According to the International Energy Agency’s medium-term oil market analysis
China would be the primary driver of increased demand for crude oil and refined products, taking into consideration 51% of new polymerization capacity up to 2028. Despite the fact that China is also anticipated to install the greatest crude processing capacity, there are hazards as the globe becomes more dependent on China’s exports of refined petroleum.
It will continue to maintain a large portion of the global spare capacity, making it both the biggest danger to global refining and the primary generator of anticipated demand for crude oil
According to the IEA,
which serves as an energy advisor to industrialised countries, China is also anticipated to install the most crude refining capacity between 2022 and 2028 and hold the most spare capacity.
This poses both opportunities and hazards for the world’s oil and product markets, the research emphasises. The fundamental concern is that as China’s exports of refined fuels expand, so does the world’s reliance on them because those shipments aren’t driven by market demands.
Instead, Beijing sets export quotas, acting more in accordance with what it sees as the needs of the local economy and markets than with what the international markets may be suggesting. According to the IEA, China has roughly 3 million barrels per day (bpd) of refining capacity that wasn’t being utilised at the start of 2023. By 2028, the amount of unutilized capacity in China is predicted to increase to 3.2 million bpd as more refining units are built at a quicker rate than throughput volumes.
The nameplate capacity of China’s refining capacity will increase by 1.5 million bpd from 2022 to 2028, bringing it to 19.7 million bpd; however, processing volumes are anticipated to increase to 16.5 million bpd during this time.
China faces dangers
The dangers of counting on China for goods being exported have already been demonstrated by the country’s last year’s decline in shipments of the industrial and transportation fuel, which caused a profit ratio on a barrel of diesel in Asia to soar.
A typical Singapore refinery’s crack, or profit, reached a record high of $68.69 per barrel in June of last year.
Due in part to the anticipated loss of Russian diesel from international markets following Russia’s invasion of Ukraine, China’s diesel exports also suffered, falling to a 7 1/2-year low in May 2022. The crack began to close as China’s diesel shipments increased, and a sharp increase in exports in the latter half of 2022 and the first quarter of this year caused the profit per barrel to fall to a 28-month low of $10.08 in late April.
There is also a possibility that much of China’s increased demand for oil and other products between 2022 and 2028 may be used to feed petrochemical facilities rather than to create transportation fuels like petrol, diesel and jet fuel. According to the IEA, China will make up 51% of all new polymerization capacity during the period of forecasting, which will increase its demand for liquid petroleum gas (LPG) and naphtha by 500,000 bpd each. As more oil is diverted to petrochemical manufacture, the concern grows that while China will be pushing up global petroleum demand, it won’t be significantly increasing the supply of diesel and petrol.
The majority of the the globe’s spare oil refinery capacity is currently located in China, where it is susceptible to bureaucracy whims and domestic policy demands as opposed to being receptive to global market dynamics. This poses a rising risk, according to the IEA assessment.
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