Chinese oil demand to peak before 2030: CNPC

Spanish Market: Coal, Crude oil, Natural gas, Oil products, Petrochemicals
28/12/21

China's petrochemical needs will fuel oil demand growth while a slowdown in incremental oil demand in the transportation sector will contribute to a peak in overall oil consumption before 2030, according to the latest forecast by state-controlled CNPC's research arm the Economics and Technology Research Institute (ETRI).

Chinese oil demand is expected to peak at 18.2mn b/d (780mn t/yr) before 2030, with the petrochemicals sector driving oil demand through 2030. But oil demand is forecast to drop to 8.8mn b/d by 2050 and 5.4mn b/d by 2060.

This will exacerbate the oversupply in refining capacity after 2030, requiring refiners to increase production of higher-end products, rather than transportation fuels, as part of energy transition efforts, the ETRI said. Beijing has already outlined a crude distillation capacity limit of 20mn b/d for Chinese refining capacity in 2025.

Electrification, or the use of electric vehicles, will be especially rapid in the transportation sector between 2031-50. This will reduce gasoline and diesel demand, although petrochemicals demand is still expected to be relatively stable during this period.

Demand for oil products including gasoline, diesel and jet fuel could peak at 8.4mn b/d by 2025 and decline to 1.3mn b/d by 2060, driven by the rise of new energy vehicles (NEVs) and development of railways. Chinese apparent products demand, including gasoline, diesel and jet fuel, averaged 6.9mn b/d in January-November, data from the National Bureau of Statistics and Customs Bureau show.

China's auto fleet still has room to grow, the ETRI said. NEVs will account for 10pc of China's total auto fleet in 2028, and rise to 80pc in 2052. NEVs currently account for just 2.3pc of vehicles in China.

China's auto sales in 2022 are expected to rise by 5.4pc from a year earlier to 27.5mn, with NEVs leading the increase, according to the China Association of Automobile Manufacturers (CAAM).

Sales of NEVs are forecast to rise by 47pc to 5mn in 2022, the CAAM said.

The country's primary energy consumption could also peak during 2030-35, at around 6bn t of standard coal equivalent (tce), then decline to 5.7bn tce by 2060 as renewables production rises, according to the ETRI. China only just met its 2020 consumption target of 5bn t tce with demand of 4.98bn tce.

The ETRI has also forecast Chinese coal demand to peak by 2025, and gas demand by 2040.

The institute expects Chinese crude production to remain at around 4mn b/d before 2035 but for natural gas output to grow at a faster pace, reaching 250bn m³/yr by 2030 and 350bn m³/yr by 2060. Chinese crude output averaged 100,000 b/d or 3pc higher on the year at 3.94mn b/d in January-November. Gas output rose by 8.9pc on year to 186bn m³ in January-November.

For 2021, national crude output is expected at 3.98mn b/d and gas output at 206bn m³, the National Energy Administration said.

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26/12/24

Viewpoint: US gas market poised for more volatility

New York, 26 December (Argus) — US natural gas markets may be subjected to more dramatic price swings in 2025 as growing LNG exports and increasingly price-sensitive producers place greater pressure on the US' stagnant gas storage capacity. Those price swings could pose challenges for consumers without ample access to gas supplies, as well as producers interested in keeping some output unhedged to capture potentially higher prices without taking on excessive financial risk. But volatility may also present opportunities for traders looking to exploit unstable price spreads, and for producers that can adapt their operations to fit a more unpredictable pricing environment. Calm before the storm High storage levels and low spot prices this year — averaging $2.11/mmBtu through November this year at the US benchmark Henry Hub — triggered by an unusually warm 2023-24 winter, may have obscured some of the structural factors pushing the US gas market into a more volatile future. But those structural factors remain and loom increasingly large for prices. The US has moved from a roughly 60 Bcf/d (1.7bn m³/d) market eight years ago to a more than 100 Bcf/d market today, "and we haven't grown our storage capacity at all", Rich Brockmeyer, head of North American gas and power at commodity trading house Gunvor, said earlier this year. As supply and demand for US gas grow, the country's roughly 4.7-Tcf storage capacity becomes ever less effective in stemming demand shocks, such as extreme winter weather events, which can more rapidly draw down inventories than in years past. Additionally, a growing share of US gas is being consumed by LNG export terminals being built and expanded on the US Gulf coast. When those facilities encounter unexpected problems and cease operations — as has happened numerous times at the 2 Bcf/d Freeport LNG terminal in Texas in recent years — volumes that were previously being liquefied and sent overseas were instead backed up into the domestic market, crushing prices. More LNG exports may mean more opportunities for such supply shocks. US LNG exports are expected to increase by 15pc to almost 14 Bcf/d in 2025 as operations begin at Venture Global's planned 27.2mn t/yr Plaquemines facility in Louisiana and Cheniere's 11.5mn t/yr Corpus Christi, Texas, stage 3 expansion, US Energy Information Administration data show. Spot price volatility will be most acutely felt in regions like New England that lack underground gas storage. "In areas like the Gulf coast, where you have a lot of storage, it won't be a problem," Alan Armstrong, chief executive of Williams, the largest US gas pipeline company, told Argus in an interview. Producers' trade-off Volatile gas markets are a mixed bag for producers, many of whom profit from volatility while also struggling to plan and budget based on uncertain revenues for unhedged volumes. Though insufficient gas storage deprives the market of stability, "from the standpoint of a marketing and trading guy that's trying to manage my gas supply to customers and my trading book, I love volatility",said Dennis Price, vice president of marketing and trading at Expand Energy, the largest US gas producer by volume. BP chief financial officer Sinead Gorman in November 2023 specifically named Freeport LNG's eight-month-long shutdown in 2022-23 from a fire as a driver of volatility in the global gas market. The supermajor was able to exploit the "incredibly fragile" gas market, she said, which was a key factor driving the success of its integrated gas business. "Those opportunities are what we typically seek and enjoy," Gorman said. Increasingly, producers have also been adapting to a more volatile market by switching production on and off in response to prices, but often without revealing the price at which a supply response will occur. Expand Energy, for instance, told investors in October that it was amassing drilled but uncompleted wells and wells that had yet to be brought on line, which it could activate relatively quickly when prices rise. It declined to name the price at which that would occur. Market participants, attempting to price in this phenomenon by anticipating producers' next moves may respond more dramatically to supply signals than in the past, when production was steadier. Producers' increased responsiveness to prices could help to balance the market somewhat, though more aggressive intervention into operations could take a toll on well performance and pipelines, FactSet senior energy analyst Connor McLean said. Producers are "treating the reservoir itself like a storage facility", Price said. By Julian Hast Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US PGP prices set to rise in 2025

26/12/24

Viewpoint: US PGP prices set to rise in 2025

Houston, 26 December (Argus) — US spot polymer-grade propylene (PGP) prices are likely to increase into 2025, driven largely by several planned limitations on supply. By mid-December, the US PGP market had the sharpest contango structure between the prompt month and the forward month since Argus began tracking data over 10 years ago. A contango is when the next month's price is higher than the current month's price. On 12 December, December-delivery PGP at the Enterprise Products Partners (EPC) system at Mont Belvieu, Texas, traded at 35.75¢/lb, while January-delivery PGP traded twice at 38.75¢/lb. Argus ' PGP forward curve shows prices rising to over 40¢/lb by the second quarter of next year. Many factors are behind this record 3¢/lb premium for January PGP and the continued increase into mid-year. The first is that spot prices have dipped to their lowest levels since August 2023 on a rare period of no major supply disruption at propane dehydrogenation (PDH) units, which produce on-purpose propylene. Most propylene production in the US comes as a byproduct from refineries or as a co-product from steam crackers. All four US Gulf coast PDH units have been operating without major incident or extended shutdown since the late summer. Since mid-August, only Enterprise's PDH-1 was shut, for two weeks in mid-October, but this was not enough to stop the downtrend in PGP's spot price. US spot PGP prices declined by 40pc from a 12 August near-term peak of 58¢/lb to a low of 35¢/lb on 9 December. A second major factor behind the market's sharp contango is that PGP supply is set to tighten in 2025. Propylene supply will have a structural reduction when LyondellBasell's 264,000 b/d refinery in Houston begins shutting down units in January and completed closes by the end of the first quarter. The company sought to exit the refining business but could not find a buyer for the refinery, which produces 136,000 metric tonnes (t)/yr of propylene. There are no planned additions to US propylene capacity in 2025, and several US crackers that produce propylene as a co-product are set for turnarounds in the first quarter. Meanwhile, propylene demand is set to structurally rise in the second half of 2025, when Formosa's new 250,000 t/yr polypropylene plant in Point Comfort, Texas, is scheduled to come online. A third major factor indicating that US spot PGP prices in December are the lowest they will be for at least several months is seasonality. One market participant said that spot activity to end 2024 is largely characterized by sellers destocking inventory ahead of the state of Texas' ad valorem taxes on inventories. This tends to cause seasonally lower prices in December and then a rise in prices in January as the market restocks inventory. This trend has persisted for the last four straight years. These three major factors — uninterrupted supply to end 2024, supply tightening in 2025, and seasonal buying patterns — all stand behind the sharpest contango into the next year for propylene in 10 years of record keeping. The forward curve for PGP indicates a rise of 5¢/lb between now and the middle of next year. The forward curve, though, does not account for any unplanned shutdowns of PDH units, which happen frequently as PDH units are operationally less reliable than propylene-producing crackers and refineries. In July, the US had three of its four PDH units shut down, taking 2.9mn t/yr of on-purpose propylene capacity offline. Such incidents could spike prices for PGP above the uptrend expected into next year. By Michael Camarda Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Tariffs may curb US bunker demand

26/12/24

Viewpoint: Tariffs may curb US bunker demand

New York, 26 December (Argus) — US president-elect Donald Trump's plans to enact new tariffs, especially those targeting Mexico and Canada, may curb demand for US bunker fuel and ripple across international markets. The proposed 25pc tariffs on imports from Mexico and Canada could affect all products coming into the US from those countries, including the significant volumes of residual fuel oil from Mexico and Canada that US Gulf coast and east coast buyers import. This could lift prices of residual fuel oil sold for bunkering in US Gulf coast and east coast ports, prompting some ship owners calling there to instead fuel outside the US in more price-competitive ports. Depending on their routes, ship owners could shift some of their bunker demand to Singapore, Rotterdam, Fujairah and Panama. Mexico alone supplied 74pc of the residual fuel oil imported to the US Gulf coast and and 29pc to the east coast in the first nine months of the year, according to US Energy Information Administration (EIA) data ( see table ). Meanwhile, Canada supplied 7pc and 16pc of the fuel oil imported to the US Gulf and east coasts, respectively. The US east coast imported 46,730 b/d of residual fuel oil and produced 35,000 b/d in the first nine months of the year ( see chart ). By comparison, the US Gulf coast imported 48,909 b/d and produced 161,667 b/d. Prices of Canadian and Mexican residual fuel oil exports to the US are typically benchmarked against US Gulf and east coast residual fuel oil prices. Should Trump implement the 25pc tariffs, companies bringing Canadian and Mexican residual fuel oil to the US could bid lower to try to offset their tariff costs. Lower bids from US buyers could redirect some of the Mexican and Canadian residual fuel oil exports to buyers in northwest Europe, Panama and Singapore. Or if Canadian and Mexican producers are not able to find lucrative clients outside of North America, they may have to settle for lower profit margins for their residual fuel oil exports to the US. On the US west coast, Trump's campaign promise to impose tariffs of up to 60pc on imports from China has already prompted some shippers to front-load container cargoes. Potential additional tariffs could slow container ship traffic from China to the US' busiest container ship ports — Los Angeles and Long Beach in California. There is a lot of uncertainty around the extent of Trump's tariff plans, as some analysts view his threats as aimed at generating leverage for negotiations. But provided that they are put into place, the Mexico and Canada tariffs could push US east and Gulf coast importers to purchase more residual fuel oil from other countries like Algeria, Colombia, Iraq, Kuwait, Nigeria, Peru and Saudi Arabia. An increase in Chinese tariffs could prompt US west coast importers to shift their purchases to other southeast Asian countries such as Vietnam, Indonesia, Malaysia and Thailand. But once the dust settles from the geographical reshuffling, new trading networks may have been established, and the US bunker market could settle into a new normal. By Stefka Wechsler US Gulf and east coasts residual fuel oil imports, Jan-Sep 2024 '000 b/d East coast % of all countries Gulf coast % of all countries Mexico 13.6 29% 36.1 74% Canada 7.4 16% 3.3 7% All countries 46.7 100% 48.9 100% — EIA US Gulf and east coast FO imports, Jan-Sep ’000 b/d Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US jet fuel demand to trail passenger growth

26/12/24

Viewpoint: US jet fuel demand to trail passenger growth

Houston, 26 December (Argus) — The upward trajectory of US jet fuel demand is likely to continue lagging the pace of rising passenger numbers because of recent capacity gains for multiple US airlines and the slow but steady improvement of aircraft fuel efficiency. More than 2.35mn travelers were screened weekly at US airports this year through the end of November, according to the US Transportation Security Administration (TSA) — a 6.2pc increase from the same 11-month period in 2019, before the Covid-19 pandemic curtailed domestic and international flights. Passenger screenings have exceeded 2019 levels consistently since the summer of 2023. Yet US jet fuel products supplied — a proxy for demand — remains stubbornly below pre-Covid-19 levels, despite the rise in traffic. Weekly jet fuel products supplied this year through 13 December was 1.66mn b/d, down by 6.5pc from daily demand in full-year 2019, according to US Energy Information Administration (EIA) data. This slower recovery in jet demand relative to rising passenger numbers may be driven by several factors, including airlines carrying more passengers than in the past, as well as steady improvements in aircraft fuel efficiency. More seats, more flyers Many US airlines have increased flying capacity, as measured by available seat miles (ASMs), since pre-pandemic levels, while load factor — the percentage of seats filled by passengers — has been stable to lower compared with 2019. United Airlines' 2024 third quarter ASMs were up by 14pc at 81.54bn compared with the same three months in 2019. United's load factor was down by 0.8 percentage points to 85.3pc in the same period. Rival US carriers American Airlines and Southwest Airlines similarly posted capacity increases of 14pc and 15pc, respectively, compared with the third quarter of 2019. American's load factor was unchanged at 86.6pc, while Southwest saw a decline of 2.3pc to 81.2pc. Airlines have also made fuel efficiency improvements in recent years. This is in part from the retirement of many older airplane models during the lean years of the pandemic, combined with delivery of newer, more efficient models in more recent years. Southwest Airlines' third quarter fuel efficiency improved by 1.5pc year-over-year, the company said in October. Southwest improved its fuel efficiency with the delivery of nine Boeing MAX 8 aircraft in the third quarter while retiring 15 older planes. The MAX 8's and MAX 9s have average fuel efficiencies of 96 and 101 seat miles per USG (sm/USG), respectively. That would make them 23pc and 30pc more efficient than older planes they may have replaced, such as the Boeing 737-800, with a 78 sm/USG. Other airlines are also refreshing their fleets with newer, more fuel-efficient planes. American Airline's mainline fleet at the end of the third quarter grew by 2.2pc from a year earlier to 971 aircraft. It took in 600 new aircraft from 2013 to 2023, including 31 new planes in 2023. United Airline's third-quarter fleet was similarly 3.4pc larger than a year earlier. But there are limits to this growing efficiency. Globally the average age of airline fleets has risen to 14.8 years, according data from the International Air Transport Association (Iata) — up from 13.6 years in 1990-2024. This is due largely to the steep dropoff in new plane deliveries as aircraft manufacturers struggled with supply chain issues and high costs from the pandemic. Boeing, a chief provider of planes for many US airlines, had a spate of production disruptions in 2024, including a multi-week strike this past fall, that slowed the delivery of newer aircraft. But even a trickle of newer models would gradually affect fuel efficiency, potentially continuing to hold gains in fuel consumption below the rate of passenger growth. By Jared Ainsworth Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: MEH-Midland spread to remain wider in 2025

26/12/24

Viewpoint: MEH-Midland spread to remain wider in 2025

Houston, 26 December (Argus) — WTI Houston's premium to WTI in Midland, Texas, is set to hold at 50¢/bl or wider in 2025, boosted by swelling volumes headed toward the Gulf coast as Houston grows in importance as a center for price discovery. The locational spread between WTI Houston and Midland rose steadily throughout 2024, averaging 49¢/bl year-to-date and widening as high as $1.41/bl during the June trade month as the 1.5mn b/d Wink-to-Webster pipeline was taken offline for repairs. In 2023, the spread averaged 21¢/bl. Trading activity for WTI at Oneok's Magellan East Houston (MEH) terminal — both in the physical and financial markets — climbed to all-time highs in 2024. Reported trade month volumes for WTI Houston swelled to 1.26mn b/d during the December trade cycle, a high for the year, and just 0.8pc below its previous record. On 16 December, WTI Houston trade closed the day at 153,000 b/d for the January trade cycle, the highest single-day trade volume in the history of Argus assessments of the grade. In financial markets, WTI Houston trade activity broke records in 2024, with open interest on CME's WTI Houston futures contract climbing to an all-time high of 412,519 lots — each 1,000 bl — on 21 November. MEH demand up despite export slowdown Trading activity broke records even as US crude exports slowed in the latter half of 2024 on Chinese economic woes that dampened Asian demand. New Chinese stimulus initiatives, namely relaxed fiscal and monetary policy , are meant to reverse that trend, but it remains to be seen if the efforts will work. Further challenges weighing on the US export market are a strengthening dollar combined with a high degree of uncertainty surrounding president-elect Donald Trump's proposed tariff plans, which feature ratcheting-up trade tensions with China even more. Multiple projects to add Permian takeaway capacity at the Texas Gulf coast are in various stages of planning, which could eventually open the window for ever-larger WTI export volumes, and further support WTI Houston against Midland. But industry participants have grown skeptical of the need for new export terminals or other projects. Midstream companies showed little enthusiasm for pitching new coast-bound pipelines from the Permian basin in their end-of-year investor reports . Key firms previously sought more takeaway capacity before the Covid-19 pandemic, when WTI Houston premiums to WTI in Midland consistently topped $1/bl, which would help recoup pipeline construction costs. As it stands, the roughly 3mn b/d total available pipeline capacity from the Permian basin to the Houston area is likely to remain static in coming years. This status quo for onshore infrastructure will help prop open the Houston-Midland WTI premium for the coming year, even if export demand fails to picks up in 2025. By Gordon Pollock WTI Houston-WTI Midland spread Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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