Oil for the Lamps of China a Quick Update

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14 Nov 2011

Clarkson_Plc_telikoIn the early days of oil transport kerosene, the revolutionary new form of lighting, found a rapidly expanding market for lamps in Asia. India and China were big importers and the kerosene

was shipped in five gallon cans, which were prized almost as much as their contents  a frustrating problem for exporters who wanted to ship their oil in bulk. China was a massive market, and traders dreamt of "oil for the lamps of China".
All Lit Up
For a century it remained a dream. 20 years ago China only consumed 2.2m bpd of oil, none of which was imported (see graph). But, as the Chinese economy developed in the 1990s, things changed and, this year, China's oil supply will reach 10m bpd. To put that in context, the USA consumed 19m bpd in 2010 and the EU 14m bpd, which puts China in third place. Since oil demand is falling in the USA and Europe, China is now the biggest growth importer.
By Land and By Sea
China gets its oil from many sources. This year domestic production has edged up to 4m bpd, a little over 40% of the supply. Output has grown over the years, but not enough to meet Chinas rapidly expanding demand (the line in the graph). Seaborne imports started in the mid-1990s at around 0.2m bpd and are now 5.8m bpd. In addition, China imports 0.2m bpd by pipeline from Kazakhstan and, starting from this year, another 0.2m bpd by pipeline from Russia, replacing imports by train.
Diversified Supplies
Imports into China are widely sourced (see pie chart). The Middle East is the biggest supplier, providing 2.4m bpd in 2010. W. Africa with 0.9m bpd and S. America with 0.5m bpd follow. These developing trades have made substantial inroads into the VLCC market, changing the character of Atlantic trading by offering a volume backhaul for VLCCs discharging in the N. Atlantic. The FSU accounts for 0.7m bpd, about 60% of which is covered by land trade. East Africa and Asia make up the other 26% of Chinas imports.
Right on Target
When it comes to forecasting, China's oil imports have been a pussycat compared with steel. Just about everybody got caught out by the scale of expansion of Chinas steel, but so far oil imports have developed in line with the forecasts. Perhaps this is because much of the oil goes towards gasoline, a subsidised and carefully monitored market. Recently gasoline prices have increased, costing around $4 a barrel, the same as in the USA.
Where Next?
So there you have it. Today its oil for the cars of China that traders dream of and its been a nice steady business for tankers, in a world where volume import growth is becoming a rarity. China's vehicle production doubled from 9.6m in 2008 to 18.7m in 2010, and theres still a long way to go. So oil for the cars of China is no longer just a dream. Have a nice day.
Source: Clarksons

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