(Houston, 1 March 2018) China Petrochemical Corporation (“Sinopec”) announced today the release of China Petroleum Industry Development Report (2018) in Houston, the United States. The Blue Book reveals that China's domestic demand for oil products improved in 2017, with estimated consumption reaching 320 million tons and year-on-year growth of 2.8 percent. The report shows that a diversified competitive market of suppliers has been formed.
As China's first petroleum blue book, Sinopec shares its viewpoints with global peers about the petroleum market. The blue book includes an in-depth analysis of major economic and industrial issues regarding current oil demand and future development trends from China's perspective. The report focuses on Chinese and global oil exploration and development, as well as global oil trading and refining. The blue book analyzes global oil price patterns in recent decades and provides practical cooperation advice for China's “Belt and Road” development strategy.
China's crude oil imports reached 8.43 mb/d in 2017, a year-on-year increase of 10 percent over 2016. China's crude oil imports exceeded the 7.91 mb/d imported by the United States, resulting in an eastward shift of the global oil trade. With the tightening of crude oil exports from the Middle East, the proportion of crude oil imported from the Middle East to China continues to decline. The United States has the potential to become an important source of crude oil imports for China, given that crude oil imports from the United States is expected to exceed 10 million tons in 2018. Russia will continue to be China's largest source of imported crude, and is projected to further increase its export levels. Crude oil imported from Brazil is also expected to rise further.
China's demand for oil products increased in 2017, with estimated consumption reaching 320 million tons. Production from China National Petroleum Corporation (CNPC), Sinopec and China National Offshore Oil Corporation (CNOOC) has decreased from 83 percent in 2007 to 66 percent in 2017. Other state-owned enterprises accounted for about 9 percent. Private refining increased from 11 percent in 2007 to 24 percent in 2017. China's oil products industry has formed a competitive market of diversified suppliers. In 2018, the marketization reform of China's oil products industry will continue to carry forward. It is estimated that China's demand for oil products will increase 3 percent on a year-on-year basis. However, in the medium and long term outlook, the growth rate of China's demand for oil products will gradually decline. During China's 13th Five-Year Plan period, diesel consumption is projected to plateau then begin declining. Gasoline consumption is expected to peak between 2025-2030, but the kerosene demand peak will likely be delayed another 10 years.
The demand for oil products grew rapidly in 2017, and is expected to maintain momentum in 2018. The export policy of China's oil products will continue to be favorable to general trade in 2018. The export of oil products is expected to maintain a moderate growth rate, and the total export is estimated to exceed 41 million tons with around 4 percent year-on-year growth. In the medium and long term outlook, considering the slowdown in the growth rate of China's domestic oil products demand, and successive commissioning of several large refineries around 2020, the export of oil products is expected to increase annually. Additionally, cross-regional trade as well as large tanker co-loading will become the trend, which will have a significant impact on the pattern of oil products trade in the Asia-Pacific region as well as globally.
2017 marked the beginning of the rebalancing of the global oil market. Oil inventories have begun to drop, but still have not fallen to the five-year average, and it is expected that the global oil market will maintain a tight balance in 2018. In the meantime, intensifying geopolitical turmoil and increasing uncertainties of the macro economy will make the oil market more complicated. It is estimated that the Brent oil price will fluctuate within the range of $50-70/bbl in 2018.
Based on the favorable foundation of the petroleum industry, China shares great promises for cooperation with countries along the “Belt and Road” region. In 2016, the refining capacity along the “Belt and Road” region reached 1.52 billion tons/year, accounting for 31.2 percent of the world's refining capacity. The region's refining capacity will increase to 1.67 billion tons/year in 2020, and its proportion in global refining capacity will further increase to 32.3 percent. From the perspective of unit structure, the capacity of major secondary processing units such as catalytic cracking and delayed coking is lower than the global average. The deep processing capacity of crude oil is still insufficient, which signifies the need for further investments. In the future, there will be critical chances for oil quality improvement within the region. The demand and supply of oil products in the “Belt and Road” region continues to increase rapidly, and accounts for an increasing proportion in the global demand and supply. Most of the countries along the “Belt and Road” are open to foreign investment in the refining and petrochemical industry. Some countries have signed bilateral trade protection agreements with China, while other countries have already cooperated with China on refining and petrochemical projects. In recent years, Chinese enterprises have been making consecutive breakthroughs in refining technology and equipment, which will not only provide complete and advanced technologies for 10 million-ton magnitude oil refinery, 1 million-ton magnitude ethylene production and 1 million-ton magnitude aromatic hydrocarbon production, but also provide comprehensive solutions for design, construction and commissioning of refinery facilities. In addition, Sinopec has accumulated rich experiences in the refineries' technological transformation and quality upgrades, which is sufficient to provide all-round services for improving refinery installations in the “Belt and Road” region.
Shale oil exploration in the United States will continue to increase in 2018, and the country's oil production is expected to exceed 10 mb/d. The Middle East and Latin America will become important regions due to the increase of traditional oil and gas production. There are abundant petroleum resources in China, which have great potential in the future despite China's current levels of exploration, development and utilization being relatively low, as there is urgency to strengthen exploration and find additional recoverable reserves. By the end of 2016, China had 38.1 billion tons of total proved reserves, of which 10.1 billion tons are considered recoverable. The proved rate of petroleum resources was 30.3 percent, reflective of China's place in the middle stage of exploration. The utilization rate of recoverable resources was 21.6 percent, a level generally associated with the early and middle stages of development. With the rebalancing of the international oil market and steady growth of the domestic economy, the upstream oil industry is expected to maintain fixed development for the foreseeable future. In the medium and long term outlook, the national oil output will be remain stable at or around 200 million tons.
The refining industry is entering a boom cycle, with refining margins continuing to climb and the major oil refining centers have developed unevenly. Refining capacity in the Asia-Pacific region and the Middle East has grown rapidly, North America has seen a steady rise and refining capacity in Europe and both Central and South America has stagnated. Investments in the petrochemical industry have shown steady recovery from 2016 to 2018, with significant increases in demand. Currently, the refining capacity of China ranks the second in the world. Its industrial structure adjustment and marketization reform, coupled with the strengthening oil products industry, will be essential for the transformation and advancement of China's refining industry. In 2017, China's primary processing capacity for crude oil reached 800 million tons/year, with a year-on-year growth of 3.9 percent, accounting for 17 percent of the world's oil refining capacity. With the changing market environment, China's oil refining industry is entering into the transformation and upgrading phase.
Based on the national strategy of energy revolution and continued domestic and global socio-economic development, China's energy development will be divided into three phases by 2050: optimization of energy structure, transition of energy structure and shaping of the energy system. By 2020, China will be in the first phase, optimization of energy structure, and its total energy consumption will be controlled at 5 billion tons of standard coal, and non-fossil fuels consumption will account for about 15 percent of total primary energy consumption. From 2021 to 2030, China will be in the second phase, transition of energy structure, and its total energy consumption will be controlled below 6 billion tons of standard coal, natural gas consumption will usher in rapid development, and non-fossil fuels consumption will account for about 20 percent of total primary energy consumption. From 2031 to 2050, China will be in the final phase, shaping of the energy system, and the total energy consumption will be controlled at 5.8-6.0 billion tons of standard coal, and its “clean, low-carbon, safe and efficient” energy system will be formed.