Chinese energy statistics have long been considered at best somewhat unpredictable and at worst just flat out wrong. Huabin Lu is the president of 3-E Information Development & Consulting, and he tries to get them right.
Lu spoke to a small gathering Wednesday in New York under the auspices of the New York Energy Forum. He touted his connections "on the ground" as the basis for his statistics and projections. He didn't harp on the fact that Chinese energy demand is growing; that's old news. What he looked at instead was the face of shifting demand trends in that country, and how the market there is being affected. Among the points he touched on:
--Despite tremendous demand growth in China, both refining and ethylene capacity have grown faster. Petroleum refining capacity was up 12% in 2006, and ethylene capacity rose by a third. The country's refinery runs, percentage-wise, are in the neighborhood of the mid-70's and are expected be on average 6.42 million b/d out of capacity of 8.34 million b/d. There were numerous refinery maintenance projects that began last month, but what really is hurting the Chinese refining sector is a problem that has long bedeviled it: it buys crude at international prices, but must sell many products at prices that are regulated by the Chinese government.
--Government efforts to rid the country of the so-called "teapot" refineries have been mostly unsuccessful. The share of output at those plants continues to be 18%, as it was several years ago, and is a major reason why refining margins in China remain depressed.
--Although fuel oil has been on a tremendous growth curve in recent years, its percentage of total consumption has actually plunged in the last 15 years. Fuel oil was 20.5% of Chinese consumption in 1993, according to Lu; it's now 9.3%. Despite all the talk about the booming car culture in China, Chinese gasoline consumption was 20.5%; now it's 16.3%. These changes have all come at the expense of the chemical industry, as chemical feedstocks rose to 11.1% from 6.4%, and LPG went to 8.3% from 4.3%. Of course, total consumption is far, far bigger, so the car culture description is not inaccurate.
--Chinese demand statistics suffer from a variety of ills: double-counting of demand; so-called hidden demand, the impact of smuggling; and the effect of what he called "irregular oil consumption" from backup power generation. Even with all that, his projections were actually somewhat conservative. He projected total energy growth of 9% for China in 2008, and oil consumption growth of 6.7%. Oil demand growth will average 6.5% for an undefined period of "several years ahead." That figure has been in double digits in recent years.
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