China's energy supply capacity is already excess?

Energy demand typically increases in the fourth quarter in China. A lack of petroleum supply caused severe turmoil in the Chinese society during the 4Q period in past two years.

However, similar supply disruption has not heard this year. Significant shortage of electricity supply capacity during demand seasons has also not been reported.

China has increased energy supply capacity since the beginning of the open and reform policy, and the adding capacity was soared in the latter half of 2000's. But the supply ability seems becoming excess already.

The following chart shows quarterly basis secondary sector industry gross domestic product and oil equivalent energy supply (crude oil processing and electricity output).

Sharp rises of GDP in the 4Q 2010 and 4Q 2011 compared to mild growth of energy supply suggest the cause of severe petroleum shortage in these periods.

Slight mismatch was also seen in 2Q this year due to the year-on-year decrease of crude oil processing during the period, but the market did not cause turmoil then.

Chinese refiners processed average 9.3 million barrels per day of crude oil during January-September this year, according to the National Bureau of Statistics. Refinery operating rates was estimated below 80%.

Chinese refineries kept their utilization rates relatively lower over the past couple of years because of unfavourable refining margins. However, the refining margin is recovering this year since the government has adjusted local petroleum prices more frequently.

Therefore, the slump in crude oil processing seemed to be caused by weak demand.
Year-on-year growth of Chinese industrial utilization rates has been below 10% since April.

China's crude oil processing capacity surged 44% between 2005 and 2010. Another 10% increase is estimated between 2010 and 2015 and further 16% growth is expected in the next five years after 2015.
But excess capacity could weigh on refiners operating costs if growth of demand is slowing.