China Petroleum and Natural Gas Industry Research Report 2002Q2--Beijing HL Consulting Co., Ltd

For the petroleum and petrochemical industries, the year 2002 marks the beginning of a new period. Chinese petroleum and petrochemical industries will explore and practice the new and adapting themselves developing mode under the international current market game rules. The changing pace of domestic market pattern is accelerated. Foreign companies accelerate to prepare entering into the Chinese retail and wholesale market. Facing the aggressive contend from large corporations, two domestic group corporations CNPC and SINOPEC seek to follow extroverted developing roads further.
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MARKET SUPPLY AND DEMAND
After ¡°9.11¡± affairs, lower petroleum demands in international petroleum market have no obvious effects on domestic petroleum market. In the first quarter the domestic product oil price is still at high level and the growth trend of market price promotes the buying demands in the second quarter.
Demands
Traditionally the second quarter is the busy season of domestic product oil market demands and the consuming amounts of product oil go up obviously. However, the product oil consuming amounts such as gasoline, kerosene and diesel oil have no changes between the first quarter and second quarter this year, which is mainly because decrease demands at the end of the second quarter counteract the former marked increase. The change of demands emerges the mode of high in the middle and low at the two edges during the six months in the first half year, which firstly reflects the growth and decrease of market sales appeared as the up and down of the price.
Market prediction is enough to dominate the sales agent s¡¯ buying policy. Domestic product oil price goes up during three months from March to May, which promotes the market sale. It is anticipated that the product oil price wasn¡¯t adjusted during June and July, which makes the sales agents begin adopting the wait-and-see stance. Thus, this makes the market sale amounts decrease greatly and storage increase and lead to the demands decrease anti-seasonally in the second quarter. According to estimated figure from the State Economic and Trade Committee, apparent consuming amounts of domestic product oil in the second quarter decrease slightly from 29,250,000 tons in the first quarter to 29,050,000 tons. However, due to the high demand amounts in the first quarter, the demand amounts of domestic product oil in the first half year increase 2.4% compared with the same period in 2001, adding from 56,950,000 tons to 58,340,000 tons.
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Figure 10 Monthly yield of domestic gasoline, diesel oil and fuel oil since 2000
Supply
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After the product oil prices continuously rising in March, April, and May, refinery industries finally make up the deficits and get surpluses. Meanwhile, with the seasonal increase of the market demand, especially because the price markup stimulates purchasing demand, the crude oil processing amount in May makes the highest record, from 50.7472 million tons in the first quarter up to 56.2617 million tons in the second quarter. With the prediction that domestic product oil price will remain unchanged, and that the sales volumes of domestic oil refineries and sales companies drop sharply, the increasing stockpile drives SINOPEC and CNPC, the two biggest corporations to cut their oil processing volumes. After the product oil stocks of the two biggest corporations sharply increase 14%, the stocks growth rate in June drops to 1.5% because of production reducing.
Table10 China¡¯s oil and natural gas output, refinery processing volume, and main product oil output in the first half year.
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	2nd quarter 2002	1^st half 2002	1^st half 2001	Change 02/01
Oil and natural gas production
Crude oil	4,280.53	8,445.47	8,279.87	2.0
natural gas (billion m³)	78.00	162.02	146.65	10.5
Crude oil processing volume	5,626.17	10,711.92	10,607.96	1.0
Gasoline	1,069.42	2,071.87	2,136.17	-3.0
Kerosene	215.41	403.11	389.85	3.4
Diesel	2,006.34	3,809.14	3,677.49	3.6
Lubricating oil	93.48	177.37	168.67	5.2
Fuel oil	444.12	937.45	973.37	-3.7
Liquefied petroleum gas(LPG)	298.48	572.42	552.05	3.7

With the increasing demand of oil products and the enhancement of refineries processing volume, China¡¯s crude oil imports come back to grow after last year¡¯s decrease, but the great decrease of oil products import lowers the total volume of petroleum imports. From January to June this year, the imported crude oil, 32.99 million tons, rises 3.1% in comparison with the same period of last year; the imported product oil, 7.9557million tons, falls 24.7% in comparison with the same period of last year, of which fuel oil takes 81%, down 27.74%,. In the first half year, the total import volume is 40.9488million tons, down 3.8% compared with that last year. The total export volume is 7.3362million tons, down 14.0% compared with last year. The net oil import in the first half year is 33.6126million tons, down 1.2% compared with last year.
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Figure 11. Comparison of crude oil processing volume and import volume since 2000

Figure 12 China¡¯s crude oil import volume from 1997 to 2002, based on quarters

Figure 13 China¡¯s crude oil import sources from 1996 to 2002, based on quarters

The increased part of crude oil import mainly comes outside of Middle East. The first half year import volume from Norway, Russia, Kazakhstan and Britain etc European oilfield reaches 4.2382million tons, up 179% compared with the same period of last year, of which the import volume from Norway rises to 1.9816million tons, up 257%, the import volume decrease results from OPEC¡¯s four production reducing, In addition the remaining parts are mainly heavy and sulfur-containing oil, it narrows the price gap between light oil and heavy oil. China¡¯s oil import avoids the Middle East heavy oil as much as possible. The import volume from the Middle East falls 14.3%, down to 16.1688 million tons. However, last year, China signed the crude oil import government contracts with Saudi Arabia and Iran, the import volume from these two countries respectively increase 18.3% and 3.3%.
Table 11 Exported volume in the first half year
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Export destinations	2^nd quarter 2002	1^st half 2002	1^st half 2001	Change 02/01
Japan	81.07	135.51	195.03	-30.5
Indonesia	23.86	45.36	61.09	-25.7
South Korea	11.65	31.62	24.58	28.6
North Korea	10.20	25.09	35.21	-28.7
Malaysia	22.23	22.23	6.82	226.1
U.S.A.	6.05	19.36	44.72	-56.7
Singapore	-	14.44	16.40	-12.0
Australia	-	8.13	8.93	-9.0
India	-	6.51	6.12	6.3
Thailand	-	-	6.86	-
In total	155.06	308.24	405.76	-24.0


Import sources	2^nd quarter 2002	1^st half 2002	1^st half 2001	Change 02/01
Iran	279.30	557.77	540.10	3.3
Saudi Arabia	282.66	488.59	412.91	18.3
Oman	155.23	360.97	554.08	-34.9
Yemen	62.15	98.55	145.44	-32.2
Iraq	13.40	26.58	37.21	-28.6
Qatar	-	25.66	78.54	-67.3
Kuwait	36.00	58.75	73.33	-19.9
The United Arab Emirates	-	-	44.26	-
Middle East	828.73	1,616.88	1,885.87	-14.3
Sudan	182.81	347.65	231.50	50.2
Angola	144.41	157.37	149.89	5.0
Equatorial Guinea	82.17	96.56	123.00	-21.5
Nigeria	-	25.56	45.04	-43.2
Congo	26.20	39.88	26.13	52.6
Cameroon	11.01	11.01	46.71	-76.4
Gabon	-	-	14.70	-
Libya	-	-	25.04	-
Africa
446.60	678.04	662.01	2.4
Indonesia	87.95	182.27	162.54	12.1
Vietnam	107.87	170.62	207.61	-17.8
Brunei	46.70	66.80	33.58	98.9
Australia	31.51	66.92	15.56	330.0
Malaysia	48.13	78.98	58.77	34.4
Thailand	5.66	14.08	15.01	-6.2
Papua New Guinea	-	-	7.60	-
Other countries	0.45	0.90	0.32	182.0
Asia & pacific	328.27	580.57	500.99	15.9
Norway	72.64	198.16	55.50	257.0
Russia	44.30	84.72	58.31	45.3
Kazakhstan	11.91	32.04	23.91	34.0
Britain	108.89	108.89	-	-
Other countries	-	0.01	14.16	-99.9
Europe & west globe	237.75	423.82	151.88	179.0
In total	1,841.35	3,299.31	3,200.75	3.1

Figure 14 China¡¯s crude oil export volume from 1997 to 2002, based on quarters

In the first half year, the product oil import volume doesn¡¯t grow with China¡¯s entry into WTO. It means that the structure of crude oil import remains unchanged yet. The gasoline price, which is formulated with reference to international market prices, transportation expenses, and tariff, falls about 92yuan/ton due to gasoline tariff reduction, and reduce the difference between the domestic wholesale price and Singapore spot price. Of more importance is that gasoline is a long-line product at home in a long term, oversupply blocks up import demands. In recent several months overplus stockpile also inhabits diesel import demands.

	2^nd quarter 2002	1^st half 2002	1^st half 2001	Change 02/01
Product oil import	458.60	795.57	1055.84	-24.7
Automobile gasoline	0.00	0.00	0.01	-58.1
Naphtha	1.28	7.37	3.52	109.4
Aviation kerosene	42.03	73.92	93.31	-20.8
Burning kerosene	-	-	-	-
Light diesel	7.46	12.80	14.69	-12.9
5-7#fuel oil	335.81	574.96	446.52	28.8
Other fuel oil	37.98	71.04	447.21	-84.1
Lubricating oil	3.10	5.65	6.63	-14.8
Lubricating base oil	20.13	35.18	29.33	19.9
LPG import	147.68	301.64	214.04	40.9
Product oil export	241.84	425.38	447.35	-4.9
Automobile gasoline	148.12	247.03	274.44	-10.0
Naphtha	27.91	43.61	34.64	25.9
Aviation kerosene	30.69	63.47	85.72	-25.9
Burning kerosene	0.01	2.57	-	-
Light diesel	17.32	30.35	11.73	158.8
5-7#fuel diesel	7.07	13.55	0.26	5027.6
Other fuel oil	8.12	13.26	18.87	-29.7
Lubricating oil	1.18	2.22	2.69	-17.6
Lubricating base oil	0.58	0.64	2.40	-73.3
LPG export	1.91	2.34	1.01	132.0

Price decreasing in the international market, import tariff reducing and domestic ascending clean fuel demands cause LPG import volume to increase significantly. The imported LPG includes liquefied propane, butane and their mixture. Because the import tariff of propane and butane drop from 6% to 5%, the import volume of their mixture gas falls from 6% to 3% at the beginning of this year, it causes that the growth of mixture gas import volume is twice higher than that of propane and butane. In the first year, our country imports 3.0164million tons LPG, jump up 40.6% in comparison with the same period of last year. The revival of the east China LPG market is the main characteristic of import growth. In the first half year, the import volume of Guangzhou rises 24%, meanwhile, the import volume of the east China sharply leaps up 104%, and reaches 937.1 thousand tons. The annual growth rate of domestic LPG demand approaches 10%, however the domestic yield growth is only less than 4%, the import demand is ardent. The price falling in international market creates beneficial condition for imports. The average import CIF cost per ton in our country falls from $327 in the same period of last year to $235.

Provinces or cities	2^nd quarter 2002 (million tons)	1^st half 2002 £¨million tons£©	1^st half 2001 (million tons)	Change,02/01 £¨%£©
Guangdong	96.59	198.58	160.40	23.8
Guangxi	1.01	3.98	3.85	3.4
Hainan	1.77	4.44	2.80	58.5
South China	99.37	207.01	167.05	23.9
Shanghai	7.57	15.30	10.21	49.8
Jiangsu	13.71	25.33	14.06	80.2
Zhejiang	25.88	51.59	15.01	243.8
Fujian	0.73	1.49	6.62	-77.5
East China	47.89	93.71	45.90	104.2
Tianjin	0.21	0.47	0.50	-7.1
Liaoning	0.20	0.43	0.60	-28.6
Other Cities	-	0.03	0.00	2092.9
North China and Northeast China	0.41	0.92	1.10	-15.8
In total	147.68	301.64	214.04	40.9

Sources		2^nd quarter 2002 £¨million tons£©		1^st half 2002 £¨million tons£©		1^st half 2001 £¨million tons£©	Change 02/01 £¨%£©
	Saudi Arabia		33.34		63.39	41.09	54.3
	The United Arab Emirates		23.99		48.23	36.96	30.5
	Kuwait		16.99		28.60	1.99	1340.9
	Iran		8.81		15.69	3.69	324.8
	Qatar		-		3.04	7.66	-60.4
	Other countries		0.59		1.33	1.35	-1.9
	Middle east		83.72		160.28	92.74	72.8
	Malaysia		9.10		22.10	12.16	81.7
	Thailand		10.41		22.87	31.83	-28.1
	Australia		9.77		24.89	10.66	133.5
	Indonesia		7.97		16.57	10.78	53.8
	South Korea		3.13		9.59	15.15	-36.7
	Taiwan		3.74		8.52	8.85	-3.8
	Singapore		2.65		3.90	6.61	-41.0
	New Zealand		0.38		0.57	1.94	-70.7
	Philippine		0.19		0.40	2.27	-82.5
	Other countries		0.20		3.06	3.97	-23.0
	Asia & Pacific Region		47.55		112.46	104.22	7.9
	Algeria		1.06		7.46	5.99	24.7
	Nigeria		3.30		7.23	1.20	502.5
	Venezuela		3.81		3.81	-	-
	Britain		-		1.45	5.64	-74.2
	Norway		1.04		1.04	-	-
	U.S.A.		6.24		6.24	1.14	445.4
	Other countries		0.95		1.65	3.12	-47.0
	Other regions		16.40		28.90	17.09	69.1
	Of which£ºPropane		26.13		59.95	49.29	21.6
	Butane		61.48		123.51	92.77	33.1
	Mixture gas		60.06		118.17	71.99	64.2
	In total		147.68		301.64	214.04	40.9
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