Credibility of Chinese petroleum statistics

Chinese statistics have been suspected for long. Recently, the nation's trade statistics were reported to be significantly padded.

Regarding the petroleum statistics, National Bureau of Statistics and General Administration of Customs announce previous month's data on around 10th day of every month. Those figures also have been suspected how reflect real industrial movements since the monthly release timing is too early.

On the other hand, National Development and Reform Commission and Xinhua News are releasing other petroleum related data on after 20th every month.

The below chart compares monthly crude oil processing data released by NBS and NDRC. NBS's data always exceed NDRC's numbers, but the tendency of both figures are similar.

However, the difference between both numbers widened from about 800,000 barrels per day in early 2012 to 1.36 million bpd in December. After that, the difference has shrunk to about 600,000 bpd in May this year. NBS's data in the 4th quarter 2012 seemed to be padded.

Estimated monthly change of crude oil stocks that was calculated based on customs data and NBS's figures is not match with Xinhua News data, as well.

China's crude oil inventories were increased significantly in April and May 2013 according to data by customs and NBS, but Xinhua News data do not show such change.

Since statistics data often do not match by the difference in announcement agency in many countries, tendency is more important than each figure. However, no one can trust data that are unsure how sloppy.

Japan's electricity demand falls lower than just after quake period

Electricity supply in Japan fell 0.8% from a year ago in May to 68.5 billion kilowatt-hour, according to the Federation of Electric Power Companies. Electricity supply in the country has decreased on year in the past five consecutive months. Since power demands in spring and autumn are not affected by heat wave or chilly weather, lower electricity demand in these seasons suggests fundamental slump.

Japanese electricity demand in April and May this year were also lower than that in the same period in 2011, when severe earthquake damaged many power generation facilities and turmoil in transportation system depressed industrial activity across the country.

Petroleum consumption for thermal power generation by Japanese 10 major utility firms fell 24.9% from a year earlier in May to 347,000 barrels per day, while use of liquefied natural gas decreased 4.5% on year to 4.21 million tonnes. Petroleum consumption has decreased by more than 20% on year in the past four consecutive months.

Indicators of industrial trends such as Industrial Production Index have been recovering since late last year. However, electricity demand does not follow the movement recently. Although both industrial production and electricity demand are used for calculation of business coincident index in Japan, current electricity demand seems not to reflect the industrial trend due to extreme power saving.

China energy use turns steady, but not enough to lift economy

China's crude oil imports fell 6.0% on year to 5.66 million barrels per day in May, according to the Customs data. Meanwhile, the nation's crude oil processing in May rose 2.4% from a year ago to 9.23 million bpd, according to the National Bureau of statistics.

China's crude oil imports in the first five months in this year were 2.0% lower than a year ago, however, previous year's import figures included about 400,000 bpd of strategic reserve. If compare imports figures excluding the strategic reserve, Chinese crude oil imports in Jan-May could be about 6% higher on year.

Crude oil processing in China has slowed down this year from the strong growth in the second half of 2012. But recent growth rates are relatively steady than the average rate during mid 2011 and mid 2012. Growth of electricity generation is also recovering compared to the previous year's level.

Slow down of Chinese energy consumption seemed to have bottomed out in the second quarter of 2012. Currently growth of energy use is recovering. On the other hand, Chinese industrial production in May only rose 9.2% on year, it was the lowest growth since August 2012. Processing trades in the month was 4.4% lower from a year earlier, as well.

Although energy consumption shows rebounding, industrial activities are sluggish. Less than 5% growth of energy consumption is unlikely to sustain steady economic growth in China.

China's commercial oil inventory is low

China's May official Purchasing Managers Index rose 0.2 percent points from a month ago to 50.8 despite market players expected below 50 figures. The nation's economic growth seems to be recovering especially in manufacturing sector. Recent uncertain forecasts for Chinese economy might be eased.

However, if Chinese economy shows steady growth, current low commercial petroleum inventories might not be able to meet energy demand.

China's crude oil inventories excluding strategic reserves as of end of April inched up 0.1% on month, while petroleum products inventories fell 3.3% from a month ago, according to Xinhua News. Although Xinhua does not supply actual inventory figures, end-April crude oil stocks were estimated at 3.8% lower than a year ago level based on calculation by previous monthly changes. Petroleum products inventories were estimated 4.8% lower than a year earlier. Products stocks have decreased year-on-year in the past 3 consecutive months.

Chinese crude oil inventory is usually reach the annual peak in the third quarter, then decreases to the bottom in the early next year. Petroleum products inventories, on the other hand, hit the bottom in autumn and increase to the peak towards next year's Lunar New Year holidays.

Crude oil processing in the first half of 2012 was in slump, therefore crude oil inventory rose above 32 million tonnes. Then inventories had decreased significantly, since processing rebounded sharply in the later half on the year. Crude oil supply (domestic production and imports) exceeded processing in only four months during July 2012 and April 2013. In rest of months, volume of crude oil processing exceeded supply.

Growth of petroleum inventories during the period was relatively lower than processing. Petroleum products stocks as of end-February 2013 fell 3.9% on year. It suggests that shipments of petroleum products in China were steady between mid 2012 and early 2013. That is match with the fact that Chinese PMI has exceed 50 over the past eight months.

However, growth of Chinese apparent oil demand is seen shrinking. The apparent demand in 4Q 2012 was 7.8% increase on year, then it was 4.2% growth from a year ago in 1Q 2013, according to Platts. But the growth rate was only 2.1% on year.
The PMI figures in the latest few months are even higher than Q4 2012. Actual energy consumption and business confidence seem to have gap.

Petroleum demand for thermal power in Japan is shrinking

Petroleum consumption for thermal power by Japanese ten major utility firms fell 24.7% to 1.78 million kiloliters or 374,000 barrels per day in April, according to the Federation of Electric Power Companies. It was the fourth consecutive months decrease and monthly declines have exceed 20% since February.
Warm weather seemed to reduce electricity demand in February and March, but lower demand in April looks serious situation.

Total electricity demand in Japan has decreased on year in the first four months in 2013, while nuclear power supply is rebounding on year since March. Therefore, demand of thermal power declines further.

Petroleum fuel usually suffers the biggest influence when thermal power demand decreases.
Use of petroleum, which includes crude oil and low sulphur fuel oil,  by ten major utility firms was peaked at 734,000 bpd in February 2012. Then the maximum consumption during the last summer was 559,000 bpd in August and the maximum demand in the latest winter was 629,000 bpd in December. Petroleum consumption for thermal power is in a downward tendency clearly.

Domestic weekly supply of low sulphur fuel oil has decreased by more than 10% since early April, according to the Petroleum Association of Japan. Declines in the latest three weeks were 40-60% from a year ago.
On the other hand, exports of low sulphur fuel oil, that had been stopped after September last year, are resuming in the latest six weeks. It suggests that domestic fuel oil market is still overflowing despite the decreasing supply.

Positive anticipation is expanding on Japanese economy recently, however, it is still unclear when energy demand begins rebound.
Electricity supply by Tokyo Electric Power Company fell 1.5% on year in the first half of May. It suggests that the company's power supply may continue to decline in this month.

LNG may be oversupply 10 years later

The United States will be a net Liquefied Natural Gas exporter after 2020, according to the Annual Energy Outlook 2013 by the US Energy Information Administration.
Massive LNG supply is expected in the future, while exports from the North America is still unlikely to be remarkable within the coming several years.

Traditional natural gas production in the US had peaked out below 20 trillion cubic feet at around 2000. Natural gas production has boosted by the shale revolution over the past several years following the declining until 2005. In 2011, the nation's natural gas output recorded 7.8% on year growth.

Although US gas production and consumption are forecasted to slowdown in 2013 and 2014, subsequent outputs are expected to exceed consumptions by about 1 percent point every year. The US currently imports 1.7 trillion cf per annum of natural gas, but it will turn to exporting country in 2020.

LNG is likely to be the main export. Currently the US re-exports imported LNG, however, it is scheduled to start exporting domestic sourced LNG in 2016. The nation's LNG exports is expected to grow to 1.6 trillion cf by 2027. Since total net natural gas export by the US is forecasted at 2.04 trillion cf in 2027, LNG will account for nearly 80% of total gas exports.

1.6 trillion cf of LNG is equivalent to 78 million tonnes.
Japan imported 8.73 million tonnes of LNG in 2012, while before the severe earthquake it imported 70 million tonnes in 2010.
The new US supply could cover almost 90% of Japanese LNG demand in the state in which to stop nuclear plants.

Since about one-half of US LNG exports will come from Alaska, it is apparent that the nation aims to develop the Asian market.

Current LNG prices in the North America is below $5 per million British Thermal Unit. The ample supply depresses natural gas prices in the region significantly. Meanwhile, LNG prices in the Europe are about $10 per mbtu. Europe is supplied natural gas both from Russian pipelines and Middle Eastern LNG. Asia doesn't have enough pipeline gas supply, so the region is depend on LNG supply from the Middle East, Southeast Asia and Australia. Prices in the area is about $15 per mbtu. Then prices in South America where is far from main LNG suppliers are the most expensive.

The big price gap makes people to think there is a enough business opportunities. However, consuming countries will also have to construct sufficient facilities to accept the massive new supply. Otherwise, large volume of LNG cargoes may flood in the market like current North American natural gas.

Demand in Asia, of course is expected to grow. But China seems not to convert existing coal-burning thermal power plants to gas-burning facilities broadly, because of the economic rationality.

Japan's imported LNG price in March was about 80 thousand yen per tonne, according to the Customs data. It is equivalent to 11.7 yen for the volume to generate 1 kilowatt-hour of electricity. Meanwhile, coal price was 3.5 yen and fuel oil price was 14.7 yen as well.

Even if massive supply from the North America depress the Asian LNG prices, the price level might not drop below European prices significantly. But LNG prices should decline to the current US price level in order to compete with coal prices.

Cushing inventory no longer influence Brent premium

Brent premium to WTI crude oil has narrowed from above $23 per barrel in February to around $10/bbl recently. The narrower premium despite high crude oil inventory levels at Cushing Oklahoma suggests that impact of the crude oil stocks level on prices is declining.

Since West Texas Intermediate crude oil has higher quality than North Sea Brent crude oil, WTI prices were expensive than Brent previously. But ample crude oil supply in North America has pushed up Brent prices more than $10/bbl over WTI regularly since 2011.

Brent premium to WTI had moved between minus $10 and plus $10 before 2011 in step with the increase and decrease of Cushing crude oil inventory.

The correlation coefficient between the Brent premium and the Cushing inventory since 2007 is 0.69, a strong correlation. However, the coefficient after March 2012 becomes -0.27, a slight inverse correlation.

Recent Cushing inventory level reaches to 80% of the regional crude oil storage capacity. Slight change of inventory level seems not to influence on prices significantly under the saturation situation of crude oil stocks.

Reversal of Seaway pipeline is an another factor of the lower correlation between Brent premium and Cushing inventory.

The pipeline has started reversal of crude oil transportation from US Midwest to Mexican Gulf in May last year. About 150,000 barrel per day in the beginning and expanded to 400,000 bpd in January this year, then it is scheduled to add another 450,000 bpd in 1Q 2014. The transport capacity will be 850,000 bpd in total.

The pipeline, however, seems not carrying large volume of crude oil into the Mexican Gulf area now, since the Cushing inventory stays at high level.

Even though the pipeline is not operated under full capacity at moment, it is able to reduce Midwest crude oil stocks immediately if conditions apply. Therefore, crude oil stocks in the US Midwest and Mexican Gulf should be regarded as one unit. Brent premium is not decided only by the Cushing inventory.