A new report from Bloomberg conveys surprising forecasts from Sinopec, whose chairman predicts a peak in diesel and gas
consumption in China:
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China’s biggest oil refiner is
signaling the nation is headed to its peak in diesel and gasoline consumption
far sooner than most Western energy companies and analysts are forecasting.
If correct, the projections by
China Petroleum & Chemical Corp., or Sinopec, a state-controlled enterprise
with public shareholders in Hong Kong, pose a big challenge to the world’s
largest oil companies. They’re counting on demand from China and other
developing countries to keep their businesses growing as energy consumption
falls in more advanced economies.
“Plenty of people are talking about
the peak in Chinese coal, but not many are talking about the peak in Chinese
diesel demand, or Chinese oil generally,” said Mark C. Lewis, an analyst at
Kepler Cheuvreux in Paris who has written on how oil companies should broaden
their activities to produce all forms of energy. “It is shocking.”
Sinopec has offered a view of the
country that should serve as a reality check to any oil bull. For diesel, the
fuel that most closely tracks economic growth, the peak in China’s demand is
just two years away, in 2017, according to Sinopec Chairman Fu Chengyu, who
gave his outlook on a little reported March 23 conference call. The high point
in gasoline sales is likely to come in about a decade, he said, and the company
is already preparing for the day when selling fuel is what he called a
“non-core” activity.
That forecast, from a company whose
30,000 gas stations and 23,000 convenience stores arguably give it a better
view on the market than anyone else, runs counter to the narrative heard
regularly from oil drillers from the U.S. and Europe that Chinese demand for
their product will increase for decades to come.
Rising Forecasts
“From 2010 to 2040, transportation
energy needs in OECD32 countries are projected to fall about 10 percent while
in the rest of the world these needs are expected to double,” Exxon Mobil Corp.
said in a December report on its view of the future. “China and India will
together account for about half of the global increase.”
Exxon expects most of that growth
to be driven by commercial transportation for heavy-duty vehicles, specifically
ships, trucks, planes and trains that run on diesel and similar fuels.
BP Plc’s latest public projection
for China, released in February, sounds a similar note. “Energy consumed in
transport grows by 98 percent. Oil remains the dominant fuel but loses market
share, dropping from 90 percent to 83 percent in 2035.”
The oil companies aren’t alone in
their view. The International Energy Agency in Paris, the adviser to 29
governments including the U.S., forecasts China’s oil demand is most likely to
increase at least through 2040.
Slowdown Signs
But signs of China’s energy
slowdown are already evident. Diesel demand declined last year, and growth in
crude oil consumption has shriveled. Crude use is projected to rise about 3
percent this year, less than half the rate of the total economy.
Also, China’s political leadership
is trying to wean the economy off debt-fueled property investment and old-line
smokestack industries, shifting toward services and domestic-consumption led
growth.
Sinopec itself is already planning
for the time when its primary business isn’t selling fuels but consumer goods
at its shops and filling stations that blanket the nation.
“In the future, fuels will become a
non-core business of Sinopec,” Fu said on the conference call. “Petroleum or
oil and gas will continue to be a major energy source in the future, but they
won’t be the only source, more emphasis will be put on our new energy and
alternative energies.”
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Timothy Coulter, “China’s Fuel Demand to Peak Sooner ThanOil Giants Expect,” BloombergBusiness, April 1, 2015
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