China Oil Imports Now Second Only To U.S.

In 2009, for the first time, Chinese oil imports surpassed domestic production. China imported 52% of its crude oil last year and projections had called for a 10% increase in imports for this year.

At the end of the first quarter, that estimate looks too low. Chinese oil imports grew by 17% year-over-year in the quarter, to 54.5% of total crude oil consumption of 106 million tons. At that rate, 230 million tons of crude could flow into the country in 2010. (Note: One ton equals about 7.33 barrels.)

The US imports 9-10 million b/d of crude, or more than 3.5 billion barrels/year. In 2009, Chinese imported about 4 million b/d, or nearly 1.5 billion barrels/year.

Imports are growing in China for two reasons. First, of course, is the economy which continues to boom no matter what else is going on in the world. Second, Chinese domestic production is falling. In 2009, China produced 0.5% less domestic crude than it did in 2008 despite serious investment in exploration.

Ironically, perhaps, China is a net exporter of refined products. In the first quarter of 2010, the country sent 7 million tons of refined products abroad. That’s an increase of 66.4% from the same period a year ago. The exports result from over-capacity in the country’s refining sector and that capacity is expected to grow by another 31.5 million tons in 2010. The government controls refinery production by setting the price for refined products, and the boost it gave to prices in late 2008 has encouraged more output.

China is also boosting automobile production for the domestic market and foreign car makers are also looking to China for increased auto purchases. As this happens, the country’s demand for gasoline will increase, reducing its exports of refined products but continuing to fuel increases in crude oil imports.

The country is wary of this dependence on imported crude, just as the US is concerned about this country’s demand for imported crude as domestic supplies soften. China’s solution is to acquire as many international reserves as it can in order to guarantee that it has a sufficient supply of crude going forward. Look for the country to continue its recent buying spree of crude reserves.

Paul Ausick