Chinese petroleum demand rises despite slowing down in economic data

Although recent economic data show sluggish growth of Chinese economy, petroleum demand in August was unexpectedly steady.

Apparent petroleum demand, or pure domestic demand, in China rose 3.7% on year to 9.74 million barrels per day, according to Platts' estimation. Demand in the first eight months rose 1.2% from a year ago.
Since demand fell 2.1% on year in July, quarterly growth data might be about 1% on year growth.

Platts' data do not include change of petroleum stockpile. Meanwhile, Xinhua News reported that end-August stocks of petroleum products fell 6.2% from a month ago. Especially, gas oil inventories decreased 10.3% from a month earlier.

China's domestic petroleum demand that contains the inventory movements was 10.01 million bpd, up 4.7% on year. However, it is doubtful that the figures really reflect the nation's petroleum demand.
News have reported sluggish gasoil sales in China despite the large decrease of stockpile

Crude oil processing by Chinese refineries in August rose 4.4% from a year ago, according to the National Bureau of Statistics. But refineries might have increased processing because they did not have enough crude oil storage capacity.

Higher crude oil processing produced large number of petroleum products in China. Oil companies seemed to be unwilling to keep high products inventories, since prices were softening.

Domestic official petroleum sales prices have caught up with the movements of international markets more timely after the Chinese government changed the price setting methodology last year.

Firmer petroleum demand in China is very strange. It is inconsistent with decreasing petroleum demand in other Asian countries like India and Japan as well as slump in Chinese economic data.


Fossil fuel costs for nuclear outage in Japan to be offset by decreasing crude oil imports

Japan's crude oil imports fell 19% on year to 2.74 million barrels per day in May, according to customs data. It was first time that the country's crude oil imports slipped below 3 million bpd level since 1969.

Reduction of crude oil distillation capacity and the seasonal maintenance seem to cause the sharp drop of procurement. Crude oil processing in Japan fell 3.7% and 3.3% from a year ago in April and May, then it shrunk by 15% on year during the first three weeks in June. However, there has not been reported a lack of petroleum products in the market.

Japanese oil companies consolidated their refining facilities following the Energy Efficiency Law that was enforced in 2009. They cut about 400,000 bpd of crude oil throughput capacity in 2010, then reduced further 500,000 bpd until the dead line of the consolidation that was set at end of March this year.

In Japan, petroleum demand was predicted to increase to make up for nuclear power supply outage since 2011. But actually total crude oil imports by the nation has not increased despite additional demand from the power sector.

Even demand for thermal power generation has sustained Japan's petroleum demand despite declining fuel consumption in transportation sector that is affected by fuel-efficient vehicles, it could not boost the total crude oil imports.

Meanwhile, growth of electricity demand has been usually negative in Japan after 2011 due to power saving and change of the industrial structure. Although relatively high industrial activities supported power demand in February and March this year prior to the consumption tax hike on 1st April, reaction against that depressed the growth rate to about 2% per annum of decrease in April and May.

If Japanese oil companies reduce their crude oil procurement by 400,000 bpd (about 80% of scrapped capacity since mid-2013), the nation's trade deficit could decrease by 1.6 trillion yen ($15.8 billion) per year.
On the other hand, Japanese power companies have bought additional 17 million tonnes of liquefied natural gas for thermal power generation after 2011. It roughly costs about 1.5 trillion yen ($14.8 billion) annually.

Payments for fossil fuels are considered as one of main reasons of Japan's 11.4 trillion yen ($112.4 billion) of huge trade deficits in 2013. However, additional fuel costs to make up for nuclear power outage is not exceeding 2 trillion yen, and it is likely to be offset by reduction of crude oil imports in the near term.


Mysterious large crude oil imports by China

China has procured large amount of crude oil since late last year. Accumulated supplies exceeding processed crude oil during the past several months seem more than the country's strategic reserve capacity. Even if Chinese statistics data are not credible, many institutes use these figures for calculating their world petroleum demand forecast. The suspicious crude oil procurements by China may lead amendment of future petroleum demand.

Total crude oil supply in China rose 5.3% on year in May to 43.84 million tonnes or 10.36 million barrels per day, while growth of crude oil processing in the same month stayed at 3.5% on year to 40.33 million tonnes or 9.53 bpd, according to the government data.

Crude oil supply in May exceeded processing volume by 3.51 million tonnes. Accumulated oversupply in the first five months in 2014 is nearly 14 million tonnes. The figures include commercial stockpile.
China's commercial crude oil stockpile level as of end-April was estimated about only 1.7 million tonnes higher than that at the end of 2013, according to data issued by Xinhua News. Therefore, crude oil oversupply during Jan-May excluding the growth of commercial stockpile seems still being more than 10 million tonnes, or 73 million barrels.

However, there is a question. Does China have enough storage capacity for the large strategic petroleum reserve? PetroChina estimated that national stockpile capacity as of end 2103 was 140 million barrels, while International Energy Agency saw it could be about 160 million barrels.

First phase of Crude oil strategic storage facilities in China were built by the end 2009. The total 103 million barrels facilities were filled in 2010. Then 169 million barrels of second phase facilities are planned to complete by 2015. The construction has delayed.
Part of the second phase facilities were completed in 2011 and they were filled with nearly 80 million barrels of crude oil in the first half of 2012.

Fresh news on strategic reserve facilities have not been reported after that. But China started to procure large crude oil since late last year. Total oversupply excluding movements of commercial stockpile during November 2013 and May 2014 reached 120 million barrels. Such volume is not able to store even if the second phase of national stockpile facilities are completed.

Where are the massive crude oil stockpiles stored? Is China really importing such large crude oil shown in its Customs data?


China crude oil imports still exceed demand

China's crude oil imports in May rose 8.9% from a year ago to 6.16 million barrels per day, according to the General Administration of Customs. Meanwhile, the number fell 6.5% from the previous month's record imports of 6.81 million bpd.

 Although Chinese crude oil imports are slowing from April, it still remains at relatively high level. If domestic crude oil production in May stayed at same level as Jan-Apr, total crude oil supply in the month would be about 10 million bpd.

Chinese refineries should increase their throughput level by 8% on year in order to process the entire supply. However, it is impossible because accumulated crude oil processing in the first four months in 2014 only increased by 1.8% on year. Moreover, Chinese refineries are typically shut their facilities in May and June for maintenance prior to summer demand season.
Therefore, crude oil imports in May still seems including procurements for strategic reserve.

On the other hand, Chinese trade surplus in May surged to 35.9 billion dollar, the highest monthly surplus since January 2009. Processing trade also recorded two consecutive months growth on year.

These data suggests that energy demand in the country may be underpinned in the near term. But customs data also showed a contrary story that China's petroleum products export exceeded import again following March. It shows that petroleum products are oversupply in China.


OPEC crude oil excesses further due to sluggish imports by US and China

Twelve member nations of the Organization of Petroleum Exporting Countries have maintained their total crude oil production below the target at 30 million barrels per day ahead of its general meeting that is scheduled on 11th June.
Moreover, demand for OPEC crude oil is likely to decrease since imports by two major players - the United States and China may be slowing down in the near term.

Estimated OPEC crude oil production has been below the quota of 30 million bpd since September 2013 except for February.

Global demand for OPEC crude oil is limited due to the increasing supply from non-OPEC producers. Recently, imports by the U.S. is declining sharply and forecasts of Chinese demand is not bright. Petroleum shipments by OPEC members are falling from last year's levels between early April and early June, according to Oil Movements' survey.

In the U.S., regional petroleum demand is slowing down while domestic crude oil production is growing steadily. Moreover, petroleum demand in the country is expected to decrease on year toward the late this year.

The U.S. has been mainly importing OPEC crude oil into the Gulf of Mexico (PADD3) area. However, the region currently does not have enough room to take waterborne crude oil imports since large crude oil flow from inland boosts the stockpile level to the record high.
An additional crude oil pipeline from inland to the gulf area is scheduled to start operation in the near future, so this tendency is likely to be accelerated.

While losing the U.S. market, OPEC anticipated that growing demand from China and other Asian emerging market will offset it. But crude oil processing in India continues to level off after reaching to about 4.5 million bpd in late 2012. Meanwhile, growth of crude oil throughput in China in 2013 remained at 3.3% from a year ago, then slowed to 1.8% growth on year in the first four months period in 2014.

China imported average 6.26 million bpd of crude oil during Jan-Apr, up 11.5% on year, according to the General Administration of Customs. But the high imports caused half million bpd of excess crude oil against processing.

Accumulated excess crude oil during the first four months was more than 10 million tonnes, while commercial crude oil stockpile in China was estimated to gain by about 1.7 million tonnes during the same period. Therefore, 8.3 million tonnes of excess crude oil was likely used to fill up the strategic reserve.

In April, the strategic reserve increased by more than 5 million tonnes, so China's crude oil imports for physical demand in the month were actually fell about 1% on year despite the record high customs data.

It suggests that Chinese crude oil imports will be flat or lower than previous year's level after completing the building of strategic reserve. Thus the country is unable to make up for shrinking demand from the U.S.

On the other hand, some OPEC members like Iraq and Iran are aggressive to increase their crude oil supply. Libya is also expected to resume its supply promptly if current domestic turmoil is solved.

What will other members do? If they maintain the current output levels, total OPEC production will far above the target quota. The excess supplies could depress global petroleum prices as they once were.


Japan's energy demand shows no apparent sign of reaction against tax hike

One and half months have passed after the Japanese government raised consumption tax from 5% to 8%. Many people predicted an aggressive consumption prior to the tax hike and a possibility of reaction after April.

Although Japanese energy demand has been in downward tendency in the past couple of years, both petroleum and electricity demands rose on year in March. Then demand slipped again after April.

However, can we say those were rush demand and reaction against it? Especially, electricity demand significantly fluctuates by weather conditions. I think April data are not enough to be recognized as reaction.

Petroleum demand recorded year-on-year decreases during March and May last year, and is falling further between April and mid-May in this year. Even though, current monthly decreases are still below the average of the past few years.

If we look back on 1997 when the last time Japanese consumption tax rate was increased from 3% to 5%, regional petroleum demand rather increased after the taxation change. Japan's petroleum demand started to decline in late 1997 in step with economic slowdown.

Energy demand in Japan seems not affected directly by the consumption tax increase, once again.


Change of U.S. crude oil stockpile situation

Increase of crude oil stockpile in the United States is depressing prices recently. Market players previously only focused on stockpile in Cushing, but the situation about the U.S. crude oil supplies seem to be changing.

The latest commercial crude oil stockpile in the U.S. nearly reached to 400 million barrels of the highest record, according to the weekly report released by the U.S. Energy Information Administration. The stockpile level is about 80% of current U.S. working crude oil storage capacity. The level was below 70% of the storage capacity in the beginning of this year.

The increase tendency of crude oil stockpile in the U.S. is of course triggered by steady growth of domestic production. Although crude oil throughput in the country has been higher level compared to several years ago, the growth of crude oil production is much faster than that.

Current crude oil supply in the U.S. is concentrated in the Gulf of Mexico area. Total crude oil stockpile as of the end of April in the U.S. rose 1.0% from a year ago. On the other hand, stockpile in the Gulf of Mexico region rose 10.1% on year, while that in the Midwest fell 18.7% from a year earlier.

The contrasting movements were caused by pipeline flows. Previously, crude oil was typically imported into the Gulf of Mexico area then transported to the Midwest through pipelines. But recently, increasing inland outputs are supplied to the gulf region oppositely.

The change of industry and social structure weigh on petroleum demand in the U.S. Fuel conversion to cheaper natural gas also accelerate the tendency.
Meanwhile, U.S. refineries are aggressive to export petroleum products, since their prices are competitive because of cheaper WTI crude oil than global index Brent. Crude oil processing in the Gulf of Mexico area is 10% higher from a year ago. Despite the refinery utilization rate exceeds 90%, larger crude oil supplies are lifting stockpile in the region apparently.

Crude oil imports into the Gulf of Mexico has declined by more than 2 million barrels per day from the levels during 2000s, but it still seems excess.

Current stockpile of crude oil in the gulf area is about 80% of the regional storage capacity. It suggests that the increasing supply through pipelines from the Midwest may cut tanker imports further or encourage the discussion to abolish the export ban for crude oil.

The Obama administration recently postponed decision on the construction of new Keystone XL pipeline that will carry more crude oil from Canada. Many people are discussing environmental issue about the new pipeline, but critical storage problem is also likely to be seen if the new crude oil flow comes into the U.S. without solving export ban.


China becomes petroleum products exporter

Chinese refineries seem to aim expanding their petroleum products export to make up for domestic slow demand. In March, the country's petroleum product export exceeded import for the first time since January 2010, according to the General Administration of Customs.

Chinese oil giant PetroChina recently announced that its refining sector earned 1.96 billion yuan of profit in the first quarter of this year compared to 1.56 billion yuan of losses a year ago. The company's sales profit in the period increased by 56.6% on year despite turnover fell 2.1% from a year ago.

The main cause of the improved profits could be new official petroleum price system that was introduced in late March 2013. Chinese domestic petroleum product prices are set by the government. Previously, these prices were reviewed based on international market prices in the past 22 business days. But the government shortened the review period to 10 business days last year. Therefore, risks of price gap between international crude oil and domestic petroleum products have been reduced.

On the other hand, I have sometimes reported that China is increasing crude oil procurement and refining capacity based on the rapid economic growth during 2000s but these supply abilities are exceeding the growth of local demand recently.
Especially, crude oil supply seems to be too much against the regional stockpile capacity, so Chinese refineries could be difficult to cut throughput rate.

Chinese refineries are likely to need maintaining relatively high crude oil processing rate because of such improved profitability and the physical constraint. The average throughput rate in the current month by major state-owned companies rose 4 percent points on year to 82% , according to Platts survey.

However, domestic demand does not show any sign of strong recovery. Although China has typically absorbed petroleum products from the international market, the nation could become a net supplier in the near future.


Is the consumption tax hike affecting on Japan's energy demand?

Economic slowdown is feared in Japan after the consumption tax hike on 1st April. Can we see any impact on the energy consumption before and after the tax rate hike?

Crude oil processing typically rises before summer and winter demand seasons, then starts decreasing toward maintenance seasons.

March is known as a time to start decreasing of demand in the cycle, however, strong fuel demand from the transportation sector sustained the crude oil processing rate last month. Transporters delivered large volume of goods for rush demand before the tax hike.

Crude oil processing in Japan had slowed down after December last year, and decreased on year in February. Although the processing rate rebounded to 3.9% on year of increase in March, it slipped again to the negative level in early April.

After the severe earth quake in March 2011, monthly electricity supply by Tokyo Electric Power Company usually has been decreased on year by the power saving efforts. But the electricity supply in February & March rose from a year ago.

Strong power demand in February was likely supported by chilly weather, however, the demand in March increased by 3.9% on year despite temperatures exceeded the previous average. Then its electricity supply in the first twelve days in April fell to 2.5% on year.

Data on the energy supply apparently show that the industrial activity in Japan increased in March, but can we assert recent declines in April as the strong reaction to it?

Crude oil throughput fell 0.5% on year against the 3.9% of increase in March, and the decrease rate of electricity supply in April is half of increase rate in the prior month.
Although we still need to keep watching the situation, it seems that there is no rapid extreme reaction after the tax rate hike.


WTI crude oil is losing internationality further

The primary index for global crude oil prices has shifted from the United States West Texas Intermediate to European Brent in the past couple of years. The reason is that WTI is losing its internationality due to the shale revolution in the north America. The tendency seems to have accelerated in this year.

WTI crude oil prices are diluting correlativity with Brent further after Keystone XL pipeline started 300,000 barrels per day of crude oil transportation from the U.S. Midwest to Texas in January this year.

Previously in the U.S., crude oil was typically imported in the Gulf of Mexico area, then transported to the Midwest, however, surge of domestic production after the shale revolution changed the situation.

Seaway pipeline reversed its transportation direction from the Midwest to the Gulf in May 2012. Its transportation quantity had increased from the original 150,000 bpd to 400,000 bpd in January 2013.

The Keystone XL pipeline which has 700,000 bpd capacity started operations in early this year, and an additional 450,000 bpd facility of Seaway pipeline is scheduled to open traffic in May. Therefore, total volume of oil transportation from the Midwest to the Gulf of Mexico will be 1.55 million bpd.

After the Keystone XL pipeline started operation, crude oil transportation between the regions seems to have exceeded the equilibrium point. Crude oil stockpile in the Midwest started decreasing sharply and that in the Gulf reached the record high level.

Since imports by tanker into the Gulf area are decreasing, the stockpile is being lifted by crude oil that comes from northern U.S. and Canada with passing through the Midwest. To buy reasonable North American crude oil and reduce tanker imports seems to be appropriate decision by Gulf refineries.

From the beginning of this year, WTI crude oil prices have been supported by decrease of stockpile in Cushing, Oklahoma despite apparent increase of the U.S. total crude oil stocks.

This situation might change if WTI's price superiority against Brent disappears. Meanwhile,  crude oil production in the U.S. is expected to increase further and imports are predicted to continue shrinking.

Status as price index of WTI may lower further, since it is more rely on stockpile in Cushing than the supply situation in the Middle East or West Africa.


Excess refinery capacity is getting serious in China

Forecasts for excess capacity in Chinese refineries are getting serious. Utilization is expected to fall sharply due to the slowdown of economic growth, and rush of start-up of additional refineries.

Although exact number on the refinery capacity in China is not disclosed, industry sources estimate that nearly 800,000 barrels per day of new capacity was added in 2013. Accumulated refinery capacity in China at the end of 2013 could be 12.3 million bpd. Moreover, 1.1 million bpd capacity is expected to be added in 2014.

A strong increase of energy demand was anticipated in China after 2000 based on the steady economic growth in the country. Actually, Chinese petroleum consumption was accelerated in the later half of 2000s until 2010.
Despite Chinese refineries maintained their utilization rates above 80% at that time, shortages of product supply caused many social disruptions over the nation.

However, the growth of energy demand in China is slowing down rapidly after 2011.
Year-on-year growth of crude oil processing released by the National Bureau of Statistics fell from 14.5% in 2010 to 5.7% in the next year. The growth rate continued to shrink year by year to 3.4% and 2,5%, then slipped to 1.0% decrease in the first two months in 2014.

Even if gasoline production is sustained by steady car sales in the country, a growth of Chinese gasoline outputs fell to 4.9% on year in January-February in 2014 from 9.5% on year in 2013. Outputs of diesel that is the main petroleum product in China fell 2.6% from a year earlier in the first two months of 2014 after recorded a 0.3% on year tiny growth in 2013.

Despite the production is decreasing, commercial diesel inventory in China surged by 53% during the first two months in 2014, according to the Xinhua News. It suggests the current weak industrial activities in the country.

Under the such situation, many new refineries that were planned in the later half of 2000s are starting up.

Average utilization rate of Chinese refineries in 2013 was estimated at mid 70% based on official data provided by the government, but PetroChina sees much lower rate at 67%.

In 2014, the large increase of capacity and a further slump of petroleum demand may reduce the utilization rate to less than 60%.


About energy, Russia more relies on Europe

Europe's energy dependence on Russia is attracting attention again following the tension in the Crimea peninsula.

About 40% of petroleum supply in Europe comes from inside the region in 2012, while 28% is supplied from Russia. The amount of import from Russia is much bigger than 11% from the Middle East and 7.6% from North Africa. The 5.8 million barrels per day of Russian oil supply can not be replaced by the other source easily.

Around 45% of natural gas supply in Europe is also provided by local production. Russian exports are account for 23% of the natural gas supply into Europe.

Data show that dependence of petroleum is relatively larger than natural gas at moment.
Europe's petroleum dependence on Russia was not so large in 1990's, since oil production in the former Soviet Union region shrunk significantly during collapse of the Socialist Empire.

However, European countries have increased petroleum procurements from Russia due to the steady production recovery in the former Soviet region. Geopolitical tensions in the Middle East and competition of procurement with Asia and the United States in the area also encouraged Europe to increase oil imports from Russia.

About distribution of energy, Russia more relies on Europe.
In 2012, about 65% of total natural gas exports by Russia including liquefied natural gas to Asia headed to Europe.

About 67% of petroleum exports by the former Soviet Union area was shipped to Europe. As for only Russia, nearly 90% of its petroleum exports were directed to Europe.

Therefore, Russian economy could be damaged significantly, even if Europe reduces energy procurement slightly.

However, European countries cannot shift natural gas supply sources easily even if Qatar and other Middle Eastern nations already have huge LNG supply capacities. Number of LNG tankers and port unloading facilities are not enough.

On the other hand, petroleum supply could be changed relatively easily if refineries accept inconveniences by the difference of crude oil grades. In a sense, current tensions in Crimea or news reports about that seem like sales promotion for North American crude oil.


China keeps steady crude oil imports

Chinese crude oil imports in February rose 10.9% on year to 6.03 million barrels per day, according to the General Administration of Customs. The country's crude oil imports have increased by two digits from a year ago in three consecutive months.

The February's import figures were 18.1% lower than the previous month when scored the record high of 6.65 million bpd. But still remained above the 6 million bpd level.

The average crude oil imports during January and February rose 11.5% from the same period a year ago to 6.36 million bpd.

In February, China recorded the first trade deficit since March 2013 due to the slump of exports. The amount of processing trades in the month also slipped to the lowest level since February 2011. Those data suggest that industrial activities in China is slowing down.

China, however, maintains steady crude oil procurements. The country seems to be optimistic for the near term energy demand.

On the other hand, commercial crude oil stockpile in China as of the end of January had increased 3.6% from a month ago. It was the first increase since September 2013. It is also possible that the Chinese petroleum industry only began to stockpile toward the summer.


Slump in car sales depresses Indian oil demand

Crude oil processed in India fell 4.5% on year to 4.43 million barrels per day in January, according to the Ministry of Petroleum and Natural Gas. It was the fifth consecutive month of year-on-year decrease.

However, Indian electricity supply in the same month rose 5.7% from a year ago, recorded seventh months consecutive increase. Entire energy demand in the country seems not shrink.

The cause of the slowing down of petroleum demand in India is estimated to be the slump in automobile sales.

Indian passenger car sales in 2013 fell 9.6% on year to 1.81 million units due to rising fuel prices and high interest rates. It was the first annual sales decrease since 2002.

Passenger car sales in January also slipped by 7.6% from a year ago to 160,289 units, according to the Society of Indian Automobile Manufacturers. Consumers in the nation are very reluctant to buy cars.

The sluggish petroleum demand in India, however, is unlikely to depress the global crude oil market, since estimated main part of the near term growth of world petroleum demand has already shifted from the emerging market to advanced nations.


Half of Japan's thermal power capacity exceeds useful life

Japanese people are discussing about the resumption of nuclear plants after the result of last week's Tokyo gubernatorial election and the Chubu Electric Company's application for a state safety assessment of the No. 4 unit at its Hamaoka nuclear power plant.

Fears of electricity supply shortage encourage people who support the resume of nuclear units.
Kansai Electric Power Company has been spending the first high electricity demand season without nuclear units. Although the company had expected a very severe situation, its spare supply capacity has been secured enough. KEPCO's spare capacity slipped below the 8% of stable level only once since the beginning of this winter. Meanwhile, Tokyo Electric Power Company's spare capacity has dropped below 8% four times in this season. However, both two major power companies have not recorded less than 5% of spare capacity.

One of the major reasons why Japanese utility firms have avoided the critical situation is declining electricity demand in the country. Efforts of saving power and changes of industrial and social structures have cut Japan's power consumption. Electricity demand in the nation basically has shown year-on-year decrease after the severe earthquake in March 2011. The tendency is likely to continue.

On the other hand, people who request the resume of nuclear units often mention about the overuse of aging thermal power units.

Utilization rates of thermal power units by Japanese electricity companies have increased from around 40% to about 60%. It rises toward 70% during the high demand season.

Generally speaking, the 60% utilization rate is not much high. But thermal power units in Japan had been used to make up the demand gap between day time and midnight. Therefore, power companies do not have enough system to maintain high utilization rates at thermal power units for long hours.

Moreover, thermal power units that account for about half of entire thermal power generation capacity in Japan have more than 30-years age. Units that account for 20% of the total capacity have more than 40-years age. Those units seem to have exceeded their useful life.

The serious power supply shortage caused by accidents at thermal power units might be seen in Japan in the near future. Power companies need to replace their aged thermal power units urgently or to resume nuclear units.


Will US petroleum exports rise further?

Petroleum exports by the United States posted another record high in December. Petroleum exports from the country have renewed historical records frequently in the past several months.

Petroleum exports and domestic crude oil production in the U.S. show steady upward trends apparently in contrast with the shrinking of petroleum imports.

The petroleum demand in the U.S. has peaked out in mid-2000s. Meanwhile, increasing domestic crude oil production that is boosted by the shale revolution has reduced crude oil imports into the U.S. and made the region’s crude oil prices cheaper than international markets. Lower crude oil prices led U.S. petroleum products exports more competitive.

However, petroleum demand in the U.S. has been recovering since the second quarter of 2013. The U.S. Energy Information Administration forecasts that the country's petroleum demand could be firmer towards the end of 2015.

Keystone pipeline has started operation of its extension part towards the Gulf of Mexico, it is likely to ease the high crude oil stockpile level in the U.S. Midwest. The discount of the U.S. crude oil against the European benchmark is also expected to shrink.

Therefore, EIA does not predict that the U.S. will export petroleum at far above 2 million barrels per day level over the next 2 years. Further breaking record of export might not be seen in the near future.

In the U.S., the cancellation of crude oil export ban is being discussed aggressively. The country has prohibited export of domestic produced crude oil since 1975. But current supply and demand situation suggest that crude oil export might not begin significantly even if the U.S. government lifts the ban.

On the other hand, the resume of crude oil export may push U.S. crude oil prices up towards international prices. It could accelerate conversion of energy use to natural gas in the country.


China's shale gas production is surging, but...

Chinese National Energy Bureau expects that the country will produce 1.5 billion cubic meter of shale gas in 2014. It is more than 7 times amount of last year's production. China only produced 25 million cf of natural gas in 2012, but the current rapid growth of production is likely to raise the output to 6.5 bcm in 2015.

However, the growing shale gas output is still ignorable levels, since total natural gas production in China was 107 bcm in 2012. Shale gas production in China can not make up for the slowing down of total gas output.

In the United States, shale gas production already accounted for 35% of total natural gas supply in 2012.

In China, the growth of conventional gas production is not able to catch up with the increase of consumption. In addition, the growth of shale gas output is not enough. Therefore, imports are surging especially in 2010s.

But China's annual natural gas imports were equivalent to 3.2 million tonnes of liquefied natural gas in 2012. Japan imported 87 million tonnes of LNG in the same year. The huge difference suggests that severe competitions between China and Japan over the procurement of natural gas are unlikely to be seen in the near future.


Japan's power demand is shrinking despite economic recovery

Total electricity supply in 2013 by Japanese 10 major utility companies fell 1.9% on year to 917 billion kilowatt-hour, according to the Federation of Electric Power Companies. It was the third consecutive year-on-year decrease. Last year's Japanese electricity demand was even lower than 2009 when economy recession following the Lehman shock significantly depressed the country's power consumption.

Japan's monthly industrial production index have increased by about 5% from a year ago since September 2012, however, the country's electricity demand has sunk by about 1% on year during the same period. Japanese electricity demand continues to shrink even in the economic recovery period, since users are trying to improve efficiency and optimization.

On the other hand, use of liquefied natural gas for thermal power in Japan is increasing because all nuclear units have been shut again since October 2013. Although higher coal-burning and weaker electricity demand had cut the nation's LNG consumption for thermal power by 4.0% on year in the first half of 2013, the recovery in the second half eased the decrease to 0.9% on year for the full year of 2013. Moreover, LNG consumption by Japanese power companies reached the record high at 5.27 million tonnes in December 2013.

Meanwhile, petroleum consumption by power companies in 2013 slipped 22.8% from a year ago to 413,000 barrels per day. Power firms seems to try reduce utilization rates of aging petroleum-burning thermal power units.

LNG prices in Japan are not reasonable compared to coal and petroleum. International coal prices have decreased since early 2011, while current Asian LNG prices are even higher than the price rally in 2008 because of the steady demand from Japan.

Chinese power companies enjoyed record profits thanks to weaker coal prices in 2013. Meanwhile, strong LNG prices have hurt Japanese power companies profit structures and are pushing up regional electricity prices.

Japanese power firms are trying to improve thermal efficiency of power units in order to reduce LNG consumption. Nevertheless, Asian LNG prices are unlikely to start declining until massive supply from the north America will begin in late 2010s.


Crude oil prices could be weaker during 2014

NYMEX crude oil futures fell back from above $100 per barrel at the beginning of year 2014. How will prices move in the crude oil market through this year?

Crude oil prices are fluctuating with being stimulated by various factors in the short term, however, long term movements are eventually affected by the supply and demand situation. A supply shortage usually lifts prices, while the surplus tendency depresses the market.

Global petroleum supply and demand balance is forecasted at a little bit surplus during the first half of 2014 and predicted to turn into a shortage by 0.5-1.0 million barrels per day in the second half of the year, according to the latest energy outlook issued by the United States Energy Information Administration.

EIA expects WTI crude oil prices could move about mid-$90/bbl through the year. But prices might stay at the lower $90/bbl level in the first half and rise to above $100/bbl in the second half, if the supply and demand balance follows the institute's prediction.

Organizations other than EIA  like the International Energy Agency and the Organization of Petroleum Exporting Countries also forecast steady growth of petroleum demand in 2014. Meanwhile, they predict stronger increase of petroleum supply from non-OPEC producers. Therefore, needs for OPEC crude oil are expected to be below the 30 million bpd of production quota during 2014.

Since recent total crude oil production by OPEC member nations are estimated at the middle of 29 million bpd level, the world petroleum supply and demand could be balanced if OPEC keeps output at the current level.

However, Libya might be the uncertain factor. In the north African country, labour disputes and unsatisfied militia or tribes have occupied ports and oil production facilities over the past several months. Libyan crude oil production has declined from about 1.4 million bpd to near 200,000 bpd because of such sabotage.

A resume of supply from Libya is likely to affect the global petroleum supply and demand balance significantly. On the other hand, expectation for the lifting of sanctions on Iran is an another uncertain factor. International sanctions against the Islam republic has cut the nation's crude oil output by about 1 million bpd.

The total loss from the two countries is about 2.4 million bpd, however, increased supply from Saudi Arabia and Iraq has completely filled the shortage. The current sum of crude oil production by the four countries is actually higher by about 200,000 bpd than that in early 2009.

Even a part of resumption of crude oil supply from Libya or Iran could loosen the global petroleum supply and demand balance visibly and depress the world crude oil prices.