In Oil & Companies News 25/05/2015
China’s shift to consumer-led growth is accelerating demand for gasoline in the world’s biggest energy user, with the fuel on track to challenge the dominance of diesel as an increasing number of middle class consumers buy bigger family cars.
Diesel production is still forecast to be some 14 percent higher than gasoline this year, but the gap is on course to halve in five years and then disappear in the next decade, according to calculations based on data from consultancy Wood Mackenzie.
The importance of diesel and gasoline varies globally, largely due to the usage in cars and industry. Most cars in China use gasoline, a similar picture to North America where almost 90 percent of private vehicles run on gasoline, while in Europe more than half of new cars are diesel powered.
The relative change in the fortunes of diesel and gasoline in China will require billions of dollars to be invested in new refineries or conversions to meet the shift in demand.
“The gap between these two fuels in terms of their volumes will be narrowed further, since gasoline will likely grow at a faster pace than diesel over the next five to 10 years,” said Wood Mackenzie’s principal China downstream consultant Fu Feng, highlighting a shift away from investment-led growth.
Chinese investment growth fell to the lowest in nearly 15 years, data in April showed.
A drop in investment in smokestack industries that policy makers are encouraging will impact diesel demand most as trucks, machinery and heavy equipment are all big users of the fuel.
While slower economic growth is hitting overall car sales, gasoline demand has benefited from faster sales of sport utility vehicles with bigger engines that consume more fuel.
Retail sales of SUVs soared more than a third last year to 3.82 million, and have more than doubled since 2012, according to the China Passenger Car Association (CPCA).
China’s gasoline demand is expected to grow by 8 percent in 2015, compared with growth of less than 1 percent for diesel, Wood Mackenzie’s Feng said.
For 2016 to 2020, annual demand growth for gasoline is seen at 5.5 percent, versus 1.7 percent for diesel, he said.
REFINERS CHANGE TACK
Chinese refiners, which just four years ago were scrambling to crank up diesel output to ease shortages, had to change tack in 2014 by expanding gasoline output at the expense of diesel.
“I think the refiners were also surprised at how much better gasoline has performed compared to diesel in the last six months due in part to falling retail pump prices,” said an industry source who tracks fuel flows.
About 35 percent, or 3.6 million barrels per day (bpd), of the output of refineries in China is now diesel, down from 45 percent a few years ago, according to refining sources.
On the other hand, gasoline output is now 2.7 million bpd, or 26.3 percent of total output, up from 22.3 percent in 2012, separate data from Wood Mackenzie showed.
The consulting firm said gasoline supplies will rise on average by about 160,000 bpd a year for the next five years, while diesel is forecast to increase 90,000 bpd,
Over the next few years, there will likely be more emphasis on investments in refining geared towards processing more gasoline, said Kang Wu, Beijing-based vice chairman of FGE Asia.
The energy consultancy estimates that diesel production in China is on track to drop to only 1.2 times gasoline output by 2020 from 1.4 times last year and 1.7 times in 2012.
China plans to invest in gasoline-producing residue fluid catalytic crackers with a capacity of 450,000 bpd in the next five years, Wood Mackenzie said.
