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
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
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