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Source: Reuters

ANALYSIS-China will only shine briefly as net fuel exporter

Published: 26 Jan 2010 23:58:36 PST

* Plants to add 560,000 bpd runs in 2010, 400,000 bpd in 2009

* Long in mogas, diesel, but short in fuel oil, naphtha, LPG

* Oil demand to rise 5-7 pct again in 2010 -analysts

* China credit tightening seen prudent not a threat to growth


BEIJING, Jan 27 - China was a net fuel exporter in December for the first time since at least 1993, but the trend promises to be short-lived as economic growth barrels along in the workshop of the world, stoking its appetite for fuel in 2010.

China's status as Asia's top buyer of fuel oil, its strong international purchases of liquefied petroleum gas and its petrochemical sector's growing need for naphtha are expected to pull it back into net imports overall within a few months.

"I maintain China will stay as a net fuel importer, albeit a smaller one," said Kang Wu of the Hawaii-based East-West Centre.

With China's economy expected to keep growing fast, after its stimulus-boosted rally of 8.7 percent last year, the world's No.2 oil user is not about to upend nearly 300,000 barrels per day (bpd) of net fuel imports in 2009.

China has already surpassed Japan as the world's No.2 crude oil buyer and imports will rise again in 2010 after a surge of 14 percent last year, and a record 5 million bpd in December.

Refiners plan to add 450,000 bpd of new crude run capacity in 2010, on top of 700,000 bpd they brought on line last year.

"Similar to 2009, 2010 will be a crude-led market, not products-led, because of the huge amount of spare refining capacities.... It will be another year of very weak cracks for light products and middle distillates," said Mike Wittner of Societe Generale.

The rise in actual crude processed will be even higher, a Reuters survey of 22 top refiners showed. The plants polled by Reuters, representing 60 percent of the existing refining base, plan to run at more than 90 percent of their operating capacity this year and to process 560,000 bpd more than last year.

That increase, equivalent to 7.5 percent of the national total, compares with a rise of less than 400,000 bpd in 2009.

For a factbox on the survey, click:

That will maintain China's net surplus in gasoline and diesel, keeping exports flowing. China's gasoline exports were up two and a half times last year and diesel exports rose sevenfold.

For a table of China's implied demand and net imports, click

"It looks like the decision has been made to build domestic refining capacity and import crude rather than products," said Wittner of Societe Generale. "China's current set-up of pricing that guarantees a fixed margin at home is obviously in favour of such strategy."


China's return to being a net importer will hardly reassure rival suppliers to Asia's products markets, such as Japan, which has been debating over the past year whether to permanently shut its swelling spare capacity or keep exporting in a fiercely competitive market.

Analysts started 2009 forecasting oil demand would stay flat or even contract amid a slowing economy reeling from the spreading pains of the global financial crisis, but eventually concluded demand had grown by a fairly robust 5 to 7 percent.

In 2010 analysts expect another year of 5-7 percent growth, as the economy has rebounded so fast the government has begun reining in money supply, worried about inflation.

In its mid-January report the International Energy Agency, which is seen to represent a market consensus, pegged China's 2009 demand growth at 572,000 bpd, or a rise of 7.2 percent, after several upward revisions last year.

It also upped its estimate of 2010's incremental demand to 360,000 bpd, or 4.3 percent, to a total of 8.8 million bpd, assuming that the government stimulus programme continues.

Beijing's surprise monetary tightening moves this month hit prices but some analysts saw them as a prudent step to avoid bigger bumps in the road later, and conducive to sustainable growth.

Gong Jinshuang, a market researcher with top energy group CNPC, said diesel would lead demand growth with an expansion of 7.7 percent, thanks to the manufacturing and transportation boost delivered by a strongly recovering economy.

"We expect refined fuel demand to increase around 7.5 percent from a year earlier... up from a rise of around 2.7 percent in 2009," Gong told Reuters, referring to the combined consumption of top transport fuels gasoline, diesel and kerosene.


Net imports of naphtha, a key feedstock for petrochemicals, are also likely to expand. China started two big naphtha crackers last year, when it became a net importer for the first time in at least a decade, and is slated to launch two more this year.

For a factbox of China's cracker plans, click)

And fuel oil, the biggest single piece of China's fuel trade puzzle, recorded net imports last year at 273,000 bpd, easily offsetting 168,000 bpd of net exports of gasoline and diesel.

For a chart of China's shift from stockpiling to destocking

China is Asia's biggest buyer of the heavy fuel, since it feeds nearly 100 hungry independent oil processors, nicknamed "teapots", that have no access to crude supplies.

Often written off by forecasters, the teapots have survived 15 years of government efforts to phase them out and recently some have bulked up to resist such threats, backed by local governments who are keen to keep their taxes flowing.

"The chance of them going out of business? Zero," said a trader who deals with these plants at state firm Sinochem.

"They're having a tough time, as they have for years, but most of them have managed to stay afloat one way or another."

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