Oil and gas
BMI has upgraded its short term forecast for Chinese oil consumption on the exception that lower oil prices will give demand a brief boost. However, longer term demand will still be constrained by structural issues in the Chinese economy. Oil production forecasts have been downgraded by BMI, as higher oil prices are going to hit expensive enhanced oil recovery and unconventional gas projects which are needed to maintain China’s oil output.
Gas production is expected to stay on an upward trend with new tight gas developments as the main driver of output growth. BMI has already moderated its conservative outlook for shale gas production in light of the government’s downward target revision. Gas consumption, BMI has said, will continue to rise, however the company has revised the consumption forecast down slightly on expectations that lower domestic shale gas production expectations will see China’s planning agencies reduce their emphasis on gas usage in future energy allocation. Gas imports are expected to increase as domestic gas consumption outpaces gas production. Pipeline gas imports, BMI has said, will continue to meet the majority of the country’s gas import needs, as the LNG market is threatened by supplies from Central Asia and Russia.
Refined oil production is expected to continue to rise alongside an expansion in Chinese refining capacity. However, BMI has said that the rate of growth is expected to slow towards the second half of its forecast period to 2023 as overcapacity looms. China’s downstream capacity expansion and limited domestic crude oil output growth will also see cuts in crude oil imports continue to increase. In contract however, BMI has said that refined oil import demand will fall, thought the slight upgrade made by the company to oil consumption forecasts this quarter will see China remain a net importer to 2023.
BMI has commented that growth in coal based polymer production risks is creating a glut in supply this year as domestic demand moderates. This is expected to lead to a decline in prices and pressures on margins.
Between January and October last year, BMI has said that the ethylene portion of the petrochemicals sector saw output growth lag behind the growth in cracker capacity, which lead to a reduction in overall capacity utilisation which was running at approximately 70% last year. Revenue is rising, however BMI has pointed out that it is not happening as fast as the company had hoped due to the market downturn. Turnover for the industry in China hit US$2.36 trillion last year and exports rose 6.2% to US$513.1billion in the first three quarters of the year.
Edited from report briefs by Claira Lloyd
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