Current SNP Stock Info

Chengyu: Chinese demand for diesel could peak by 2017

Fu Chengyu, Chairman of Chinese oil major China Petroleum & Chemical Corp. (Sinopec, ticker: SNP), said that he expects Chinese oil demand to peak much sooner than many Western companies and analysts are predicting. During a recent conference call, Chengyu said that he expects China’s demand for diesel, the fuel that most closely tracks economic growth, to peak in 2017, reports Bloomberg.

If correct, Chengyu’s predictions could spell trouble for oil companies counting on the continued demand growth from China and other developing countries in order to maintain the growth of their own businesses. The high point in gasoline sales is likely to come in about a decade, says Chengyu, and the company is already preparing for the day when selling fuel is what he called a “non-core” activity.

The West still expects increased demand

BP’s (ticker: BP) latest public projection for China expects demand to grow, but with other fuel sources taking a larger share of the total energy consumed in transport. “Energy consumed in transport grows by 98%,” says the report. “Oil remains the dominant fuel but loses market share, dropping from 90% to 83% in 2035.”

“From 2010 to 2040, transportation energy needs in OECD32 countries are projected to fall about 10% while in the rest of the world these needs are expected to double,” ExxonMobil (ticker: XOM), said in a December report on its view of the future. “China and India will together account for about half of the global increase.”

Despite predictions that demand will continue to increase, there is already some evidence that China’s rate of demand is slowing. Diesel demand declined last year, and growth in crude oil consumption has shriveled, reports Bloomberg. Crude use is projected to rise about 3% this year, less than half the rate of the total economy.

India still thirsty for moreChinese and Indian Oil Demand Growth WSJ

In February, India consumed a record 3.91 MMBOPD, up 9.4% year-over-year, according to Amrita Sen at Energy Aspects. So far this year, India’s usage is up more than 6% year-over-year, four times faster during the same period last year, reports The Wall Street Journal.

India’s oil needs in absolute barrels is not enough to replace the demand seen in China, but it is getting close to growing at the same pace as China. Analysts expect Indian demand growth of 140 to 200 MBOPD in 2015, not far off from the 190 to 300 MBOPD expected from the Chinese.

Whether or not India can maintain these rates of growth remains unclear. The longest period modern India has managed to expand its fixed assets in double digits annually (in inflation-adjusted terms) is five years, from 2003 to 2008. China, by contrast, was able to maintain these levels of growth for more than a decade.

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