By ERIC YEP
Chinese drivers are pushing up demand for gasoline in the world's largest energy consumer, increasing the automotive fuel's share of consumption as diesel use plateaus.
The shift to gasoline reflects government efforts in the world's second-largest economy to focus on domestic consumption to drive economic growth, while slowing export-oriented industrial production is limiting diesel demand growth.
Gasoline is picking up market share as more Chinese consumers buy private vehicles, which mostly run on gasoline. Diesel-fueled cars are a relative rarity in China, as government policy has until recently discouraged diesel use for private transportation.
Gasoline consumption growth has gradually eclipsed diesel's in recent years, rising to around 20% of China's energy consumption in 2012, compared with 17% in 2005, according to International Energy Agency data. During the same period, diesel's proportion held steady at 33%,
So far this year, the displacement trend has accelerated. In March, China's gasoline consumption rose 19% from a year earlier, while diesel usage grew just 2%, Credit Suisse analysts said in a recent note. In the quarter, gasoline consumption rose 16% while diesel consumption fell 0.8%, it said, adding that both new car owners and those upgrading to sport utility vehicles are contributing to increased gasoline use.
China overtook the US to become the world's largest vehicle market in 2009, and analysts forecast it will extend its lead in coming years despite slowing growth -- gross domestic product growth has slowed from double digits for much of the recent decade to single digits, most recently to 7.7% in the first quarter, which is still enviable when compared with low-single-digit growth, or recession, in many other countries -- driven by a growing middle class and urban families eager to own their first cars.
China's auto market growth will slow to an average of 8% a year between 2011 and 2020, still very fast by developed-world standards, McKinsey & Co. said in a January report, forecasting passenger car sales to reach 22 million in 2020, "bigger than either the European or North American markets."
Rising gasoline demand reflects "the persistent urbanization of the Chinese society," as rising wages and wealth spur consumption of luxury goods, including automobiles, energy consulting firm Paul Ting Energy Vision said in a note. A decade ago, most Chinese vehicles were owned by government agencies or state-run companies, but by last year, more than 80% were in private hands, the firm said.
It is likely gasoline rather than middle distillates -- diesel and jet fuel -- that pushed global crude-oil consumption higher last year, the IEA said in its April report, and analysts say they expect gasoline consumption to continue growing steadily as car ownership increases.
While increasing gasoline consumption spurs overall oil-demand growth, slowing industrial consumption has resulted in a surplus of diesel.
China has been a net diesel exporter since late last year, and its net exports widened to 100,000 bpd in March, JBC Energy said in a recent note, putting pressure on margins for refiners and traders in the rest of Asia. If the exports continue, the regional market could be facing a prolonged period of weakness, unless economic activity picks up significantly.
China's refining slate is already tilted toward maximizing gasoline production, leaving little room to decrease overproduction of diesel without upgrading facilities, Barclays analyst Sijin Cheng said by telephone.
"China is likely to continue exporting surplus diesel for the remainder of the second quarter, but may see a seasonal increase in demand in the second half of the year as summer kicks in," Ms. Cheng said. "If investments surprise to the upside, Chinese refineries may need to maximize diesel output again, but till then they'll have to keep doing what they're doing--and if they have to find external markets for surplus products, they'll have to live with it."
For now, China's oil-demand growth is steady on the back of increasing gasoline demand, but for it to get any stronger, diesel demand will need to improve significantly.
"For this to happen, we think it will be essential to boost fiscal spending, which is a prerequisite if China GDP growth has to accelerate up to HSBC forecast of 8.2% for 2013, according to our economists," HSBC said last week.
Dow Jones Newswires