tonnes, while only the natural gas output is still showing growth.


China is not the only country that is showing a diminution of crude oil production. The upward movement of world crude oil output in the 2010's is mostly aligned with that in the U.S. It is because of the Shale Revolution, as you know. Even if in the major shale production area, the reduction pace of production in legacy wells is expanding. So that development of new wells is the key factor to boost production. Investments in shale oil/gas development are concentrating in the specific zones like Permian Basin in the U.S. where production costs are the most competitive. It accelerates production efficiency in that areas further and depresses on traditional oil field developments in other regions. Booming shale oil productions in the Permian Basin has caused a lack of transport capacity by pipelines and output was capped as a result.


China has the world third largest shale oil proven reserves and the biggest shale gas proven reserves. However, the majority of these reserves are located in the remote places like Sichuan where developments are quite difficult. There are many issues regarding drilling and transportation. Additionally, large water usage for the Hydraulic fracturing is also an obstacle. Shale oil/gas wells said to require typically from about 10,000 tonnes to 60,000 tonnes or more of water per well depending on each depth. Although China may not need to care about environmental issues that raise counter-movements against shale oil/gas development in the U.S., spending valuable water resources to produce crude oil seems not so reasonable compared to importing crude oil.


The U.S. Energy Information Administration expects that shale oil production in the U.S will maintain growth towards 2030. Crude oil development in China may not be expanded at least until then. Since the country can't yield more coal as well, the lower energy self-supply could cause arguments. However, we are unable to forecast the future exactly. Before the Shale Revolution, the U.S. was also in similar oil production diminutions as current China. And no one knows how long demand of the fossil fuel in China will continue to enlarge. 

6.17.2018

How China's crude oil imports are exaggerated

Accumulated domestic crude oil supply/demand balance, that deducts processing volume from the total supply of net imports and productions, reached 23.4 million metric tons in Jan-May 2018, according to the government stats. That throughout 2017 was 44.6 million mt. The monthly balance rarely shows negative figures and total accumulation since Jan 2006 attains 270 million mt.



However, China's National Bureau of Statistics said that strategic petroleum reserves in the nation are only 37.73 mt as of mid-2017. This volume was higher than a year ago by 4.48 million mt and the International Energy Agency estimated that China's SPR stood at 39.2 million mt as of end-2017.

Meanwhile, commercial crude oil inventories in China as of end-2017 were estimated at 27 million mt by Xinhua News. The latest figure as of end April 2018 was 27.4 million mt. The commercial crude oil inventories have been swung between 25 and 35 million mt during the 2010's. It is basically under the downward tendency after peaked in Sep 2014. Petroleum products inventories are also indicating a seasonal cycle and no significant upward trend is seen.



Therefore, the statistically calculated crude oil surplus is clearly larger than the actual increase in the stockpile. It is a mystery where the surplus is gone. Many people believe that Chinese stats are not reliable, but even that, the discrepancy looks too large.

Crude oil processing volumes released by the NBS are about 50 million mt recently. These figures are the sum of collected data from enterprises that have more than 5 million RMB of annual sales. Since oil refiners are unlikely to have less than US$0.8 million of annual sales, the processing volume could cover all eligible firms. Additionally, it is not realistic to estimate that those firms report much smaller production than they actually do.

Current estimated total of the strategic petroleum reserves and commercial oil inventories in China are close to 90 million mt. It equivalents to about 55 days of the nation's recent consumption volume. Although this level is still far from 90 days that is recommended by the OECD, a significant progress is seen as Chinese petroleum demand has doubled from a decade ago when its stockpile only covered less than a month of consumption.


On the other hand, China may have equipped nearly its 170 days of consumption equivalent petroleum stockpiles based on the above surplus calculation. However, we can't find their storage facilities for such large volume. Thus, it is reasonable to guess that import figures are overblown. Based on the discrepancy among estimated stockpiles, China's actual crude oil imports are likely to be below the customs reported volume by about 10%. Chinese influence in the global crude oil market should be discounted.

9.26.2014

Chinese petroleum demand rises despite slowing down in economic data

Although recent economic data show sluggish growth of Chinese economy, petroleum demand in August was unexpectedly steady.

Apparent petroleum demand, or pure domestic demand, in China rose 3.7% on year to 9.74 million barrels per day, according to Platts' estimation. Demand in the first eight months rose 1.2% from a year ago.
Since demand fell 2.1% on year in July, quarterly growth data might be about 1% on year growth.

Platts' data do not include change of petroleum stockpile. Meanwhile, Xinhua News reported that end-August stocks of petroleum products fell 6.2% from a month ago. Especially, gas oil inventories decreased 10.3% from a month earlier.


China's domestic petroleum demand that contains the inventory movements was 10.01 million bpd, up 4.7% on year. However, it is doubtful that the figures really reflect the nation's petroleum demand.
News have reported sluggish gasoil sales in China despite the large decrease of stockpile

Crude oil processing by Chinese refineries in August rose 4.4% from a year ago, according to the National Bureau of Statistics. But refineries might have increased processing because they did not have enough crude oil storage capacity.

Higher crude oil processing produced large number of petroleum products in China. Oil companies seemed to be unwilling to keep high products inventories, since prices were softening.

Domestic official petroleum sales prices have caught up with the movements of international markets more timely after the Chinese government changed the price setting methodology last year.

Firmer petroleum demand in China is very strange. It is inconsistent with decreasing petroleum demand in other Asian countries like India and Japan as well as slump in Chinese economic data.

6.30.2014

Fossil fuel costs for nuclear outage in Japan to be offset by decreasing crude oil imports

Japan's crude oil imports fell 19% on year to 2.74 million barrels per day in May, according to customs data. It was first time that the country's crude oil imports slipped below 3 million bpd level since 1969.

Reduction of crude oil distillation capacity and the seasonal maintenance seem to cause the sharp drop of procurement. Crude oil processing in Japan fell 3.7% and 3.3% from a year ago in April and May, then it shrunk by 15% on year during the first three weeks in June. However, there has not been reported a lack of petroleum products in the market.


Japanese oil companies consolidated their refining facilities following the Energy Efficiency Law that was enforced in 2009. They cut about 400,000 bpd of crude oil throughput capacity in 2010, then reduced further 500,000 bpd until the dead line of the consolidation that was set at end of March this year.

In Japan, petroleum demand was predicted to increase to make up for nuclear power supply outage since 2011. But actually total crude oil imports by the nation has not increased despite additional demand from the power sector.

Even demand for thermal power generation has sustained Japan's petroleum demand despite declining fuel consumption in transportation sector that is affected by fuel-efficient vehicles, it could not boost the total crude oil imports.


Meanwhile, growth of electricity demand has been usually negative in Japan after 2011 due to power saving and change of the industrial structure. Although relatively high industrial activities supported power demand in February and March this year prior to the consumption tax hike on 1st April, reaction against that depressed the growth rate to about 2% per annum of decrease in April and May.

If Japanese oil companies reduce their crude oil procurement by 400,000 bpd (about 80% of scrapped capacity since mid-2013), the nation's trade deficit could decrease by 1.6 trillion yen ($15.8 billion) per year.
On the other hand, Japanese power companies have bought additional 17 million tonnes of liquefied natural gas for thermal power generation after 2011. It roughly costs about 1.5 trillion yen ($14.8 billion) annually.

Payments for fossil fuels are considered as one of main reasons of Japan's 11.4 trillion yen ($112.4 billion) of huge trade deficits in 2013. However, additional fuel costs to make up for nuclear power outage is not exceeding 2 trillion yen, and it is likely to be offset by reduction of crude oil imports in the near term.

6.16.2014

Mysterious large crude oil imports by China

China has procured large amount of crude oil since late last year. Accumulated supplies exceeding processed crude oil during the past several months seem more than the country's strategic reserve capacity. Even if Chinese statistics data are not credible, many institutes use these figures for calculating their world petroleum demand forecast. The suspicious crude oil procurements by China may lead amendment of future petroleum demand.

Total crude oil supply in China rose 5.3% on year in May to 43.84 million tonnes or 10.36 million barrels per day, while growth of crude oil processing in the same month stayed at 3.5% on year to 40.33 million tonnes or 9.53 bpd, according to the government data.

Crude oil supply in May exceeded processing volume by 3.51 million tonnes. Accumulated oversupply in the first five months in 2014 is nearly 14 million tonnes. The figures include commercial stockpile.
China's commercial crude oil stockpile level as of end-April was estimated about only 1.7 million tonnes higher than that at the end of 2013, according to data issued by Xinhua News. Therefore, crude oil oversupply during Jan-May excluding the growth of commercial stockpile seems still being more than 10 million tonnes, or 73 million barrels.


However, there is a question. Does China have enough storage capacity for the large strategic petroleum reserve? PetroChina estimated that national stockpile capacity as of end 2103 was 140 million barrels, while International Energy Agency saw it could be about 160 million barrels.

First phase of Crude oil strategic storage facilities in China were built by the end 2009. The total 103 million barrels facilities were filled in 2010. Then 169 million barrels of second phase facilities are planned to complete by 2015. The construction has delayed.
Part of the second phase facilities were completed in 2011 and they were filled with nearly 80 million barrels of crude oil in the first half of 2012.

Fresh news on strategic reserve facilities have not been reported after that. But China started to procure large crude oil since late last year. Total oversupply excluding movements of commercial stockpile during November 2013 and May 2014 reached 120 million barrels. Such volume is not able to store even if the second phase of national stockpile facilities are completed.


Where are the massive crude oil stockpiles stored? Is China really importing such large crude oil shown in its Customs data?

6.09.2014

China crude oil imports still exceed demand

China's crude oil imports in May rose 8.9% from a year ago to 6.16 million barrels per day, according to the General Administration of Customs. Meanwhile, the number fell 6.5% from the previous month's record imports of 6.81 million bpd.


 Although Chinese crude oil imports are slowing from April, it still remains at relatively high level. If domestic crude oil production in May stayed at same level as Jan-Apr, total crude oil supply in the month would be about 10 million bpd.

Chinese refineries should increase their throughput level by 8% on year in order to process the entire supply. However, it is impossible because accumulated crude oil processing in the first four months in 2014 only increased by 1.8% on year. Moreover, Chinese refineries are typically shut their facilities in May and June for maintenance prior to summer demand season.
Therefore, crude oil imports in May still seems including procurements for strategic reserve.

On the other hand, Chinese trade surplus in May surged to 35.9 billion dollar, the highest monthly surplus since January 2009. Processing trade also recorded two consecutive months growth on year.

These data suggests that energy demand in the country may be underpinned in the near term. But customs data also showed a contrary story that China's petroleum products export exceeded import again following March. It shows that petroleum products are oversupply in China.