Wood Mackenzie

Press Releases: Energy

China on Track to spend US$500bn on Crude Oil Imports by 2020, Surpassing US Import Requirements

SINGAPORE/EDINBURGH, 20th August 2013– China's demand for crude oil imports will grow significantly, requiring spend of US$500billion (bn) by 2020. The price China pays will far outstrip the peak cost ever incurred by the US of US$335bn, with US import spend falling to only US$160bn by 2020. This demonstrates the growth of the Chinese market and reliance on oil imports in relation to the US, whose import requirements have already and will continue to decrease due to a previous weakening in oil demand and growing domestic supply. The opposing trends in crude oil imports will affect the cost to both countries and inter-regional trade flows.

Mr. William Durbin, Wood Mackenzie's Beijing-based President of Global Markets, says, "By 2020, 70% of China's oil demand will come from imports. On the other hand, US import requirements will reduce due to tight oil production. It is important to note these opposing trends as it means the US is becoming more North America-centric for its supply needs and China more dependent on Middle East and OPEC crude. We will therefore see OPEC suppliers, who traditionally focused on the US for crude sales, compelled to shift their focus towards China."

The turning point for Chinese crude oil imports to surpass the US will be around 2017. From 2005-2020, China's oil imports will rise from 2.5 million barrels per day (mb/d) to 9.2 mb/d while US imports will have fallen from a peak of 10.1 mb/d to 6.8 mb/d within the same period. This translates to a 360% increase in China crude oil imports and a 32% decline for US.

China's growth in import demand can largely be attributed to its domestic oil demand growth, driven by gasoline demand due to the near-exponential increase in personal auto vehicles and diesel demand related to commercial trucking as China’s economy grows. Dr. Harold York, Principal Oils Markets Analyst explains, "Although lesser per capita by international benchmarks, by 2020 China will be second only to the US for the total fleet of personal auto vehicles in use. From 2005-2020, China will see the number of vehicles rise from 20 million to 160 million."

"China's refining structure is currently among the most complex in Asia, focused on medium-sour crude. To produce the oil products in demand, China will therefore look towards OPEC because medium-sour crude is a growing share of future OPEC supply."

As a result, between the 2005 to 2020 timeframe, OPEC's share of Chinese imports is expected to rise from 52% to 66%. The share of non-OPEC imports declined from 48% to 34% to 2012, and will continue to decline to the end of the decade. Comparatively, for the US, OPEC crudes will fall to 33% of US total imports while Canadian crudes will account for 60% of US imports.

"The high cost to China for crude oil imports is compounded by the fact that China will pay a higher price for the imports relative to the US as the average price is based on a differential to Brent," says Dr. York, "China's import crude price tends to be closer to Brent than the US because of growing North America supply options. Also, the quality of the Chinese import barrels of medium crude is rising relative to the US. North American production from tight oil plays is skewed towards light sweet crudes, leaving heavy-sour crudes a growing share of its imports, thus providing North American buyers greater discounts for imports."

Mr. Durbin concludes, "China and the US are heading in opposite directions for crude oil import trends. Although the US was the largest import market before, China will surpass US demand for oil imports and peak spend. Notably also is a change in traditional suppliers-- China will look towards OPEC supply more as US relies on it less. These are trends that suppliers should look out for but equally, a trend China must consider in evaluating its cost structure."

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