Increasing China's crude oil stocks

China's end-May commercial crude oil stocks rose 0.2% from a month before, according to Xinhua News. It was the third months consecutive increase.

In May, China's crude oil imports surged by 10.8% from a month ago to 6.02 million barrels per day, while month-on-month growth of crude oil processing was only 0.4%.

Since crude oil supply (net imports plus domestic production) exceeded throughput by 1.04 million bpd in May, increase of inventory was the natural result.

However, the increase rate of crude oil stocks was lower than 4.4% recorded in April when supply had exceeded demand by 520,000 bpd.

Necessary oil for strategic petroleum reserves into the total 80 million barrels of newly constructed sites seemed to limit the rise of commercial crude oil inventories.

On the other hand, even though a small amount of increase in crude oil stocks in May, it suggests that China's crude oil demand in the period was lower than expected. Crude oil inventories in the previous same month had recorded decrease over the past couple of years.

China crude oil demand keeps decreasing

Although China's crude oil throughput scored the record high of 9.35 million barrels per day in early this year, sluggish petroleum demand has kept crude oil throughput lower after that. April and May figures were lower than a the previous year's level.

Crude processing in June is also estimated lower further, according to media reports. Two giant state owned firms PetroChina and Sinopec are currently processing 7,09 million bpd of crude oil in total, that is down 0.2% from a month earlier.

June is known as the season for regular maintenance at refineries. Since crude oil throughput in June 2011 also decreased 4.5% from the previous month, current situation might not represent a slump.

Meanwhile, many regional refineries except for two giants are reported reducing crude processing rate significantly due to weak demand and unfavorable refining margins. Refinery utilization rates are less than 30% in some area.

The problem is that very few people expect shortage of petroleum products in spite of the sluggish growth of crude oil throughput.

China recorded 8.1% growth on its gross domestic product in the first quarter in 2012, while the growth rate in the second quarter is forecasted to below 8% or even below 7%.
However, flat or smaller petroleum demand compared to last year suggests that these lower economic growth forecasts might be even being overestimated.

On the other hand, the above chart shows China's recent relatively steady crude oil imports compared to sluggish growth of throughput. The country's crude oil imports rose 18.2% on year in May, according to the customs data.

The surge of imports did not caused by the actual consumption of course. Since China has completed the construction of total 80 million barrels of the new strategic petroleum storage facilities by early this year, the filling into these facilities seems boosting crude oil imports.

The monthly gap between net crude supply and throughput in China was averaged at about 200,000 bpd in 2011, but it has increased to around 600,000 bpd in the first five months of this year.

The additional 400,000 bpd could be for the strategic reserve. If China plans to fill up the new storage facilities during half year, the additional volume is make sense.
Meanwhile, the country's crude oil imports are likely to decrease by the amount in the later half of this year after finished filling up the strategic oil reserve.

Why is west-Japan so keen for nuclear?

To secure enough electricity supply into western Japan around Osaka and Kyoto during summer demand season, Kansai Electric Power Company may resume No. 3 and No. 4 reactors at its Oi nuclear power plant in the near future.
Regional local governments and the central government are expected to approve the restart. Meanwhile, possibility of large power outage forces opponents to be silence.

KEPCO is not able to meet electricity demand during the summer season without nuclear power supply. Since the two reactors will add nearly 2.4 million kilowatts of output capacity, the company can avoid serious shortage of power supply.

On the other hand, Tokyo Electric Power Company earlier said it is likely to supply enough electricity without nuclear power output even if under the heat wave conditions.

What causes difference between KEPCO and TEPCO?
We can find a part of the reason when watch the change in power output sources by each company over the past decade.

TEPCO and CHUBU Electric Power have increased their thermal power output capacity, while KEPCO has deepened dependent on nuclear power. KEPCO also seemed not to eager to upgrade thermal power facilities.

Breakdown of thermal power output capacity by fuel describes that liquefied natural gas is accounting for more than 60% of total thermal power generation capacity at TEPCO and CHUBU, while their old fashion petroleum-burning output capacity remains less than 30% of the total. But petroleum-burning output capacity is the biggest part for KEPCO's thermal power facilities.

Since very few petroleum-burn thermal power plants have been constructed in Japan after mid-1980's, more than half of KEPCO's thermal power units are aging facilities.

However, the poor thermal power output facilities is not only because of KEPCO. Japanese government has encouraged utility firms to develop nuclear power. Also global warming has pressured power companies to reduce carbon dioxide emission.

The reason why TEPCO has expanded its thermal power output despite such social environment was unexpected errors.
The company caused a scandal about faked maintenance records of nuclear power plants. After the revelation of the scandal in 2002, TEPCO's executives were forced to resign and its all nuclear power units were forced to shut for examination.

Then a heavy earthquake in central Japan in 2007 forced TEPCO's Kashiwazaki-Kariwa nuclear power plants to shut for long period.
Because of these serious nuclear power supply shortage, the company has been keen to secure alternative power supply sources.

CHUBU scrapped two reactors at its Hamaoka nuclear power plant in 2009 as there was no economic reason to spend huge amount of money to strengthen those old facilities. Since the company has no spare location to build fresh nuclear plants, it has increased thermal power output capacity.

In contrast to those, KEPCO has not had serious problem over its nuclear plants. The above chart shows KEPCO's stable nuclear power supply compared to TEPCO.
KEPCO seemed not to feel the TEPCO's scandal as their own affair because the company uses pressurized water reactor different from boiling water reactor which is used by TEPCO and CHUBU.

Seven out of the total 11 reactors owned by KEPCO are old facilities that started operation in 1970's. Their useful lifetime had finished long time ago. However, extending was not difficult supported by overconfidence over the safety of nuclear power plants. It was not only cost efficient compared to building new thermal power plants but was thought useful for global warming issue.

Over 40 years old reactors, however, are likely to be abolished as well as Hamaoka. Extending further to 50 years and 60 years without recognizing the aging is not realistic, especially in the earthquake-prone area like Japan.

Thus considering to build advanced thermal power units and new fuel unloading facilities is urgently required for KEPCO. Possible growth of electricity demand and troubles over aged thermal plants may urge it. But open discussion about such direction is not heard much.

Tokyo electricity demand does not show clear recovery

Electricity supply in the Tokyo metropolitan area in eastern Japan rose only 1.2% from a year ago in May at 21.6 billion kilowatt-hours, according to the Tokyo Electric Power Company. The amount was lower by 7.7% compared with May 2010. Supply in April was 22.1 billion kWh, up 6.1% on year but down 10.8% from the same month in 2010.

Although eastern Japan is under recovering from the severe earthquake in March 2011, current electricity demand remains lower than the same period in 2010 level. It is even lower than 2009 when post-Lehman shock economic slowdown depressed energy demand.

TEPCO says electricity demand in the Tokyo Metropolitan area during May was maximum 88% of its supply capacity, and no sign of supply shortage was seen. The company expects its electric power supply facility is likely to keep 7.7-7.9% of spare capacity in coming summer. It could maintain 4.5-4.8% of spare capacity even in the heat wave case.

TEPCO has lost 3.8 million kilowatts supply at Kashiwazaki-Kariwa nuclear power plant it had in the last summer, while the company has raised thermal power and hydroelectricity capacity urgently. Its total electricity supply capacity seems to add 3 million kw compared to last August.

Meanwhile, pace of recovery in electricity demand in the eastern Japan area remains slow. TEPCO has rushed to set up new gas-turbines fueled by gas oil and natural gas after the earthquake. However, its current usual supply capacity of about 40 million kw without nuclear power generation seems not enough to support steady recovery of electricity demand.

No one knows how long TEPCO has to keep shutting its nuclear power plants. On the other hand, there is no open discussion on constructing new big thermal power plants or new liquefied natural gas unloading facilities in order to replace with nuclear power. Thus growth of electricity power supply in the metropolitan area seems to be gradual for long period.
Of course, possible global recession might prevent the region's electricity demand from steady recovery.