China Oil and Gas Report Q3 2009

The latest China Oil & Gas Report from BMI forecasts that the country will account for 34.93% of Asia Pacific regional oil demand by 2013, while providing 45.17% of supply. Asia Pacific regional oil use of 21.40mn barrels per day (b/d) in 2001 reached an estimated 25.87mn b/d in 2008. It should average 25.79mn b/d in 2009, then rise to around 29.12mn b/d by 2013. Regional oil production was just under 8.41mn b/d in 2001, and averaged an estimated 8.41mn b/d in 2008. It is set to increase to 8.74mn b/d by 2013.

In terms of natural gas, in 2008 the region consumed an estimated 440bn cubic metres (bcm) and demand of 551bcm is targeted for 2013. Production of an estimated 364bcm in 2008 should reach 486bcm in 2013, but implies net imports easing from an estimated 76bcm per annum in 2008 to 65bcm in 2013. This is in spite of many Asian gas producers being major exporters. China's share of gas consumption in 2008 was an estimated 16.97%, while its share of production is put at 20.58%. By 2013 its share of gas consumption is forecast to be 19.93%, with the country accounting for 19.86% of supply.

In terms of the OPEC basket of crudes, the average price in Q109 was an estimated US$45.78 per barrel (bbl), down 13% from the US$52.51/bbl recorded during the previous three months. During the second quarter, there has been little change to our view of oil market developments. BMI is forecasting an average OPEC basket price of US$51.30/bbl, with the March gains being retained in April, before further recovery to a possible US$57.00 is seen by June. For 2009, we are still assuming an average OPEC basket price of US$52.00/bbl (-45% year-on-year). The BMI full year forecast implies Brent crude at US$53.73, WTI averaging US$54.90/bbl and Urals at US$52.66 for 2009.

For the whole of 2009, the BMI assumption for gasoline is an average US$56.89/bbl, with the price peaking at a forecast monthly average of US$64.75 in December 2009. The overall y-o-y fall in 2009 gasoline prices is put at 44.1%. For gasoil in 2009, the BMI forecast is for an average price of US$69.35/bbl, assuming a monthly high of US$94.48/bbl in December. The full-year outturn represents a 42.8% fall from the 2008 level. The monthly average jet fuel price is forecast to range from US$53.75 in February to US$96.76/bbl in December, proving an annual level of US$71.78/bbl. This compares with US$124.95/bbl in 2008.

Chinese GDP growth is now forecast by BMI at 5.6% for 2009, down from 9.0% in 2008. We are assuming 6.8% growth in 2010, 7.9% in 2011, followed by 7.6% in 2012 and 2013. While partly privatised, the oil and gas industry remains under state control with PetroChina, Sinopec and CNOOC charged with maintaining domestic production. We are assuming oil and gas liquids output of no more than 3.95mn b/d by 2013, although the country is expected to pump 3.90mn b/d in 2009. Oil consumption is forecast to increase by around 24.8% in 2008-2013, implying demand of 10.17mn b/d by the end of the forecast period. The import requirement would therefore be about 6.22mn b/d by 2013.

Between 2008 and 2018 we are forecasting a decrease in Chinese oil production of 2.63%. Crude volumes will peak in 2013 at 3.95mn b/d, then fall steadily to 3.70mn b/d in 2018. Oil consumption between 2008 and 2018 is set to increase by 47.47%, with growth slowing to an assumed 3.0% per annum towards the end of the period and the country using 12.02mn b/d by 2018. Gas production is expected to rise rapidly, from around 75bcm in 2008 to a possible 116bcm by 2018. With demand growth of 96.6%, this provides an import requirement rising to 30.6bcm - increasingly in the form of liquefied natural gas (LNG). Details of BMI's 10-year forecasts can be found in the appendix to this report, which provides global, regional and country-specific projections.

China still ranks seventh in BMI's updated Upstream Business Environment rating (just behind Malaysia and the Philippines), with a strong resource position being countered by a less impressive regulatory structure and substantial state involvement. The risk environment is also less attractive than for many Asian peers. Over the medium to long term, China has the capability to progress up through the rankings and claim a higher slot in the regional league table. The country is now ranked equal first with India in BMI's updated Downstream Business Environment rating, reflecting its status as a high-growth energy market with strongly positive population and demand trends, plus a low level of retail site intensity. This quarter it has a four-point lead over third-placed Singapore.