Development Trend of China s Oil & Gas Market

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1 Development Trend of China s Oil & Gas Market China Petrochemical Corporation September 2006

2 Content I. Supply & Demand of China s s Oil Market and Its Development Trend II. Supply & Demand of China s s Natural Gas Market and Its Development Trend

3 I. Supply & Demand of China s s Oil Market and Its Development Trend

4 Supply & Demand of China s Oil Market 1)Overall oil consumption 2)Oil consumption mix 3)Oil supply structure

5 1. Overall oil consumption Annual oil consumption (100 million tons) Average annual growth 2.0% Average annual growth 6.9% Oil consumption in 2005 was 322 MMT, accounting for 23% of primary energy consumption.

6 2 Consumption mix of major oil products Demand, (Million tons) China s demand for major oil products Gasoline Kerosene Diesel Chemical light feedstock Fuel oil Gasoline, diesel, kerosene and chemical light feedstock are the most consumed oil products in China, followed by fuel oil.

7 3 Consumption growth of China s oil products ,000 tons Consumption of gasoline, diesel and kerosene in 2005: 168 MMT, up 5% (year on year) Average annual consumption growth of gasoline, diesel and kerosene : 7.4%

8 4 Oil supply structure 350 China s oil supply structure since 1990 Million tons Net import Domestic supply Oil production in 2005 was 181MMT, net import was 119MMT.

9 5 Crude import channels China s crude import channels ,000 tons Other countries Former Soviet Union Indonesia Vietnam Sudan Angola Other Middle East countries Yemen Oman Iran Saudi Arabia Multiple channels Import from Middle East 2005: 47% of total import Import from Africa 2005: 30% of total import Saudi Arabia is No.1 supplier to China

10 Development Trend of China s Oil Market 1)Oil consumption driven by economic development 2)Gasoline, diesel and kerosene consumption forecast 3)Chemical light feedstock and fuel oil consumption forecast 4) Oil consumption forecast

11 1 Oil consumption driven by economic development

12 2 Gasoline, diesel and kerosene consumption forecast oil used for transportation purposes 2005 in-use autos: 32 million 万辆 年中国汽车保有量预测汽车保有量轿车保有量 It is estimated that by 2010, the autos could reach 53 million, that of motorcycles 66 to 70 million, that of farming transportation vehicles 25 million 低中高低中高 2002 年 2005 年 2010 年 2020 年 By 2010, the proportion of transportation oil will account for 70% of the total consumption of gasoline, diesel and kerosene.

13 Oil Used for Power Generation In the future, most of China s electricity supply will still come from thermal power, (with coal as the main fuel), but the percentage of thermal power generation will decline while that of natural gas power generation will increase. The government advocates hydropower and nuclear power generation and, in principle, doesn t encourage the use of fuel to generate electricity. In 2007, the demand for and supply of power will be basically in balance. In the next 5 year, China's domestic oil demand for electricity generation will tend to drop as a whole.

14 Oil Used for Agricultural and Fishery Industry Although the developing rate of farm machinery will slow down, during the period of 11th Five-Year Plan, the total power of farm machinery will grow by about 5% per year, the oil demand for agricultural industry is still one of the important factors driving the growth of consumption. The oil demand for fishery industry will be relatively stable.

15 Outlook of China s oil product demand in 2010 China s oil product demand is estimated at about 220 million tons in During the period of 11th Five-Year Plan, the annual growth rate of China s consumption of oil products will be about 6%, and its growth rate will become slower. Uncertain factors which influence the demand: China s economy growth quality Oil price changes after deregulation Improvement of fuel oil efficiency Development of alternative fuels

16 3 Chemical light feedstock and fuel oil consumption forecast Estimated average annual growth of demand for ethylene ( ): over 5%. According to domestic self-sufficiency rate of different ethylene feedstock, average annual growth of demand for chemical light feedstock ( ) will exceed 7%. In China, fuel oil is mainly used in power generation, chemical processing, transportation, the metallurgical industry, the light etc. With the government s and society's increasing attention paid to environment protection and the use of alternative oil and renewable resources, the fuel oil consumers will have more alternatives. Therefore, the demand for fuel oil will decline annually in the future.

17 4. Oil-saving and alternatives will be emphasized Auto oil consumption in China is 10% to 20% higher than that in Europe and the US. Chinese government highly emphasized the conservation of oil and improvement of energy efficiency. The Standard for Fuel Economy for Passenger Cars was issued in 2004 and oil consumption per 100 kilometers by 2020 will be 15%-20% lower than that in R&D and application of alternative energy, such as gas cars, ethanol gasoline, coal liquefaction, bio-fuel, GTL and fuel cell etc., is actively encouraged by the government. Considering technology maturity, resource and economic feasibility, application of alternative energy will account for only 5%-10% of the total transportation fuels before 2020 and conventional fuels will remain dominant.

18 5. Prediction of China s future demand for oil In the future, transportation vehicle oil and chemical-processing oil will be the major forces that drive the growth in the demand for oil while the demand for fuel oil will decline annually. Against the background of economic restructuring and the development in alternative oil technologies, it is estimated that, by 2010, China s oil demand will be increasing at an annual rate of 4%, and the growth rates slow down.

19 II. Supply & Demand of China s s Natural Gas Market and Development Trend

20 Status Quo of China s Natural Gas Market 1. Consumption & consumption mix 2. Natural gas output 3. Pipeline construction

21 1. Remarkable increase in natural gas consumption million m Natural gas consumption 2005: 46 billion m 3, up 39% year on year Average annual consumption growth : 13%

22 2. Consumption mix Changes in natural gas consumption in 2004 and 2005 Chemical processing Civilian gas Industrial fuel Power generation % 29% 26% 12% % 31% 25% 13% China s natural gas consumption mix changed in Urban gas consumption grew most rapidly and increased its proportion of the total consumption. The main reason is that natural gas has replaced coal.

23 3. Gas production increases year by year million m Gas output 2005: billion m 3, up 22% year on year Average annual output growth : 13.8%

24 4. Several trunk lines and connection lines put in operation By end 2005, the length of China s natural gas pipelines totaled 28,000 kilometers. Gas pipeline capacity reached 45 billion m 3. Recent years has witnessed a peak period for gas pipeline construction. In 2005, Zhongxian-Wuhan pipeline, the second Shaanxi-Beijing pipeline and Jining connection line were put in use together with West-East pipeline.

25 5. International cooperation Going-out Strategy utilization of domestic & overseas resources to meet domestic demand for natural gas PetroChina: pipeline construction & LNG business in Tangshan, Jiangsu and Dalian Sinopec Corp.: negotiation with Russia & Middle East to import LNG CNOOC: Guangdong & Fujiang LNG; explore new market & expand import

26 Development Trend of China s Natural Gas Market 1)Demand for natural gas grows rapidly 2)The consumption structure of natural gas has changed 3) The distribution of the natural gas market will shift. 4) LNG a new attractive business.

27 1. Development trend: consumption million m Estimated natural gas demand by 2010: 140 billion m 3

28 2. Development trend: urban gas The urbanization rate will develop from 43% at present to about 55%-60% in 喀拉斯达板 满洲里 满洲里 依兰 抓吉 轮南 塔中 4 库尔勒 采南 乌鲁木齐 拉萨 Major urban gas market 鄯善 涩北 哈密 敦煌 格尔木 西宁兰州成都昆明景洪 呼和浩特榆林 北京 银川靖边 太原石家庄 西安 万县忠县 重庆遵义贵阳 郑州 濮阳 秦皇岛天津 南京合肥杭州武汉长沙南昌 桂林南宁广州澳门香港海口 淄博青岛济南 福州 大庆哈尔滨长春 沈阳 大连 上海 宁波 台北 天然气 Natural 逐步成 gas will become 为中国 a major fuel in 城市燃 China s urban 气市场 gas market 中的主要燃料

29 2. Development trend:power-generating fuel At present, power generated by natural gas accounts for only 2 percent of the total. In the future, coal will still be the major fuel for power generation while natural gas and nuclear power will be used more widely. With more environmental protection pressure and more strict control over the discharge of greenhouse gases, it is estimated that, by 2020, the total installed capacity of natural gas power plant will be about 60 million kilowatts, and the percentage of natural gas generated power will increase to 8% to 10%.

30 2. Development trend: consumption mix Power generation 27% Chemical 15% Industrial fuel 23% Urban gas 35% Consumption mix will be further rationalized with urban gas and power generation dominating the consumption.

31 3. The distribution of the natural gas market The natural gas resources are mainly distributed in the western part of China. At the development stage, with the natural gas from Tarim, Sichuan- Chongqing, Changqing, Qinghai being transmitted to the eastern part of China and maritime natural gas coming ashore, and the diversified sources of natural gas import, the overall structure of natural gas supply will change natural gas being transmitted from the west to the east, the maritime natural gas coming ashore, natural gas being transmitted from the north to the south and other nearby areas.

32 4. Development trend: LNG a new attractive business Our future growth in natural gas supply will mainly come from the west-east gas transmission project and the LNG imports at the ports along the southeast coasts. At present, the number of LNG projects in construction and to be constructed amounts to 100,000. Therefore, it is estimated that LNG will make rapid progress in China. In the future, Sino-US cooperation will expand.

33 Thank you!