MNI INTERVIEW: China Oil Imports To Fall Despite H2 Boost

MNI (MNI (BEIJING)) - China's crude oil refinery processing and crude imports will increase in the second half by 3.2% and 4.5% respectively over H1 levels as consumption rises, but both are set to fall during 2024 amid a weak economy and the switch to electric vehicles, a leading Chinese oil expert told MNI. 

A new 40-million-tonne-a-year refining facility at the Shandong-based Yulong Petrochemical plant and seasonal demand will drive crude oil processing output 3.2% higher in H2 versus H1, Liao Na, founder at GL Consulting and vice president at Mysteel Oilchem said in an interview after a Mysteel China oil seminar.

However, while the H2 increase will mirror 2023’s second half lift, overall crude oil processing will fall 0.9% y/y in 2024, Liao said. China processed 419.15 million tonnes between January to July, a year-on-year decrease of 1.2%, official data showed. 

Crude imports will increase 4.5% in H2, improving on H1’s 2.3% drop to 275.5 million tonnes, bringing 2024 demand to -0.2% y/y overall, said Liao, who is also deputy general secretary to China’s petroleum circulation association.

"Demand is weighed down this year by falling gasoline and diesel consumption, driven by weakness in the economy and the electric vehicle market share expanding to 44% of passenger car sales between January and August this year, 10% higher than last year and faster than the market expected,” Liao said. (See MNI: China LPR To Hold In Aug, More Easing Eyed)

The introduction of LNG transport vehicles was also impacting demand, with major diesel traffic indexes down 8% y/y during the first seven months, while LNG traffic indices rose 53%, Liao noted. 

Diesel demand is projected to decrease by 3-4% y/y in 2024, while gasoline demand is projected to decline by around 2%, Liao calculated.

CONSUMPTION TAX

Beijing’s plans to boost local government finances by allowing local authorities to collect levies from consumer sales will have mixed results for the oil industry, given the need to shift tax collection to petrol stations from refineries.

"Refining-light but consumption-heavy provinces such as Sichuan and Guizhou will be revenue net-positive, however refinery-heavy Shandong and Xinjiang will lose out,” Liao continued, calculating Shangdong’s 2023 oil tax revenue of CNY25 billion would be reduced to CNY8.4 billion under the new system.

Refining profits, especially for independent refineries, had been poor leading to low utilisation rates, Liao said.

However, nationwide oil tax revenue should still grow steadily after the 7% growth seen in H1 this year, Liao noted.  Authorities must strengthen resources needed to administer the country’s 100,000 petrol stations as opposed to the 200 refineries, she warned.

GAS HARMONISED

Plans to create a national unified gas and oil market will require the implementation of more residential cost pass-through flexibility, but will not include a full removal of price caps, Liao noted.

“This will help mitigate huge losses to producers when prices spike, such as seen in 2022,” Liao said.

Additionally, reforms will include improving transparency over the price cap formula as well as shortening the price window setting from the current 10 working days down to five, Liao continued.