US LNG exports become zero

Liquefied natural gas exports by the United States have declined to nearly zero. The U.S. has been a net LNG importer, while the nation is re-exporting exceeded LNG cargoes. But the change in the LNG trade structure has become remarkably.

LNG imports had increased in the U.S. in line with the rising natural gas consumption during the first half of 2000s. However, surging domestic gas production due to the shale revolution has oppressed LNG imports after 2010.

Since LNG prices are two-three times higher than pipeline supplied natural gas in the U.S., demand for LNG is shrinking. Average monthly LNG imports was 35.9 billion cubic feet in 2010 but slipped to 14.6 bcf in 2012. The average import figures have declined to 8.6 bcf in the first eight months in 2013.

Monthly volume of re-export LNG has also decreased from 5.4 bcf in 2010 to 2.4 bcf in 2012. The average in the first eight months in 2013 was only 15 million cf.

The change in the U.S. LNG trade structure seems to be the final phase toward the really net exporting country.

The U.S. government is aggressively giving approval of LNG exports to countries that have not signed on the Free Trade Agreement. Five LNG export projects have been granted approval. Four of the five projects were approved after May this year. Total supply capacity of the five projects is 7.8 bcf per day, or 58 million metric tonnes per year.

Sabine Pass project in Louisiana that was the first approved in 2011 is scheduled to start shipping of 2.2 bcf/d LNG in late 2015. Four other approved projects are also expected to start operations in 2017 or later.

Further 29 projects are under review by the Department of Energy. Total supply capacity of 34 projects are estimated at 34.1 bcf/d or 2,560 million tonnes per year. The total volume of globally traded LNG during 2012 was 31.7 bcf/d. The U.S. will have more supply capacity than it in early 2020s.

Oil demand forecast for China is declining

China has been the world's largest fossil fuel importer, since the Unites States is reducing energy imports following the shale revolution. China is recognized as the biggest engine of the growth in global petroleum consumption over the past several years. However, long term outlooks against the nation's oil demand are downgrading. It might suggest a change of the situation.

The latest outlooks of the global petroleum demand until 2025 was downgraded from the previous forecast in the World Oil Outlooks issued by the Organization of the Petroleum Exporting Countries. Meanwhile, forecasts against 2030 and later were upgraded.
Basically, oil demand in advanced nations were downward revised throughout the entire period, while demand in developing countries were upward revised. But Chinese demand was downgraded broadly unlike with other developing nations.

On the other hand, forecasts against growth of Chinese petroleum demand during the two decades until 2035 was wider than the previous year's prediction. It shows that the downward revision against the relatively clear forecasts of near future was deeper than the ambiguous prediction of far future.

In the long term, a core of the growth of oil demand is likely to shift from China to India and Southeast Asia etc.

Chinese crude oil demand rises towards year-end

Chinese refineries processed 9.71 million barrels per day of crude oil in October, according to the data released by the National Bureau of Statistics. It was 3.1% higher than a year earlier and 2.9% increased from a month ago. Although crude oil processing in China slipped from a year ago level in September, it rebounded to the highest level since March.

 Meanwhile, China's crude oil imports in October fell 13.8% on year to 4.82 million bpd, according to the customs data. Since net crude oil imports in the month was 4.80 million bpd, the gap between the amount of processing was 4.91 million bpd. The shortage of supply was filled up by domestic production and the supply from inventories. Domestic crude oil production in China was averaged at 4.16 million bpd during the first nine months of 2013, meanwhile, crude oil stock in the country had increased by 11% during August and September.

The Chinese government announced that the country's industry production index rose 10.3 on year in October, it was the third consecutive double digits of year-on-year increase. Electricity generation in the nation rose 8.4% on year, automobile production surged by 25.5% from a year ago and ethylene output rose 16.9% on year. Those figures suggest a steady petroleum demand in China.

Petroleum inventories in China have a tendency that the crude oil stock hits the peak during the third quarter and the petroleum products stock sinks to the annual bottom in the same period. To the contrary, the inventory of crude oil falls to the bottom in the first quarter and the products stock rises to the annual highest level in the same period.

If the similar circulation will be repeated in the near future, crude oil processing in China could increase towards Q1 of 2014, and inventories of petroleum products are likely to rise. However, the petroleum products stock level in Q3 of this year was 6.1% higher than a year ago, it was a much larger increase than the crude oil stock level that was only 2.4% higher from the last year. A slower than expected consumption of petroleum products during the first nine months of this year might be caused such situation.

Chinese refineries increased their crude oil processing to above the 10 million bpd level during November 2012 and February 2013. Chinese industries seemed to decorate the strong economic growth at the beginning of the new Xi Jinping's administration. If Chinese refineries try to increase their crude oil processing at higher than the previous year's level in the coming several months, the already high petroleum product stock might surge to the critical level. Chinese oil companies could suffer the significant write-down if crude oil prices fall further.

Supply disruptions do not support crude oil market

Recently Reuters reported its survey that 12 members of the Organization of Petroleum Exporting Countries produced 29.9 million barrels per day of crude oil in October. It was the lowest output since October 2011.  Beside this survey, other estimates by different media also have showed low OPEC productions.

A supply disruption from Libya due to labour disputes and a slower than expected recovery in Iraq that reduced supply in September due to repairs at its shipment facilities were seen as the main reasons of the low OPEC production.

The following table shows the latest forecasts of the world demand and supply of petroleum issued by the International Energy Agency, OPEC and the U.S. Energy Information Administration.

Since IEA and OPEC don't provide forecasts for OPEC crude oil production figures, differences between the global demand and the supply excluding OPEC crude oil are seen as the necessary volume of OPEC crude oil.

Necessary volumes of OPEC crude oil will remain below the 30 million bpd level between the fourth quarter of 2013 and the end of 2014, according to the IEA's prediction. Therefore, even the lowest estimation of OPEC production in October by media exceeds the necessary volume. The global petroleum market is slightly oversupply.

Meanwhile, OPEC predicts that its members' necessary crude oil output in the 4Q of 2013 at 30.49 million bpd. If the actual production in October stayed at about 30 million bpd, the global supply is in a little bit shortage.

EIA only provides forecasts for future OPEC crude oil production, but the figures seem to be too small compared to actual output in the last few quarters. If the actual output in October was at about 30 million bpd, the global petroleum supply and demand could be balanced rather than a shortage of 630,000 bpd as EIA expected.

Despite OPEC and EIA expect tight supply and demand situation in the world petroleum market, recent crude oil prices have been weaker. Although crude oil output in Libya has decreased by more than a million bpd from the production level through the first half of this year, it does not support the market well.

Crude oil supply disruption from Libya triggered the surge in the crude oil market in 2011. However, a balance of petroleum supply and demand in the North America was about 7 million bpd at that time. The region had imported that much petroleum from the overseas. But the shortage have been shrinked to below 4 million bpd due to the shale revolution. Petroleum imports in the North America region are expected to decrease below 2.5 million bpd in late 2014.

More than 3 million bpd of crude oil from the Middle East and Africa has lost the North American market and spilled out towards the other markets. Thus the necessary of OPEC crude oil has been decreasing. Supply disruptions in Libya and Nigeria no longer are strong supportive factors for the crude oil market.

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.