Update On Chinese Crude Oil Imports -- RIgzone -- June 29, 2016

The writer argues that jump in Chinese crude oil imports may be due to rapid filling of their strategic petroleum reserve and increasing refinery operations for export, rather than an overall increase in demand due to domestic growth in GDP.

Some data points from the article:

• China: world's #2 consumer of crude oil
• imports rose 16.5% in the first five months of this year compared to same period last year
• three reasons cited
• domestic crude oil production falling; dropped over 7% in May
• produced about 4 million bopd in the January - May period; a drop of about 170,000 bopd from 2015
• therefore: 170,000 bopd of the additional 1 million bopd import increase due to decrease in local production
• filling strategic storages at a fairly rapid pace (locking in great prices while they can)
• estimate: about 1 million bopd went into either commercial or strategic storage
• third factor: rising exports of refined products
• diesel exports surged over 300%
• gasoline exports surged almost 65%

Asian Connections -- Why China Is Buying North American (And South American) Energy Assets

Peak Oil? Yes, In China

January 17, 2017: peak oil in all of Asia. 

Deals: Asian-North American

October 26, 2015: Chinese company pays $1.3 billion for shale in the Permian. 

February 17, 2014: Chinese jewelry company with gold mining interests buys an oil and gas company in Texas. Assets not mentioned; deal to cost $665 million with no more than 10 investors contributing the millions.

January 21, 2014: IBD provides an update of Chinese North American energy acquisitions in 2013. 

October 6, 2013:  Petronas completes $35 billion takeover of Canada's Progress Energy to become 2nd-largest stakeholder in the Montney. Huge, huge deal.

September 4, 2013: Chinese company buys small western Canadian operator -- Bloomberg.

Yanchang Petroleum International Ltd. agreed to buy Novus Energy Inc. for C$232 million ($220 million) cash, in China’s biggest purchase of a Canadian oil and gas company since Cnooc Ltd.’s takeover of Nexen Inc.

Yanchang will pay C$1.18 a share for Novus Energy, 42 percent more than its closing price yesterday, the Alberta-based company said in a statement. Yanchang said it will help fund the purchase by selling HK$1.6 billion ($206 million) in convertible bonds to its parent Shannxi Yanchang Petroleum Group Co., China’s fourth-largest producer.

June 5, 2013: PetroChina will outspend XOM this year. 

February 5, 2013: Chinese company to buy assets in Wolfcamp.

January 30, 2013:  Pioneer Natural Resources is selling 40 percent of its stake in the Texas Wolfcamp Shale play to a Chinese company in a $1.7 billion deal.

Pioneer said Wednesday that the Sinochem Group will pay $500 million in cash. The remaining $1.2 billion will be paid in the form of future drilling and facilities costs. Pioneer can draw those funds for six years, with an option to extend that period under certain circumstances.

September 13, 2012: China to build 400-MW power plant near Odessa, Texas

June, 2012: Malaysian State Oil Company: through purchase of its partner, Progress Energy Resources Corp (PRQ.TO), announced June, 2012, Malaysia acquires Progress' Montney Gas Play in northeast British Columbia. Where Progress operates, the formation is 300 meters thick and is a shale/silt formation well suited for horizontal drilling. The North Montney area is located adjacent to the Alaska Highway and has well developed transportation and infrastructure options to move natural gas to markets (source: PRQ website).

Updates

June 7, 2012: Chinese state-owned companies on a buying spree -- mostly energy and natural resources around the world. Surges to $20 billion in the first quarter, 2012.

January 23, 2012: I did not know that we could outsource bridge and highway infrastructure building and maintenance/repair to the Chinese. The Chinese can do it more quickly and less expensively.  One fo the state government spokesmen said there were not enough US welders. Wow, I just mentioned that in one of my postings: why Obama killed the Keystone XL -- not enough welders to construct it.

January 17, 2012: China is the big winner in the Iranian "crisis."

China could win big oil concessions from Iran as the Islamic Republic faces the loss of major oil revenue from the tightening Western sanctions over its controversial nuclear program. China currently buys one-third of Iran's oil exports,....Right now, Iran is already at risk of losing this major customer, despite their important political ties, as China comes under mounting pressures by the West to reduce its imports of Iranian oil -- as are other important Asian players such as India, Japan and South Korea. Ultimately, all cards could fall in China's favor. --- To counter the "bad press" China will get from the rest of the global community, it will extract huge price concessions from Iran.

January 15, 2012: When I posted the original story below I did realize how interesting it would turn out. There is now more being reported; the refinery is a very small piece in the overall China-Saudi Arabia story.

Data points:

• International sanctions against Iran could have significant impact on China's energy supplies
• Chinese are visiting Saudi Arabia now, hoping to ensure adequate supplies from Saudi pending any loss in access to Iranian oil
• Saudi Arabia is already China's number 1 supplier
• China imported 13 percent more oil from Saudi in 2011 compared to 2010
• In exchange for guaranteed access for more oil, China willing to invest in more infrastructure in Saudi Arabia

From the story:

China cut oil imports from Iran in January and February in a commercial dispute over contract terms, and has been looking for alternative supplies.

Yet China is unlikely to dramatically boost crude imports from Saudi Arabia, even with the Iranian worries, said Meidan, the analyst with the Eurasia Group.

"In the likely event that Iran will offer discounted oil, Chinese traders will buy more Iranian barrels and could consequently reduce their Saudi imports," she said.

"Wen will therefore need to convey both commercial and diplomatic realities to Saudi Arabia, China's number one source of crude imports, and ensure that bilateral ties remain on steady footing."

The most intriguing data point:

In the first 11 months of 2011, top supplier Saudi Arabia shipped 45.5 million tons of crude to China, a rise of 12.9 percent over the same period in 2010, according to Chinese customs data. Angola and Iran were China's second and third biggest suppliers.

Thirteen percent is not a trivial number. All things being equal, I don't see how this wouldn't keep pressure on price of oil on the upside.

Original Post

Link here.

I couldn't decide whether to post/link this story, but it reminded me of a story I linked back in 2010, a story that I may have misinterpreted. Looking back, it was a story that certainly confused me. In that tory of 2010, China announced it was going to halt exports of diesel fuel to calm inflation in China.

In the Breitbart story linked above, it is announced that:

Saudi state oil giant Aramco inked a deal Saturday with China's Sinopec to build an oil refinery (Yasref) in the Red Sea city of Yanbu that will process 400,000 barrels per day ...

Saudi Aramco will hold a 62.5 percent stake with Sinopec holding the balance in the venture that highlights China's growing role as an infrastructure developer in the oil rich kingdom. 

"... highlights China's growing role as an infrastructure developer in the oil rich kingdom."
 
China has a lot of unemployed young men and a new refinery in China would be preferable in the eyes of some, but instead China has opted to build the refinery in Saudi Arabia.

The US is moving out of Iraq and trying to extricate itself from Afghanistan. China continues to invest heavily in US energy prospects ... the current administration is turning its back on Canadian oil ... it doesn't take a weatherman to know which way the wind is blowing...

China's Largest Refiner Halts Diesel Exports -- Not a Bakken Story

I have no idea if this story will become a bigger story by Monday or if it's just a single pixel on my radar scope.

But there's something about the story that intrigues me.

China's largest oil refiner has halted diesel exports. There is not a real shortage of diesel in China. The government has withheld diesel in an attempt to slow the economy. It has resulted in unintended consequences. The price of diesel has increased dramatically, driving prices of food significantly higher (farmers use lots of diesel in crop production).

So, in response to the (non)-shortage of diesel, Sinopec, China's largest oil refiner, has halted all diesel exports to bring more diesel to the market that the government has withheld. It appears it is not illegal in China to try to meet diesel needs; it's just that the government is not going to release its strategic reserves. (I don't know how this works, but I assume a US analogy: if the govt decided to increase oil storage in the strategic reserve to point of decreasing amount of oil available to American refiners; American refiners could respond by importing more oil from foreign sources, or increase domestic drilling.)

What makes the newspapers is seldom the full story. The real question is what is really going on with diesel in China? Is there really nothing more to the story? How will this play out Monday in the oil markets? Could there be a perception that there is a shortage of oil in China? Is there a shortage of oil in China? Is this just a "cover" story by the Chinese government? This may turn out to be a non-story, just as the shortage is a non-shortage, but something tells me this could get very interesting.