Sluggish Asian oil demand while unexpectedly firm US

Crude Oil throughput reflects economic trends. Recent statistical data shows that the crude oil demand in emerging countries has been in slump. Meanwhile, oil demand in the U.S.A. continues to be firmer than expected.

Indian Ministry of Petroleum and Natural Gas announced that the country's crude oil throughput in October was 13.2 million tonnes (equivalent to 3.12 million barrels per day), decreased by 2.8% from a year ago. It was the first time year-on-year decline since November 2010.

Although India's crude oil throughput reached the record high at 3.60 million bbl/d in January this year, the country's petroleum demand has been leveling off after that.

Petroleum demand in China is also sluggish. Crude oil processed by the world second largest petroleum consuming country in October was 8.77 million bbl/d, up only 0.2% on year.

Crude oil throughput in China has been leveling off after hitting the record high at 9.21 million bbl/d in February.

Another Asian giant petroleum consumer, Japan has recorded 8 consecutive months of year-on-year decrease of crude oil demand after the heavy earthquake in March.

Japan's crude oil throughput in the first 20 days in November is estimated at about 3.4 million bbl/d, down more than 9% on year.

China and Japan post such sluggish numbers despite high coal prices and the lack of nuclear power supply are likely to boost petroleum demand for power generation in these countries.

Meanwhile, U.S. crude oil throughput in October was averaged at 14.55 million bbl/d, up 4.0% on year, according to the data by the Energy Information Administration.

Crude oil processed in the first three weeks in November is estimated to rise 2.5% on year.

Although crude oil demand in the U.S. decreased by 3-5% on year during April and May, the data shows apparent year-on-year recovery after August.

Many people expect that the strong petroleum demand from emerging market such as China and India could complement the decreasing oil demand in advanced nations. But the current data suggests that the U.S. rather keeps steady while the demand in Asian emerging countries is beginning to slow down.

Chinese power plants shut on fund shortage

Chinese electric power companies have suffered losses because of cheaper electricity prices than coal prices. Number of power plants are facing bankruptcy, and a lack of funds to buy coal forces many plants to shut.

Industry sources forecast that the five major Chinese electric power groups could post RMB35-70 billion this year due to the poor margin. Furthermore, the scheduled introduction of new emission control regulations in January 2012 will cost annual RMB100 billion to the power industry.

As of late October, about 160 billion kilowatts of thermal power generation capacity in whole China was estimated to have been shut due to a lack of fund to buy coal. Around 20% of power generation capacity in Guangdong is not operated. Many industry sources expect the situation could be worse.

In China, coal prices are decided by the free market, while electricity prices are set by the government. Domestic coal prices have increased by more than 10% from January, but wholesale electricity prices were only hiked by 0.5% during the same period.

China’s electric power generation capacity exceeded 960 million kw in 2010 and is currently estimated to reach about 1 billion kw. Capacity of the hydroelectricity is about 210 million kw, nuclear power accounts for about 10 million kw, and others include wind power are 31 million kw. Thermal power generation capacity is around 750 million kw and 95% of the thermal power units are coal burning facilities.

Thermal power supply in China increased by 14.3% on year during the first 10 months in this year. The figure is larger compared to the country’s total power supply in the period at 12.3% increase on year. Lower hydroelectricity supply, which decreased by 2.2% on year in the January-October period, lifted thermal power supply despite the faded growth of electricity demand.

Chinese government is anticipated to hike wholesale electricity prices again in the near term. Power companies could secure profits if electricity prices increase by RMB0.02 per kilowatts, while the price hike would cost RMB6-7 billion to consumers.

Higher electricity prices are likely to encourage power companies to supply more electricity, however, increasing payments may reduce electricity demand.

Previous electricity price increase in 2Q this year might be one of the reasons for the slowdown of the growth of China’s electricity demand in 3Q.

Meanwhile, Chinese media frequently report the possible power shortage crisis in coming several months. Low power generation due to the poor margin may cause serious shortage of electricity.

China experienced severe power supply shortage in late 2010 when many factories boosted gas oil use for onsite power generation. Huge gas oil demand caused panic in the petroleum market at that time.

We, however, can’t see any apparent turmoil in the petroleum market despite the electricity crisis.

Flat LNG use lifts Japan’s oil demand for electricity

Petroleum consumption for thermal power generation by Japan’s 10 electric power companies in October soared 480% on year to 2 million kiloliters. It was the highest level since July 2008.

Petroleum burning thermal power generation mainly substituted the more shortage of nuclear power supply because liquefied natural gas (LNG) consumption remained at 3.9 million tones, up 31.7% on year.

Limited increase of LNG usage boosted petroleum consumption for power generation in October. However, slowdown of regional industrial activities led by power saving efforts cut the total petroleum demand in the month.

Crude oil throughput by Japanese refiners decreased by 6.2% on year to 3.14 million bbl/d in October.

Is TEPCO’s petroleum use doubled?

Tokyo Electric Power Company (TEPCO) forecasts that it could post about JPY410 billion of operating losses in the whole fiscal year 2011-12 due to the increasing expenses for thermal power fuel.

However, the company’s predictions for the electricity demand and the fuel consumption are seen overestimated.

TEPCO forecasts that its electricity sales in the fiscal year 2011-12 will be at 267.1 billion kWh, down 9.0% on year.

The company’s electricity sales in the first half of the fiscal year decreased by 13.6%, it means that the electricity sales between October 2011 and March 2012 should stay at only 4.4% decline from a year earlier.

The less decrease is likely to boost TEPCO’s petroleum consumption for the thermal power generation in the second half of the fiscal year by more than 200% on year, the company says.

Actual consumption of fuel oil in the first half of the fiscal year slightly increased by 0.3% on year, while crude oil use decreased by 41.1% from a year earlier. Compared with the first half results, forecasts for the second half seem to be too much.

According to the TEPCO’s explanation, its Liquefied Natural Gas (LNG) consumption for the thermal power generation during the second half of the fiscal year is expected to be same as that in the first half.

TEPCO may not worry about the shortage of power supply for coming several months, because the maximum electricity demand in the winter season should not be higher than summer.

Or, TEPCO may not secure more LNG due to a lack of tanker availability following higher LNG demand from other Japanese utility companies that have lost nuclear power generation capacity.

TEPCO’s nuclear power plant usage is also forecasted to decline to 18% in the second half on the fiscal year compared to 25.1% in the previous period.

Four units at its Kashiwazaki-Kariwa nuclear power plant were still operated after the 3.11 earthquake, but two of them were shut in August due to the regular maintenance. Rest of the nuclear units is also scheduled to be shut for maintenance in early 2012.

Decreasing nuclear power supply and limited LNG supply could boost petroleum usage at TEPCO’s thermal power plants if the decline of electricity demand stays at 4.4% in the second half of the fiscal year. It must be a clear picture.

However, we saw that strict power saving efforts after the earthquake and lower industrial activities caused by a lack of electricity supply have reduced electricity demand in the TEPCO’s service area during the first half of the fiscal year by 13.6% on year. Electricity supply in October continued to decrease by 9.4% on year.

The October figure suggests that electricity demand in the second half of the fiscal year is likely to decline by about 10% on year, not a low number like 4.4%

TEPCO is expected to use 140,000 bbl/d more petroleum than the same period a year ago based on the company’s forecast. But the extra oil usage could be about only 45,000 bbl/d if decline of power demand reaches at about 10% on year.