CNPC bets on 5% oil demand growth in 2023 as China tries to erase pandemic pain

China's oil demand is set to come out of the red and post a robust 5.1% year-on-year growth in 2023, creating ample opportunities for refiners to lift throughput to meet incremental demand at home, while keeping a lid on product exports, a leading state-owned think tank said.

The Economics and Technology Research Institute, part of China National Petroleum Corporation, said March 27 that the easing of pandemic-related controls had created a climate of growth that could help oil demand to recover after the second year of negative growth seen in the past 30 years in 2022.

Demand growth projections by the state-run institute are not far away from forecasts made by Platts Analytics of S&P Global Commodity Insights which expects China's oil demand to grow by 6% year on year in 2023.

China's apparent petroleum consumption dropped by 0.6% year on year to reach 719 million mt (14.44 million b/d) in 2022 as nationwide lockdowns decimated oil demand, according to ETRI. But with demand recovery starting since early December after the country lifted all barriers on movement, ETRI expects China's overall oil demand to reach 756 million mt, or 15.18 million b/d in 2023, up 5.1% from a year earlier.

Among this, combined gasoline, gasoil and jet fuel demand is expected to reach 398 million mt, or 8.67 million b/d, rising 9.1% year on year, which will be the highest growth since 2012, according to ETRI.

In 2022, China's gasoline, gasoil and jet fuel consumption dropped by 7.7% year on year to 365 million mt, or 7.95 million b/d. It was also down by 9.5% from the pre-COVID level in 2019. The drop in 2022 was also much bigger than that in 2020, when the country was first hit by the initial spread of COVID-19.

Gasoline and jet fuel will be the leading contributors to the overall oil demand growth in China in 2023, rising by 11.1% and 57.3%, respectively, from a year earlier.

While jet fuel demand will increase to 33 million mt, or 768,493 b/d in 2023 and account for 87% of the pre-pandemic volumes, the demand of gasoil would be increasing at a weaker pace of around 2.6% due to relatively slower recovery in demand from real estate, infrastructure, construction and logistics sectors, ETRI said.

Product exports seen stable

ETRI expects China to export 35 million mt, or 762,328 b/d, of oil products in 2023, largely unchanged from 2022.

But with demand continuing to recover in 2023, China's crude throughput is likely to increase by 7.8% year on year to 733 million mt, or 14.72 million b/d. This will be a drastic increase, compared with a drop of 5% in 2022, when crude throughput fell to 680 million mt, or 13.66 million b/d. Refinery run rates in 2022 had fallen by five percentage points from a year earlier to 73.6%, the first drop since 2015.

The think tank added that independent refineries are expected to process 205 million mt, or 4.12 million b/d, of crude oil in 2023, up 8.8% year on year.

Oil products output is expected to increase by 8.4% year on year to 433 million mt, or 9.43 million b/d, in 2023, leaving around 35 million mt, or 762,328 b/d, to be exported.

In order to secure domestic oil products supplies, China reduced product exports by 14.6% from a year earlier to 34.39 million mt, or 690,627 b/d, in 2022.

In order to support domestic demand recovery, ETRI also expects China's crude imports to increase by 6.3% on the year to around 540 million mt, or 10.84 million b/d, in 2023 -- close to the historical seen in 2020. China's crude imports fell by 0.9% year on year to 508 million mt, or 10.2 million b/d, in 2022, according to the customs data.

Refining capacity outlook

After the start-up of PetroChina's Guangdong Petrochemical and the private Shenghong Petrochemical in 2022, China's refining capacity is likely to remain unchanged in 2023 at around 92.4 million mt/year, or 1.86 million b/d, seen in 2022, as no new capacity is scheduled to start operations.

The country's refining capacity increased by 252,000 b/d in 2022, with the 400,000 b/d Guangdong Petrochemical starting operations, while three Shandong independent refineries -- with a combined capacity of 148,000 b/d -- were phased out.

The addition of Guangdong Petrochemical in 2022 helped increase the share of state-controlled refineries to 67.1% last year, up from 65.8% a year earlier.

Additional refining capacity is scheduled to come online in coming years. One of these would be the 300,000 b/d joint refinery by Saudi Aramco, Xincheng and Norinco, construction work for which will start in Q2 of this year, S&P Global reported earlier. The refinery is expected to start in 2026, with the construction work expected to be completed in 2025. The private 400,000 b/d Yulong Petrochemical, which is under construction, is expected to come on stream in 2024.