China syndrome

http://www.tankeroperator.com/news/todisplaynews.asp?NewsID=3349

Over the past three years, Chinese crude imports have increased on average by around 0.51 mill barrels per day per annum, boosting the tanker sector.

However, there was a slowdown in crude trade growth in 2011. Imports rose by just 0.31 mill barrels per day on the back of moderating economic growth and slowing refining capacity expansion, Gibson Research said in its recent weekly report.

Much of the net gain came from the Middle East producers, with volume from the region up by 0.37 mill barrels per day year-on-year.

However, long haul crude imports from Africa declined by 0.2 mill barrels per day last year, as more light sweet West African crude was diverted to Europe to compensate for the loss of Libyan barrels.

This year the expectations are for an even smaller increase in Chinese crude imports. The research unit of China National Petroleum Corp forecasts an annual growth of just 0.25 mill barrels per day, although around 0.8 mill barrels per day of refining capacity is scheduled to come on stream over the course of 2012 - some of which may slip into 2013 - Gibson said.

For tanker markets, rapidly recovering Libyan crude oil production is likely to lead to stronger crude tonne/mile demand into China. The rebound in Libyan crude production is easing supply pressures on European refiners, making more African crude available for eastern buyers.

At the same time, the geopolitical tensions in Iran, Sudan and Yemen could lead to less crude oil exported from these countries to China. These ‘lost’ barrels will have to be replaced, possibly from further afield, pushing tanker tonne/mile demand even higher.

Last, but not least, there is also a possibility of higher crude imports due to strategic storage developments, more specifically the 2nd phase of the Strategic Petroleum Reserve (SPR).

Although the Chinese authorities are still to release detailed information, the indications are that the reserve capacity during this phase could increase by 169 mill barrels. Media reports suggest that close to 79 mill barrels of storage facilities have already been constructed and are ready to be filled, or are due to be completed soon.

If these 79 mill barrels facilities are filled evenly in 2012, this would imply an increase of 0.22 mill barrels per day in crude import requirements, Gibson calculated.

However, the IEA warned that buying decisions were likely to depend on prevailing market conditions, such as the level of oil prices. Therefore, the pace of filling the reserve was expected to be more erratic and for tankers it was likely to translate into greater volatility.

Combined, the above developments suggested that the actual crude tanker demand into China in 2012 was likely to be stronger than the base case forecasts would indicate.

Yet, this may still not be enough for tanker owners this year, Gibson opined.

Nonetheless, the further expansion in Chinese refining capacity and the filling of the SPR could mean a return to stronger growth in crude imports over the next couple of years, Gibson concluded.