Saturday, May 12, 2012

Part 9: Inter-Regional Trade Movements of Petroleum to and from China

Over the last decade, all four net petroleum exporting regions (ME, FS, AF, SA) have stepped up their exports to CH, often the expense of less exports to one or more of EU, NA or Japan (JP).

For instance, Part 7 and Part 8 illustrated how petroleum exports from the Middle East (ME) and the former Soviet Union (FS) was increasingly flowing to China (CH).  Part 5 showed a similar trend of increasing exports from Africa (AF) to CH with declining exports to the European Region (EU).  Part 4 showed the analogous trend of decreasing export to North America (NA) from South America (SA) and increasing exports from SA to CH. 
Here in Part 9, I show these trends all together, from the perspective of China, and, further explores the trade movements of petroleum between China and the other two Asian regions: JP and the remaining Asia-Pacific countries (rAP). 

Part 1, introduced the abbreviations, definitions, data bases and analysis methods used in this series. 

China's Total Petroleum and Crude Oil Production and Consumption Rate Trends
Figure 1 presents CH’s total petroleum consumption rate (i.e., both domestic and imported petroleum) since 1980 as reported by the EIA or BP review (solid red circles and squares, respectively). 

As you can see, China’s petroleum consumption rate has been exponentially increasing for the last 20 years.  As I showed in a previous post (e.g., Figure 1a here) the BP data from 1983-2010 nicely fits the Hubbert Equation with a compounding consumption growth rate of 7.4 percent per year.

And, there are no signs of the consumption rate tailing off anytime soon.  My previous best-fit analysis using the Hubbert Equation suggested that if this consumption trend could continue unabated, then by 2030, China would be consuming 8 bby, which would exceed the USA’s peak consumption rate in the mid-2000s. 

Figure 2 shows CH's total petroleum production rate (i.e., domestic production, solid blue circles and squares for EIA and BP data, respectively) and crude oil production (solid purple circles). 

The purple circles are not too visible in the figure because they overlap with the total production amounts, meaning that CH doesn’t produce much else in the way of petroleum besides crude oil. 

The growth in the petroleum production rate is impressive: from 0.77 bby in 1980 to 1.5 bby in 2010—a doubling in production.  But clearly this doubling was not nearly enough to keep up with the increasing consumption rate shown in Figure 1.  For instance, from Figure 1, consumption increases from about 0.6 bby in the early 1980’s to 3.3-3.4 in 2010—a +500% increase.  Consequently, CH has become a strong and growing net importer of petroleum over the last 20 years.

China's Gross and Inter-regional Export and Import Rate Trends
Figure 1 also shows CH’s gross and inter-regional imports of total petroleum, crude oil and petroleum products.  The EIA's import data (open circles) only runs from 1984 to 2008, while the BP review's import data (open squares) only runs from 2000 to 2010.  The same applies to the export data in Figure 2.

Note: For consistency with other parts in the series I kept the use of the term “gross” in the figures when referring to the EIA data, but, when talking about a single country region, as is the case here, the EIA’s import data and the BP review’s interregional import/export data should be about the same.  That generally appears to be the case here, as illustrated by the confluence of the open circles and squares in Figures 1 and 2.

As illustrated in Figure 1, since about 1990, CH’s total imports (open red circles and squares) have been on a similar exponentially increasing trend as consumption.   The bulk of these exponentially increasing imports have been crude oil imports (open brown circles and squares), but petroluem product imports (open green circles and squares) have also steadily increased.

Despite the dramatic increase in imports, CH still exports some petroleum.  As illustrated in Figure 2, total exports (open blue circles) steadily fell from 1985 to 1999, mainly due to declining crude oil exports (open brown circles).  The trend of declining crude oil exports continued throughout the 2000s until 2010, when CH exports essentially no crude oil (i.e., about 0.01-0.02 bby; open brown circles and squares). 

However during the 2000’s, total exports (open blue circles and squares) began to rise again.  The increase in total exports was due to an increase in petroleum product exports (open green circles and squares).  Thus, of the 0.24 bby that CH exported in 2010, 0.22 bby was petroleum product exports. 

Figure 3 shows CH's total petroleum, crude oil and petroleum product imports relative to the respective gross and inter-regional global petroleum import pools.  Now the EIA and BP data set have separated, because as discussed at length in other parts of this series (see e.g., Part 1 and Part 2) the EIA-derived global gross export/import pool is larger than the BP review-derived global inter-regional export/import pool.

As you can see, CH’s total inter-regional imports (red open square) has rocketed up from 4.7 percent of the global import pool in 2000 to 13.1 percent of the global import pool.  And, as mentioned when discussing Figure 1, this is mainly due to inter-regional imports of crude oil (brown open squares), although petroleum product imports (open green squares) has also been increasing, albeit at a slower rate. In 2010, CH imported 10 percent of the crude oil in the inter-regional export pool.

The gross import data (open circles) follows these same trends.

Figure 4 shows CH's exports relative to the respective total gross and inter-regional global petroleum export pools, which, of course, is about the same size as the respective global import pool.   Again, you see some separation between the EIA and BP data because the sizes of the gross and inter-regional export pools are different.

Note the three times smaller vertical scale of Figure 4 compared to Figure 3, indicative of CH’s role as a major petroleum importer. 

Figure 4 more clearly shows the trends I talked about when discussing Figure 2:  total petroleum exports (blue circles and squares) hit a trough in 1999 due to declining crude oil exports ( brown circles and squares).  Crude oil exports have continued to decline, but, petroleum product exports (green circles and squares) have increased, thereby causing total exports to rise again.  Still, in 2010 CH only provided 1.4 percent of the total global export pool—much less than the contributions to global inter-regional exports from FS (20 percent) or ME (41 percent), and even lower than NA’s and EU’s 4-3 percent contributions.

Comparing EIA and BP Export and Import data
As discussed in previous parts of the series, when dealing with a region having multiple different countries, the difference between the gross (EIA data) and inter-regional (BP data) imports or exports, shown in Figures 1 and 2, respectively, should correspond to intra-regional trade movements of petroleum among the countries within the region.

For the present study, this is not applicable because I have defined CH as a single country region.  Still, I am interested in seeing how the EIA and BP data compare to each other.  In an ideal world, these data would be the same and therefore the differences show in Figure 5 and 6 below would be zero.

Figure 5 shows the differences between the EIA gross and BP inter-regional total, crude oils and petroleum product imports, which should equal the intra-regional values for these quantities. 

Not too bad.  The difference are pretty close to zero with a few notable spikes (e.g., product imports difference in 2000 equals 0.07 bby; difference in total imports in 2009 equals -0.09 bby).

Figure 6 shows the differences between the EIA gross and BP inter-regional total, crude oil and petroleum product exports, which should equal the intra-regional export values for these quantities. 

Once again, not too bad.  There is essentially no difference in crude oil exports, but there is a systematic difference in the product exports—the EIA product exports being about 0.04 bby higher than the BP product exports, with some fluctuations in 2006-2007.  Consequently, the difference total exports reflects this 0.04 bby difference.

Trade movements of total petroleum between China and other regions
Figure 7 shows the specific quantities of petroleum, in units of bby, imported by CH FROM each of the eight other regions, and also shows the sum of CH's total inter-regional petroleum imports from all eight of the other regions (black "Xs"), which is the same as presented in Figure 1 (red open squares).  Note the different scales for the individual regions (lhs axis) and the total (rhs axis).

This figure nicely shows where CH’s increased imports have been coming from—there have been large increases in absolute amounts of petroleum imports from ME, AF, FS and SA. 

Additionally, CH gets significant amounts ofpetroluem imports from the remaining Asia Pacific region (rAP).  For instance 0.2 bby was imported from rAP to CH in 2000, after hitting a peak of 0.32 bby in 2004 and then dropping slightly export from the rAP are back up to 0.33 bby in 2010.

CH’s imports of petroleum from NA, EU and JP are all less than 0.03 bby in 2010, although in 2004, JP exported to CH a total of 0.04 bby—most likely correspond to petroleum products.

Figure 8 shows petroleum exports from CH TO each of the eight other regions and again, for reference, I show CH’s total exports (black “Xs” corresponding to the blue squares in Figure 2).  Again, note the much smaller vertical scale as compared to Figure 7, illustrating that CH is a large net importer of petroleum. Also note that this time I don’t need a separate axis scale to portray the total exports compared to regional exports.

As you can see CH’s total exports have increased over the last decade.  Especially in the last two years exports spiked upwards—this is reflecting the increase in petroleum product exports that I discussed in the context of Figure 4.   

Figure 8 illustrates that CH’s exports have been going mainly to rAP, although there is a small but noticeable increase in exports to South America.   For instance, in 2010, of the total exports of 0.24 bby, 0.17 bby (71%) went to rAP and about 0.04 bby (15%) went to SA. 

A distance third place destination is JP, receiving about 0.01 bby (3.5%) of CH’s exports in 2010.  Notice how much exports to JP are down from 2000—in 2000 JP received about 0.04 bby (35%) of CH’s total exports of 0.13 bby.  Even NA, in 2000, was receiving about 12% of CH’s exports, but by 2010, this was down to 1.3%.  

Figures 9 and 10 present the same data as shown in Figures 7 and 8, respectively, but expressing CH's petroleum imports or exports, to or from each of the eight regions, as percentages of the total global inter-regional petroleum import/export pool (global inter-regional imports and exports are the same).  For reference, I also show CH’s petroleum imports and exports as percentages of the global petroleum import/export pool (“Xs” right vertical axis; again note the different scale in Figure 9).

Additionally, I have taken all of these data and made linear extrapolations of the 2000 to 2010 data (via linear regression analysis) out to 2021. 
Figure 9 shows the major linear trend for increasing total imports to CH (r2=0.94; black line).

The linear regression coefficients for the prominent regional trend lines for increasing imports are all quite large: ME (r2=0.93), AF (r2=0.95), FS (r2=0.93), SA (r2=0.93).  Imports from rAP has a flat trend line for (r2=0.008). 

Notice that AF has replace rAP as the second largest supplier of petroleum.  We can see from Figure 9, this transition occurred around 2004.  Also from the trendline in Figure 9, if the expected continued flat imports from rAP continues and increasing imports from FS and SA continue, then, by about 2012 and 2016, respectively, FS and  SA will overtake rAP as the number three and four petroleum suppliers to CH.

Figure 10 shows a weaker trend for the CH’s total exports to be increasing (r2=0.40; black line).

However the regression coefficients for linear trends of increasing regional exports imports to rAP is stronger (r2=0.51) and much stronger for exports to SA (r2=0.87).  The linear regression trendline for decreasing exports to JP also is quite strong (r2=0.81).

Figures 11 and 12 show the relative changes in CH's import sources and export destinations, respectively, as a percentage of the CH's total exports or imports in the years 2000 and 2010, and, as predicted for2021, from the linear regression trend lines shown in Figures 9 and 10.

Figure 11, illustrates that the most prominent relative changes in the import sources involve AF, SA FS on the positive side and ME and rAP on the negative side.

In 2000, 90 percent of CH’s petroleum imports came from three sources: ME (43%), rAP (28%) and AF (19%).  FS was a distance fourth supplier at 5.4% and SA as a source (0.4%) was behind even EU (2.9%).  But by 2010, CH was still getting 40% of its imports from ME—of course this corresponds to a larger absolute increase in imports (Figure 7) to support CH’s increased consumption (Figure 1), but relatively speaking, this corresponds to a slight decrease in the proportion of CH’s imports coming from ME. 

Likewise, although absolute imports from rAP have somewhat increased (Figure 7) as a proportion of CH's imports rAP's contribution declined to 15% of total imports in 2010. 

What has gone up, relatively and absolutely speaking, are imports from AF, at 22%, FS, at 11% and SA at 8% in 2010.  Should the trends discussed in Figure 9 continue, then by 2021, ME is still predicted to be the top supplier at 40%, AF will be a strong second supplier (27%) with FS (13%) and SA (10%) in third and fourth, respectively.  rAP will have fallen to the fifth largest supplier (8%).

Figure 12 illustrates the trend for CH’s exports, small that they are, move away from JP and NA and towards SA, with rAP remaining the major destination. 

In 2000, 96 percent of CH exports went to three destinations: rAP (49%), JP (35%) and NA (12%).  But, by 2010, the proportion of exports to NA (1.2%) and JP (3.5%) had dramatically decreased in favor of an even higher proportion going to rAP (71%) and the new import destination SA (15%). 

A continuation of these trends to 2021 would predict substantially all of CH’s exports going to rAP and SA, with minor amounts to EU and AF and none to NA and JP.

Summary and Conclusions
Although China’s petroleum production rate is up 200% over the last decade, its consumption rate has increased at an even higher rate—500%.  This has caused China to become a major petroleum importer.  In 2010, China imported 2.2 billion barrels.  That’s roughly half of the European region’s and two-thirds of North America’s inter-regional imports in the same year.  If the trends of increasing imports to China (black line, Figure 9, above) and declining imports to North America (black line, Figure 9 from Part 3) were to continue, then China would equal and then surpass North America as the second largest petroleum importing region in about five years, 2017, importing an estimated 17% of global inter-regional export pool of petroleum, up from 13% in 2010. 

While the Middle East continued over the last decade to be China’s major and steady inter-regional petroleum supplier, China’s other imports sources have been shifting over the last decade, away from the remaining Asia Pacific countries and towards Africa, the former Soviet Union countries and South America. 

Although it is a strong and growing net petroleum importer, China does export some petroleum, corresponding to about 1.5 percent of the global inter-regional export pool.  Of the small amount of petroleum it does export, China exports substantially all of it as petroleum products, and mainly to the remaining Asia-Pacific countries with a trend for increasing amounts to South America and decreasing amounts to Japan. 

I find it interesting that the three up-and-coming inter-regional suppliers of petroleum to China: Africa, the former Soviet Union and South America are also all increasing suppliers of petroleum to one or both of North America and Europe. Africa and the former Soviet Union are increasing suppliers to North America, and the former Soviet Union and South America are increasing suppliers to Europe.  If, however, Africa, South America and former Soviet Union are at, or near, peak oil exports, then something will have to give, in one or more of these export trends. 

My hunch is that exports from these regions has become, or is about to become, a zero-sum game. 

For instance, consider the Middle East, whose absolute exports have been flat-to-declining for several years.  Over the last decade, an increase in petroleum exports from the Middle East to one or two regions, like China or other Asia-Pasic countries, has meant decreasing exports to other region or regions, namely North America, Europe and Japan. 

I think that we are starting to see this same zero-sum game for South America and Africa.  South America’s total inter-regional petroleum exports are starting to flatten out, and, as South America exports a greater proportion of its petroleum to China and Europe, it has been exporting less to North America.  Similarly, Africa’s total inter-regional exports are flattening out, and, as Africa exports petroleum more to North America and China, it has been exporting less to Europe and the remaining Asia-Pacific region.  

What has sustained the global export pool over the last decade is the former Soviet Union.  The former Soviet Union has sustained the flow of exports to Europe and North America while the Middle East shifted it exports away from these destinations to supply increasing amounts of petroleum to China and the remaining Asia-Pacific region. 

But when absolute exports from the former Soviet Union starts to flatten out, and maybe this is happening now, the former Soviet Union will no longer be able to continuing increasing exports to North America and Europe and all support the increasing demand in China and the remaining Asia-Pacific region. 

Something will have to give.  

In my opinion, based on the major pipeline projects and negotiations underway for the former Soviet Union to deliver more oil to Asia (see Part 8), it is clear that what will "give" are the exports to North America and Europe.
Next time, I describe Japan’s petroleum Export and Import Trends. 

No comments:

Post a Comment

Your comments, questions and suggestions are welcome! However, comments with cursing or ad hominem attacks will be removed.