According to Wood Mackenzie, China’s demand for crude oil imports will grow significantly, requiring spending of US$ 500 billion by 2020. The price China pays will overtake the peak cost ever incurred by the US of US$ 335 billion, with US import spending to only be US$ 160 billion by 2020. This spending clearly demonstrates the growth of the Chinese market and reliance on oil imports in relation to the US, whose import requirements have already and will continue to decrease due to a previous weakening in oil demand and growing domestic supply. The opposing trends in crude oil imports will affect the cost to both countries and inter regional trade flows.
Comments on OPEC supplies
William Durbin, Wood Mackenzie’s Beijing based President of Global Markets has said, ‘by 2020, 70% of China’s oil demand will come from imports. On the other hand, US import requirements will reduce due to tight oil production. It is important to note these opposing trends as it means the US is becoming more North America centric for its supply needs and China more dependent on Middle East and OPEC crude. We will therefore see OPEC suppliers, who traditionally focused on the US for crude sales, compelled to shift their focus towards China.’
Crude demand’s turning point
The point at which Chinese crude oil imports are likely to surpass the US will be around 2017. From 2005 – 2020, China’s oil imports are expected to increase from 2.5 million bpd to 9.2 million bpd while US imports will fall from their peak of 10.1 million bpd to only 6.8 million bpd. China will be experiencing a 360% increase and the US a 32% decline.
The growth in import demand can be largely attributed to domestic oil demand growth, which is driven by gasoline demand due to the near exponential increase in personal auto vehicles, and diesel demand related to commercial trucking as China’s economy grows. Dr Harold York, Principal Oils Markets Analyst for Wood Mackenzie explained, ‘Although lesser per capita by international benchmarks, by 2020 China will be second only to the US for the total fleet of personal auto vehicles in use. From 2005 – 2020, China will see the number of vehicles rise from 20 million to 160 million.
‘China’s refining structure is currently among the most complex in Asia, focused on medium sour crude. To produce the oil products in demand, China will therefore look towards OPEC because medium sour crude is a growing share of future OPEC supply.’
More on OPEC and china oil demand
OPEC’s share of Chinese imports is expected to rise from 52 – 66% between 2005 – 2020. The share of non-OPEC imports declined from 48 – 34% in 2012, and will continue to decline to the end of the decade. Comparatively, in the US, OPEC crudes will fall to 33% of total imports and Canadian crudes will account for 60%.
‘The high cost to China for crude oil imports is compounded by the fact that China will pay a higher price for the imports relative to the US as the average price is based on a differential to Brent,’ said York. ‘China’s import crude price tends to be closer to Brent than the US because of growing North America supply options. Also, the quality of the Chinese import barrels of medium crude is rising relative to the US. North American production from tight oil plays is skewed towards light sweet crudes, leaving heavy sour crudes a growing share of its imports, this providing North American buyers greater discounts for imports.’
US and China crude oil conclusions
Dublin concluded, ‘China and the US are heading in opposite directions for crude oil import trends. Although the US was the largest import market before, China will surpass US demand for oil imports and peak spend. Notably also is a change in traditional suppliers, China will look towards OPEC supply more as US relies on it less. These are trends that suppliers should look out for but equally, a trend China must consider in evaluating its cost structure.’
Adapted from press release by Claira Lloyd.