Prof. ST Hsieh
Director, US-China Energy Industry Forum
626-376-7460
March 20, 2023
The following reports predict a rosy future for the global energy market. But we have to be clear headed that the world is not at peace, the risk of a “cold war” between the US and China can not be ruled out. Even without a cold war scenario, severe competition could cause global recessions. Then all the bets are off.
US led west sanctions against Russia after the Ukraine war has changed the global fossil energy flow. The changes are permanent, even though the market is still absorbing the changes. But the main driver of global oil and gas prices is still China. Latest data shows that China has shaken the COVID-119 lock downs and her economy is on the recovery, thus the increasing energy demands.
The supply side of global oil is still dominated by OPEC+ although the US is expanding her oil export. But the US needs to stabilize her policy on regulating fossil fuels productions and transportations in order to be competitive. The US is also very sensitive to domestic gasoline prices. If US inflation is high, then pressure on reducing or stopping oil export will increase.
It appears that the US and Russia are competing for the global natural gas market, the US now has the largest LNG export capacity in the world and still expanding. One clear victory for the US, even the Ukraine war is still raging, is the captive LNG market in Europe. However, Europe is forming an LNG buyers club with the hope it may collectively negotiate for a better price with volume. But it is against the traditional market practice so the US LNG producers may challenge it.
President Xi is visiting Putin right now; we can be assured that furthering Russia-China energy trades will be an issue. Since Russia and China share land boundaries, pipeline trade for oil and gas will be expanded because pipeline is immune to 3rd party sanctions.
Russia Overtakes Saudi Arabia To Become China’s Top Oil Supplier
Editor OilPrice.com
Mon, March 20, 2023 at 3:09 AM PDT
Russia was the single largest crude oil supplier to China in January and February, overtaking Saudi Arabia which was the number-one supplier of oil to China last year, according to Chinese customs data cited by Reuters.
As China accelerated the buying of cheap Russian crude oil at discounts to international benchmarks, Chinese imports of crude from Russia jumped by 23.8% year over year to 1.94 million barrels per day (bpd) in January and February 2023, per the data reported by China’s General Administration of Customs.
In the first two months of this year, Russia beat Saudi Arabia to the top spot of Chinese crude oil suppliers as imports of Saudi crude fell by 4.7% to the equivalent of 1.72 million bpd, compared to 1.81 million bpd for the same period of 2022.
Despite a sluggish start to 2023, China’s energy commodity imports are expected to rise later this year, while oil demand is set to rebound and lead global oil consumption to a record high, forecasters say.
China’s reopening is set to add momentum to global economic growth, OPEC said in its Monthly Oil Market Report (MOMR) this week, as it revised up its forecast for Chinese oil demand growth.
The International Energy Agency (IEA) said in its report last week that “Building stocks today will ease tensions as the market swings into deficit during the second half of the year when China is expected to drive world oil demand to record levels.”
China’s Diesel Exports Soared In January and February
Editor OilPrice.com
Mon, March 20, 2023 at 12:28 AM PDT
China exported 4.54 million tons of diesel in the first two months of the year, up 10 times from last year’s export rate, which stood at 420,000 tons, government data cited by Bloomberg showed.
The increase was attributed to weaker domestic demand and export quotas that refiners had to use but strong demand from Europe must have also played a role in the surge of exports as the EU imposed an embargo on Russian fuels in early February and had to find alternative suppliers promptly.
According to the Bloomberg report, Chinese fuel exports are about to decline sharply this month because of the expected rebound in domestic demand, per chemicals distributor OilChem. In addition to stronger domestic demand, refineries entering regular maintenance will also tighten the supply of fuels coming out of China.
China is seen as the biggest contributor to global oil demand growth both by the International Energy Agency and OPEC. Both said in their latest market forecasts that the biggest portion of new demand for oil this year will come from the Asian hothouse.
Interestingly, despite the surge in fuel exports and higher crude oil imports, China managed to set aside a certain portion of that crude in inventory, Reuters’ Clyde Russell reported earlier today. Some 270,000 bpd were added to both strategic and commercial oil inventories in China over the first two months of the year.
This was a major slowdown from December rates of inventory additions, which averaged 1.19 million bpd, with the average inventory addition rate for full-2022 at 740,000 bpd. This suggests that forecasts of a strong rebound in Chinese crude oil demand had a sound basis in reality.
By Charles Kennedy for Oilprice.com
Rising Chinese Crude Demand Sends Supertanker Rates Soaring
Editor OilPrice.com
Mon, March 20, 2023 at 3:00 PM PDT
Shipping rates for supertankers have recently shot up above $100,000 a day as the market for very large crude carriers (VLCC) tightens and Chinese oil demand rises.
Chinese refiners are chartering more supertankers to bring crude later this year as the economy reopens. At the same time, the sanctions on Russia have tightened demand for all kinds of crude-carrying vessels as the voyage to Russia’s main customers now, China and India, is much longer than a week-long trip from a Russian Baltic port to northwest Europe.
In the tighter tanker market, day rates are rising and are expected to stay elevated for at least another two years, according to analysts and shipowners.
Chinese demand is set to drive global oil consumption this year, and Chinese refiners are booking tankers to carry crude on long-haul trips from the United States, further tightening the VLCC market and pushing rates higher. As U.S. oil prices are at a discount to the Middle Eastern benchmark, more U.S. crude is set to arrive in China at the end of the second quarter of this year, banks, brokers, and shipowners say.
“Tankers are traveling longer distances and ship availability is very tight. I think rates will stay strong for the next two years,” Lars Barstad, chief executive at Frontline, which owns and operates 22 supertankers and nearly 50 smaller vessels Suezmax and Aframax, told The Wall Street Journal.
Tanker rates are also pushed higher by the lower availability of vessels as more ships are involved in the Russian oil trade and – due to the sanctions – have become unavailable to other shippers. The number of newly built tankers and orders for new builds is at a decades-low, further constraining vessel availability.
“Despite improving fundamentals and strong tanker markets in the second half of 2022, new ordering of tanker tonnage in dwt terms was the lowest reported in 27 years. There is a marginal number of available berths being discussed for late 2025 delivery, predominantly in China, but to compensate for the growing numbers of vessels reaching 20 years of age over the next years, one needs to look to 2026,” Frontline said last month in its 2022 results report and outlook for the coming years.
“This continues to be the fundamental reason one may remain positive for tankers for the years to come.”
Teekay Tankers, which is not participating in the movement of Russian cargoes, said last month that “the transfer of ships into the so-called shadow fleet effectively removes them from mainstream trades and reduces effective vessel supply.”
Teekay Tankers expects the global tanker fleet to grow by around 1.5% this year, with virtually no growth in 2024, the company’s CEO Kevin Mackay said.
“In comparison, tanker tonne-mile growth is set to remain at very healthy levels over the same time frame due to projected firm levels of oil demand growth, particularly from China, and the continued stretching of the midsize tanker fleet due to changing trade patterns. As such, we believe that the tanker market has the potential to remain very firm over the medium term,” Mackay added.
Hugo De Stoop, CEO at Euronav, said in early February that rising crude demand and the longer voyages after the EU embargo on Russian oil have driven freight rates higher.
“We believe that the solid base of sector fundamentals (order book, fleet age, incoming regulations) will continue to underpin positive conditions within the tanker market for multiple quarters ahead,” De Stoop said.
BIMCO, the world’s largest international shipping association, said on a webinar at the end of February that the tanker shipping market over the next two years could be the strongest one in 15 years.
BIMCO expects crude tanker demand to grow faster than supply by 2.5-3.5 percentage points in both 2023 and 2024, while product tanker demand will outpace supply by an even higher margin.
“Unsurprisingly, we predict that the tightening of the supply/demand balance will lead to an increase in freight rates, time charter rates, and second-hand ship prices,” the association said.
Factbox-Russia’s tighter energy ties with China since Ukraine war
Mon, March 20, 2023 at 5:39 AM PDT
(Reuters) – China has increased purchases of Russian oil and gas in the year since Russia invaded Ukraine and the energy relationship between the two countries will be an important topic when presidents Vladimir Putin and Xi Jinping meet in Moscow this week.
Here are some facts about their energy ties.
– Russia’s Gazprom supplies gas to China through a 3,000 km (1,865 mile) pipeline called Power of Siberia under a 30-year, $400 billion deal launched at the end of 2019. In 2022 exports amounted to about 15.5 billion cubic meters (bcm). They are planned to increase to 22 bcm in 2023 and reach full capacity of 38 bcm by 2027. In February 2022, China also agreed to buy up to 10 bcm of gas annually by around 2026 via a pipeline from Russia’s far east island of Sakhalin. Russia’s gas exports to China are still a small fraction of the record 177 bcm it delivered to Europe in 2018-19. Since the start of the Ukraine war in February 2022, volumes to Europe have shrunk, reaching about 62 bcm in 2022.
– Putin, Xi and the president of Mongolia held talks in September 2022 on a proposed new Power of Siberia 2 pipeline capable of delivering 50 bcm of gas per year from Russia to China via Mongolia. Moscow put forward the idea many years ago, but it has gained urgency as Russia turns to China to replace Europe as its major gas customer.
– Russia remained China’s second-largest source of crude oil in 2022, after Saudi Arabia, as Chinese refiners snapped up low-cost Russian barrels shunned by Western countries shunned them after the invasion of Ukraine. Reuters’ calculations suggest China may have saved some $5 billion last year through these discounts.
– China’s crude oil imports from Russia jumped by 8% in 2022 to 86.25 million tonnes, equivalent to 1.72 million barrels per day (bpd), while its imports from the United States fell 31% to 7.89 million tonnes, Chinese customs data showed.
– China receives about 35% of the oil it buys from Russia via the Skovorodino-Mohe pipeline spur of the 4,070-km (2,540-mile) East Siberia Pacific Ocean (ESPO) pipeline, thereby bypassing any vessel and freight restrictions.
– China’s seaborne imports of Russian oil are set to hit a record in March as Chinese refiners take advantage of cheap prices as domestic fuel demand rebounds.
– China has largely ignored the sanctions imposed by Western nations on seaborne Russian crude since Dec. 5.
– Russia exported some 3.8 million tonnes of ESPO Blend crude oil from the Far East port of Kozmino in January 2023, a record monthly high for the port. The exports were sold above the Western price cap of $60 per barrel, market sources said.
– Russian oil export revenues were expected to rise in March as falling freight rates and strong demand in China and India push Russian oil prices towards the $60 per barrel Western price cap, based on traders’ and Reuters’ calculations, challenging the view that the mechanism is increasing pressure on Moscow. But the biggest weekly slide in oil since December will likely offset Russia’s possible gains from lower freight costs and stronger Russian crude differentials to global benchmarks.
– At least four Chinese-owned supertankers are shipping Russian Urals crude to China, Reuters reported in January. An executive with the Chinese firm involved in the shipments estimated a total of 18 Chinese supertankers and another 16 Aframax-sized vessels could be used for shipping Russian crude in 2023, enough to transport 15 million tonnes a year or about 10% of total Urals exports.