Workers at an oil production facility in Dongying, Shandong province. China's oil demand growth may slow to 5.4 percent this year from an estimated 9.5 percent in 2010, according to data from the International Energy Agency. [Photo / China Daily]

Slowing growth, growing domestic capacity may result in 23% decline

SHANGHAI - China's net imports of oil products may fall 23 percent this year as the world's fastest-growing economy slows and domestic refiners expand capacity, according to the research unit of China National Petroleum Corp (CNPC).

Net imports of products including gasoline, diesel, kerosene and naphtha may drop to 12.4 million tons from 16 million tons, said Gong Jinshuang, a senior engineer at the CNPC Research Institute of Economics and Technology.

China is shifting to a "prudent" monetary policy to rein in liquidity, combat accelerating inflation and limit the risk of asset bubbles, damping energy consumption. The country's oil demand growth may slow to 5.4 percent this year from an estimated 9.5 percent in 2010, according to data from the International Energy Agency.

"Diesel consumption will slow this year because of the cooling economy," Gong said. "China's refining capacity will also reduce the need for imports to some extent. Those capacities added late last year will ramp up output this year."

The country's refining capacity may expand by 400,000 barrels a day in 2011, a Bloomberg survey of five analysts last month shows. This would be a slowdown from an estimated increase of more than 630,000 barrels a day in 2010, according to a forecast by CNPC in February last year.

Diesel demand slows

The drop in Chinese oil-product imports and refining capacity expansion may cut regional refining profits, said Brynjar Eirik Bustnes, an oil analyst at JPMorgan Chase & Co.

Asian diesel's premium to crude oil, a measure of the profit from making the fuel, gained 16 percent this year to $14.89 a barrel, boosted by Chinese demand in the fourth quarter.

Factories in China turned to diesel power generators after local governments limited electricity supplies to meet energy-saving targets last year.

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"Consumption of diesel will slow because the exceptional usage in the fourth quarter of last year will not be repeated," according to Gong.

Diesel demand may climb 6 percent to 164 million tons this year, slowing from the 11.1 percent growth in 2010, as the economy cools, Gong said.

Kerosene consumption may gain 8.8 percent to 18.5 million tons, compared with the 13.6 percent increase last year, according to Gong.

Tightening measures

Gasoline demand may rise 5.9 percent to 74.6 million tons in 2011, compared with 5 percent last year, Gong said. Use of the fuel will be curbed by slowing vehicle sales, he said.

Auto sales growth may slow to as much as 15 percent this year from 32 percent in 2010 after the government withdrew tax breaks and rural subsidies that helped the nation overtake the United States as the world's biggest auto market, according to the China Association of Automobile Manufacturers.

China ordered banks to set aside more reserves six times and boosted interest rates twice in 2010 to curb asset bubbles after record gains in lending and property prices. The country's consumer prices jumped 5.1 percent in November, the most in 28 months.

Gross domestic product may grow 9.2 percent this year, compared with 10 percent in 2010, according to a Bloomberg survey of 17 economists last month.

Bloomberg News