Hybrid cars are reducing Japanese oil demand

Crude oil processing by Japanese refineries in the week ended on 19 October fell 6.1% on year to 2.93 million barrels per day, according to the Petroleum Association of Japan. It was the second consecutive year-on-year decrease following the previous week.

Since Japanese refineries have planned to cut crude oil processing in the fourth quarter of this year, recent lower refinery runs are not surprising. However, although Japanese refiners have set lower processing plans since the beginning of this year, their actual output was higher than previous year levels between June and September. Recent figures seem to show a slowing of the demand recovery.

One of major reasons why Japanese refineries are not aggressive to process crude oil is the sluggish domestic gasoline demand. Gasoline accounts for nearly 30% of the total demand of petroleum products in Japan. Refiners become to be not able to ignore an accelerating diffusion of fuel-efficient vehicles like hybrid cars.

Hybrid vehicles accounted for only 0.5% of the total registered cars in Japan as of March 2007, but its market share rose to 4.2% as of March 2013. On the other hand, about 15% of monthly manufactured passenger-cars are hybrid vehicles currently.

The total numbers of manufacturing cars and registration in Japan are decreasing, while the supply of hybrid vehicles is steady. Therefore, gasoline demand in the country is under the downward trend basically. Even if monthly gasoline demand rises on year, it is likely to be a rebound from slump in the previous year.

A slowdown of fuel oil consumption also discourages Japanese refineries. Fuel oil accounts for about 15% of the total petroleum products demand in the nation. Monthly demand of the product has recorded more than 20% of year-on-year decreases since March this year.

The nationwide power saving has suppressed the electricity demand in Japan after the severe earthquake in March 2011. Although entire nuclear power plants in the nation are shut, any significant shortage of electricity supply has not been reported. An urgent fuel oil demand for power generation due to the nuclear plants shutdown is going to end in line with expanding gas turbine and coal-burning power generation facilities.


Energy demand suggests China's economy slow down

Chinese Gross Domestic Product during the third quarter recorded the highest growth since Q4 2012. Although the crude oil market is supported by the optimistic forecasts against the petroleum demand in China, a recent slump in energy demand in the nation suggests the economy slow down in the near term.

The industrial production index in China rose 10.2% from a year ago in September, according to the National Bureau of Statistics. It was the second consecutive double digits growth following August. Meanwhile, the country's power generation and petroleum demand were slowing down in the same month. Especially, crude oil processing posted a year-on-year decrease for the first time since June 2012.

Energy demand in China had continued to increase during the second half of 2012 when the nation's economy showed a certain recovery. However, energy consumptions are stalling already in this year. The change could affect the economic growth in the near future. If the energy demand can not recover, China is not likely to record the strong economic growth like last year.

The following chart shows supply and demand of crude oil in China. Since the government has not released the September's domestic crude oil production yet, the chart estimated it as the same level as August.

The total crude oil supply of net imports and domestic production have exceeded the 10 million barrels per day level recently. On the other hand, crude oil processing had exceeded the key level between November 2012 and February 2013, but has been sluggish after that.

Automobile production in China rose 15.3% from a year ago in the first nine months in this year, compared to the 6.3% on year increase during 2012. The recent sluggish total demand of petroleum despite the stronger gasoline consumption suggests a significantly weak diesel demand from the transportation sector and a slump in fuel oil use by the manufacturing sector.


Why Chinese crude oil imports are surging?

China imported 25.68 million tonnes or 6.27 million barrels per day of crude oil in September, according to the Customs General Administration. It was 27.9% higher than a year ago and renewed the historical record.

The country's monthly crude oil imports were sometimes below the previous year level during the first half of this year, since China stored crude oil into newly built strategic reserve facilities in the first several months in 2012. But the monthly import figures have scored double digits growth in the last three months.

Meanwhile, commercial crude oil stocks as of the end of August were 9.7% higher from a month ago, according to the Xinhua News. The record high import level in September could have caused a further significant increase of Chinese crude oil stocks.

Although stocks of petroleum products in China as of end-August decreased 5.3% from a month ago, it was still 8.5% higher from a year before. So it seemed that Chinese refineries were not strongly required to build product inventories so much during September ahead of long holidays in early October.

However, China's industrial production index rose 10.4% on year in August, it was the first double digits growth since last December. Refineries might have started securing crude oil inventories on expectations of further steady petroleum demand from the industrial sector.

Chinese refineries usually set the annual highest crude oil processing during the 4th quarter and the following year's 1st quarter. The country's crude oil processing exceed 10 million bpd between November 2012 and February 2013, but it has recently been decreased to the 9 million bpd level first half. The higher crude oil imports could suggest beginning of another round of growth of crude oil processing towards the end of this year.


East Asia may compete with ASEAN for LNG purchase

Japanese liquefied natural gas imports previously had been deeply relied on Southeast Asia. The nation imported more than 70% of LNG from Southeast Asian countries like Indonesia in 1990s, but the dependency is decreasing. Increased spot purchase from the various areas reduces Southeast Asian share in Japanese LNG imports to about 30%. Japan's LNG imports have surged due to the nuclear plants shutdown following the severe earthquake in March 2011. Recently, monthly supply from the Southeast Asia region is sometimes below the imports from the Middle East.

LNG outputs in the Southeast Asia area are expected to increase by about 20% from the current level during the next couple of years due to installing new facilities, according to the International Energy Agency. After that, however, LNG supply in the area is likely to be capped, while the natural gas demand in the region is forecasted to grow steady. Therefore, net LNG exports from Southeast Asia are seen to be declining for the long term.

According to the plans on future LNG development in the area, 5 supply facilities are planned to be build, but the total number of LNG reception facilities that will be constructed are 10. Demand side is twice than the supply side.

The petroleum balance in Southeast Asia is currently net imports by 2 million barrels per day despite the region was the oil supplier previously. Indonesia withdrew from the Organization of Petroleum Exporting Countries in 2009. In the future, the region is expected to be a net consumer of the other energy resources as well.

Forecast on Southeast Asian energy demand by the IEA is based on the prediction about economic growth in the region. The average annual growth of gross domestic products during 1990 and 2011 in the region was 5.0%. It is expected to be 5.5% in 2010s and forecasted to be 4.1% between 2020 and 2035. If more than expected manufacturers move from China into Southeast Asia, the economic growth rate might be changed.

East Asian nations like Japan had relied on LNG supply to Southeast Asia, but the two regions may become to compete for LNG procurements from the North America or the Middle East.