China keeps steady crude oil imports

Chinese crude oil imports in February rose 10.9% on year to 6.03 million barrels per day, according to the General Administration of Customs. The country's crude oil imports have increased by two digits from a year ago in three consecutive months.

The February's import figures were 18.1% lower than the previous month when scored the record high of 6.65 million bpd. But still remained above the 6 million bpd level.

The average crude oil imports during January and February rose 11.5% from the same period a year ago to 6.36 million bpd.

In February, China recorded the first trade deficit since March 2013 due to the slump of exports. The amount of processing trades in the month also slipped to the lowest level since February 2011. Those data suggest that industrial activities in China is slowing down.

China, however, maintains steady crude oil procurements. The country seems to be optimistic for the near term energy demand.

On the other hand, commercial crude oil stockpile in China as of the end of January had increased 3.6% from a month ago. It was the first increase since September 2013. It is also possible that the Chinese petroleum industry only began to stockpile toward the summer.

Slump in car sales depresses Indian oil demand

Crude oil processed in India fell 4.5% on year to 4.43 million barrels per day in January, according to the Ministry of Petroleum and Natural Gas. It was the fifth consecutive month of year-on-year decrease.

However, Indian electricity supply in the same month rose 5.7% from a year ago, recorded seventh months consecutive increase. Entire energy demand in the country seems not shrink.

The cause of the slowing down of petroleum demand in India is estimated to be the slump in automobile sales.

Indian passenger car sales in 2013 fell 9.6% on year to 1.81 million units due to rising fuel prices and high interest rates. It was the first annual sales decrease since 2002.

Passenger car sales in January also slipped by 7.6% from a year ago to 160,289 units, according to the Society of Indian Automobile Manufacturers. Consumers in the nation are very reluctant to buy cars.

The sluggish petroleum demand in India, however, is unlikely to depress the global crude oil market, since estimated main part of the near term growth of world petroleum demand has already shifted from the emerging market to advanced nations.

Half of Japan's thermal power capacity exceeds useful life

Japanese people are discussing about the resumption of nuclear plants after the result of last week's Tokyo gubernatorial election and the Chubu Electric Company's application for a state safety assessment of the No. 4 unit at its Hamaoka nuclear power plant.

Fears of electricity supply shortage encourage people who support the resume of nuclear units.
Kansai Electric Power Company has been spending the first high electricity demand season without nuclear units. Although the company had expected a very severe situation, its spare supply capacity has been secured enough. KEPCO's spare capacity slipped below the 8% of stable level only once since the beginning of this winter. Meanwhile, Tokyo Electric Power Company's spare capacity has dropped below 8% four times in this season. However, both two major power companies have not recorded less than 5% of spare capacity.

One of the major reasons why Japanese utility firms have avoided the critical situation is declining electricity demand in the country. Efforts of saving power and changes of industrial and social structures have cut Japan's power consumption. Electricity demand in the nation basically has shown year-on-year decrease after the severe earthquake in March 2011. The tendency is likely to continue.

On the other hand, people who request the resume of nuclear units often mention about the overuse of aging thermal power units.

Utilization rates of thermal power units by Japanese electricity companies have increased from around 40% to about 60%. It rises toward 70% during the high demand season.

Generally speaking, the 60% utilization rate is not much high. But thermal power units in Japan had been used to make up the demand gap between day time and midnight. Therefore, power companies do not have enough system to maintain high utilization rates at thermal power units for long hours.

Moreover, thermal power units that account for about half of entire thermal power generation capacity in Japan have more than 30-years age. Units that account for 20% of the total capacity have more than 40-years age. Those units seem to have exceeded their useful life.

The serious power supply shortage caused by accidents at thermal power units might be seen in Japan in the near future. Power companies need to replace their aged thermal power units urgently or to resume nuclear units.

Will US petroleum exports rise further?

Petroleum exports by the United States posted another record high in December. Petroleum exports from the country have renewed historical records frequently in the past several months.

Petroleum exports and domestic crude oil production in the U.S. show steady upward trends apparently in contrast with the shrinking of petroleum imports.

The petroleum demand in the U.S. has peaked out in mid-2000s. Meanwhile, increasing domestic crude oil production that is boosted by the shale revolution has reduced crude oil imports into the U.S. and made the region’s crude oil prices cheaper than international markets. Lower crude oil prices led U.S. petroleum products exports more competitive.

However, petroleum demand in the U.S. has been recovering since the second quarter of 2013. The U.S. Energy Information Administration forecasts that the country's petroleum demand could be firmer towards the end of 2015.

Keystone pipeline has started operation of its extension part towards the Gulf of Mexico, it is likely to ease the high crude oil stockpile level in the U.S. Midwest. The discount of the U.S. crude oil against the European benchmark is also expected to shrink.

Therefore, EIA does not predict that the U.S. will export petroleum at far above 2 million barrels per day level over the next 2 years. Further breaking record of export might not be seen in the near future.

In the U.S., the cancellation of crude oil export ban is being discussed aggressively. The country has prohibited export of domestic produced crude oil since 1975. But current supply and demand situation suggest that crude oil export might not begin significantly even if the U.S. government lifts the ban.

On the other hand, the resume of crude oil export may push U.S. crude oil prices up towards international prices. It could accelerate conversion of energy use to natural gas in the country.

China's shale gas production is surging, but...

Chinese National Energy Bureau expects that the country will produce 1.5 billion cubic meter of shale gas in 2014. It is more than 7 times amount of last year's production. China only produced 25 million cf of natural gas in 2012, but the current rapid growth of production is likely to raise the output to 6.5 bcm in 2015.

However, the growing shale gas output is still ignorable levels, since total natural gas production in China was 107 bcm in 2012. Shale gas production in China can not make up for the slowing down of total gas output.

In the United States, shale gas production already accounted for 35% of total natural gas supply in 2012.

In China, the growth of conventional gas production is not able to catch up with the increase of consumption. In addition, the growth of shale gas output is not enough. Therefore, imports are surging especially in 2010s.

But China's annual natural gas imports were equivalent to 3.2 million tonnes of liquefied natural gas in 2012. Japan imported 87 million tonnes of LNG in the same year. The huge difference suggests that severe competitions between China and Japan over the procurement of natural gas are unlikely to be seen in the near future.

Japan's power demand is shrinking despite economic recovery

Total electricity supply in 2013 by Japanese 10 major utility companies fell 1.9% on year to 917 billion kilowatt-hour, according to the Federation of Electric Power Companies. It was the third consecutive year-on-year decrease. Last year's Japanese electricity demand was even lower than 2009 when economy recession following the Lehman shock significantly depressed the country's power consumption.

Japan's monthly industrial production index have increased by about 5% from a year ago since September 2012, however, the country's electricity demand has sunk by about 1% on year during the same period. Japanese electricity demand continues to shrink even in the economic recovery period, since users are trying to improve efficiency and optimization.

On the other hand, use of liquefied natural gas for thermal power in Japan is increasing because all nuclear units have been shut again since October 2013. Although higher coal-burning and weaker electricity demand had cut the nation's LNG consumption for thermal power by 4.0% on year in the first half of 2013, the recovery in the second half eased the decrease to 0.9% on year for the full year of 2013. Moreover, LNG consumption by Japanese power companies reached the record high at 5.27 million tonnes in December 2013.

Meanwhile, petroleum consumption by power companies in 2013 slipped 22.8% from a year ago to 413,000 barrels per day. Power firms seems to try reduce utilization rates of aging petroleum-burning thermal power units.

LNG prices in Japan are not reasonable compared to coal and petroleum. International coal prices have decreased since early 2011, while current Asian LNG prices are even higher than the price rally in 2008 because of the steady demand from Japan.

Chinese power companies enjoyed record profits thanks to weaker coal prices in 2013. Meanwhile, strong LNG prices have hurt Japanese power companies profit structures and are pushing up regional electricity prices.

Japanese power firms are trying to improve thermal efficiency of power units in order to reduce LNG consumption. Nevertheless, Asian LNG prices are unlikely to start declining until massive supply from the north America will begin in late 2010s.

Crude oil prices could be weaker during 2014

NYMEX crude oil futures fell back from above $100 per barrel at the beginning of year 2014. How will prices move in the crude oil market through this year?

Crude oil prices are fluctuating with being stimulated by various factors in the short term, however, long term movements are eventually affected by the supply and demand situation. A supply shortage usually lifts prices, while the surplus tendency depresses the market.

Global petroleum supply and demand balance is forecasted at a little bit surplus during the first half of 2014 and predicted to turn into a shortage by 0.5-1.0 million barrels per day in the second half of the year, according to the latest energy outlook issued by the United States Energy Information Administration.

EIA expects WTI crude oil prices could move about mid-$90/bbl through the year. But prices might stay at the lower $90/bbl level in the first half and rise to above $100/bbl in the second half, if the supply and demand balance follows the institute's prediction.

Organizations other than EIA  like the International Energy Agency and the Organization of Petroleum Exporting Countries also forecast steady growth of petroleum demand in 2014. Meanwhile, they predict stronger increase of petroleum supply from non-OPEC producers. Therefore, needs for OPEC crude oil are expected to be below the 30 million bpd of production quota during 2014.

Since recent total crude oil production by OPEC member nations are estimated at the middle of 29 million bpd level, the world petroleum supply and demand could be balanced if OPEC keeps output at the current level.

However, Libya might be the uncertain factor. In the north African country, labour disputes and unsatisfied militia or tribes have occupied ports and oil production facilities over the past several months. Libyan crude oil production has declined from about 1.4 million bpd to near 200,000 bpd because of such sabotage.

A resume of supply from Libya is likely to affect the global petroleum supply and demand balance significantly. On the other hand, expectation for the lifting of sanctions on Iran is an another uncertain factor. International sanctions against the Islam republic has cut the nation's crude oil output by about 1 million bpd.

The total loss from the two countries is about 2.4 million bpd, however, increased supply from Saudi Arabia and Iraq has completely filled the shortage. The current sum of crude oil production by the four countries is actually higher by about 200,000 bpd than that in early 2009.

Even a part of resumption of crude oil supply from Libya or Iran could loosen the global petroleum supply and demand balance visibly and depress the world crude oil prices.