Maguire: Key energy indicators for China until the end of 2024
LITTLETON, Colo., Aug. 13 (Reuters) – Lower consumption in China prompted the Organization of the Petroleum Exporting Countries (OPEC) this week to cut its forecasts for global oil demand growth, underscoring the crucial role the world’s second-largest economy plays in energy markets.
Nevertheless, total electricity generation in China reached new highs in the first half of 2024 – indicating robust use by households and factories – and imports of liquefied natural gas (LNG) rose 10% to their highest level in three years.
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The country’s ongoing efforts to transition its energy supply from polluting fuels to cleaner energy sources can help reconcile some of the conflicting signals and take into account the decline in the use of refined fuels and the increasing demand for electricity.
But the record import of thermal coal in the first half of 2024 also underscores the ongoing challenge facing China’s power utilities, which remain heavily dependent on some fossil fuels while limiting the use of others.
Below are some of the key data on the energy and power sector that can help assess China’s future fossil fuel needs and the potential impact on global markets.
Oil cuts
The most important measure of China’s oil demand is the country’s crude oil imports, as China imports about 75 percent of its total oil needs and is the world’s largest crude oil consumer.
China’s imports fell to their lowest level since September 2022 in July as weak processing margins and low fuel demand constrained operations at state-owned and independent refineries.
The world’s largest buyer of crude oil imported 42.34 million tonnes, or about 9.97 million barrels per day (bpd), in July, according to data from the General Administration of Customs.
This import volume was almost 12 percent lower than the previous month and about 3 percent below the year-ago total, dealing a blow to oil market bulls who may have been hoping for sustained growth in Chinese oil purchases.
However, analysts who follow more detailed data on Chinese refinery performance and domestic production may already have been aware of the weak sentiment regarding the country’s oil usage.
Additional details can also be derived from the assumed development of the country’s oil reserves, which can be estimated by subtracting domestic production and refinery processing volumes from total imports over a given period.
Recent declining crude oil refinery processing data suggests that China’s oil inventories have been rising for several weeks, which in turn may have dampened demand for imports.
In the future, any sustained reduction in these oil reserves could herald a change in China’s import demand and possibly trigger an improvement in sentiment across the entire oil market.
CARS, COAL & ELECTRICITY
Another reason for the recent steady increase in demand for oil and fuels in China is the steady increase in the share of electric and eco-vehicles in the national vehicle fleet.
For the first time, half of all vehicles sold in China in July were either pure electric or hybrid, marking an important milestone in China’s efforts to wean consumers off petroleum products.
But while higher sales of electric and hybrid vehicles are helping to meet China’s demand for fossil fuels, they are also driving the country’s continued rise in electricity demand.
According to energy think tank Ember, China’s total electricity demand rose 32 percent to 9,442 terawatt hours between 2018 and 2023, the highest in the world.
This growth rate is more than 2.5 times higher than the global average. By comparison, in the USA, electricity consumption only increased by 1% over the same period.
Coal remains the most important source of electricity, accounting for around 60% of total electricity generation, and total electricity generation from coal has reached new highs over the past eight years.
However, the share of coal in the energy generation mix has steadily declined over the past decade, while electricity generation from clean sources has increased from around 22 percent in 2013 to over 35 percent in 2023.
There are plans to further expand the capacity to generate electricity from clean energy. The aim is to consolidate China’s status as by far the world’s largest producer of clean energy, even though the country is also the world’s largest consumer of coal.
Electricity generation from natural gas is also expected to grow, due to both higher local gas production and higher imports of liquefied natural gas (LNG).
In the first half of 2023, LNG imports amounted to 38 million tonnes, according to Kpler vessel tracking data. This total increased by 10.1% compared to the same period in 2023 and represents the highest level since the first half of 2021.
Seasonal flow data from LSEG show that LNG imports tend to decline after the summer months as demand for cooling systems falls.
However, gas demand is expected to pick up ahead of the coldest months of the year and could help China’s total annual imports of liquefied natural gas (LNG) reach new highs in 2024.
Coal consumption and imports typically fluctuate similarly. However, energy companies may choose to reduce coal-fired power generation in favour of increased gas-fired power generation if global gas prices remain relatively stable and competitive with imported coal.
The opinions expressed here are those of the author, a Reuters columnist.
