Page 9 - AsianOil Week 15

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This view stems from the fact that both CNOOC Ltd and Sinopec protect their upstream spending during capital expenditure cuts. CNOOC Ltd said cuts to its 2020 spending and production targets would focus on its interna- tional operations, while Sinopec has allocated most of its proposed capex cuts to its down- stream division.
China National Petroleum Corp. (CNPC) has not confirmed budget or production cuts, but has said it will adjust its 2020 operations in line with market trends.
GlobalData oil and gas analyst Cao Chai said: “While Chinese NOCs are focusing on raising domestic output and cutting overseas opera- tions, elsewhere in Asia delays and disruptions areseenacrosstheupstreamsectorin2020.”
Depressed demand
China’s supply profile over the last few months has not matched that of demand, however, given that the country entered lockdown in February to curb the spread of the coronavirus.
“What we saw in China was one of the steep- est falls in oil demand we had ever seen,” energy consultancy Rystad Energy’s head of analysis, Per Magnus Nysveen, told the Financial Times on March 13. “Now we see even higher reduc- tion[s] in the rest of the world.”
Rystad estimates that the country’s con- sumption fell to below 10mn bpd in February from about 13.7mn bpd in December 2019, and expects this to rise to about 12mn bpd in April.
The gap between supply and demand has led industry observers to the conclusion that the country must be stockpiling oil while it is cheap.
Bloomberg quoted unnamed sources at the start of the month as saying that the central gov- ernment had directed its agencies to ramp up crude stockpiling.
Wood Mackenzie, meanwhile, has forecast that oil stored in both the country’s SPR and commercial facilities could climb from an esti- mated 900mn barrels in 2019 to 1.15bn barrels this year. This would be equivalent to 113 days of imports based on 2019’s figures.
While Beijing would be “stupid” not to stock up on cheap oil while prices were low, Xiamen University energy specialist Lin Boqiang told the Financial Times that government agencies had been slow to approve the ramp-up and that space was limited.
“It’s not possible to get the funds together quickly, to organise transportation, to have a place to store it,” Lin said. “Every country is the same. They all want to buy, but the actual volume theycanbuyisnotverylarge.”
What next
The last official figure that the government gave for SPR storage levels was 37.73mn tonnes (276.56mn barrels) as of June 30, 2017. Since then, National Energy Administration (NEA) head of development and planning Li Fulong said in September 2019 that the coun- try had around 80 days’ worth of oil in its SPR and commercial stockpiles. With imports in the first eight months of 2019 averaging 9.9mn bpd, the government likely had access to around 792mn barrels.
Given the gap between the country’s cur- rent supply and demand profiles, this number has likely climbed rather sharply in recent months. Whether it can continue doing so is another question and depends on how quickly China has been working to expand its storage capacity in recent months. In any case, the country will continue to stockpile as long as international prices are cheap and it has the room to do so.™
Week 15 16•April•2020 w w w . N E W S B A S E . c o m P9