More Chinese crude oil imports coming from non-OPEC countries
China, the world’s largest crude oil net importer, increased the share of its crude oil imports from countries outside the Organization of the Petroleum Exporting Countries (OPEC) in 2016. Of the country’s 7.6 million barrels per day (b/d) of 2016 crude oil imports, 57% came from OPEC countries, led by Saudi Arabia (13% of total imports), Angola (11%), Iraq (10%), and Iran (8%). Leading non-OPEC suppliers included Russia (14% of total imports), Oman (9%), and Brazil (5%). While total crude oil imports from OPEC exceed those from non-OPEC sources, crude oil from non-OPEC countries made up 65% of the growth in China’s imports between 2012 and 2016. Recent Chinese import data, crude oil price spreads, and non-OPEC production trends suggest continued growth in non-OPEC countries’ share of China’s growing crude oil imports.
China’s crude oil imports increased by 2.2 million b/d between 2012 and 2016, with the non-OPEC countries’ share increasing from 34% to 43% over the period (Figure 1). Since the beginning of 2012 through February 2017 (the latest month for which data are available), the market shares of three of the top four OPEC suppliers to China (Saudi Arabia, Angola, and Iran) fell when measured using rolling 12-month averages. Over the same period, however, market shares for China’s top four non-OPEC suppliers (Russia, Oman, Brazil, and the United Kingdom), increased. While still comparatively small as a share of China’s crude oil imports, imports from Brazil reached a record high of 0.6 million b/d in December 2016, while imports from the United Kingdom reached their all-time high of 0.2 million b/d in February 2017.
Growth in China’s total crude oil imports in 2016 reflected both lower domestic crude oil production and continued demand growth. After increasing steadily between 2012 and 2015, China’s crude oil production declined significantly in 2016. Total liquids supply in China averaged 4.9 million b/d in 2016, a year-over-year decline of 0.3 million b/d, the largest drop for any non-OPEC country in 2016 (Figure 2). U.S. crude oil production fell by over 0.5 million b/d in 2016, but total liquids declined by under 0.3 million b/d because other liquids production increased by under 0.3 million b/d. Much of Chinese production growth from 2012 through 2015 was driven by more expensive drilling and production techniques, such as enhanced oil recovery (EOR), on older fields. Investments in development of new reserves fell as oil prices declined, contributing to a fall in total Chinese production because of the natural declines of old fields.
China’s demand growth has remained the world’s largest in every year since 2009, including an increase of 0.4 million b/d in 2016. As China increased its imports to address a growing gap between its domestic production and demand, it surpassed the United States as the world’s largest net importer of total petroleum in 2014. Other factors contributed to an increase in Chinese crude oil imports. For example, in July 2015, the Chinese government began allowing independent refiners (those not owned by the government) to import crude oil. The independent refiners previously had restrictions on the amount of crude oil they could import and relied on domestic supply and fuel oil as primary feedstocks. A second factor was the Chinese government’s filling of new Strategic Petroleum Reserve sites.
Total Chinese crude oil imports reached an all-time high of 8.6 million b/d in December 2016, with January and February 2017 data showing record highs for those particular months, at a time when demand is usually lower because of shutdowns related to the Chinese New Year (Figure 3).
Recent market dynamics suggest the market share of non-OPEC suppliers in China may continue to grow as its imports increase and the country remains a competitive market for suppliers. The Brent-Dubai Exchange of Futures for Swaps (EFS), an instrument that allows trade between the Brent futures market and the Dubai swaps market and represents the price premium of Brent over Dubai crude oil, is at the lowest levels for this time of year since 2010 (Figure 4). The relatively low price of Brent crude oil allows long distance arbitrage opportunities for some suppliers, particularly producers in the Atlantic basin market. For Chinese refiners, purchasing crude oil from Atlantic basin producers is generally more expensive because of higher transportation costs. The relatively lower price of Brent crude oil, however, allows some Chinese refiners to purchase Atlantic basin grades less expensively than Middle Eastern grades, even after the cost of shipping. Producers in Brazil, the United Kingdom, and, increasingly, the United States have taken advantage of this arbitrage, boosting flows of non-OPEC oil into China. The March edition of EIA’s monthly Short-Term Energy Outlook (STEO) forecasts a 0.3 million b/d increase in China’s total liquid fuels demand in both 2017 and 2018.
U.S. average regular gasoline and diesel prices rise
The U.S. average regular gasoline retail price increased over four cents from the previous week, to $2.36 per gallon on April 3, up 28 cents from the same time last year. The Midwest price rose 10 cents to $2.28 per gallon, the Gulf Coast price rose nearly four cents to $2.12 per gallon, the East Coast price rose nearly three cents to $2.30 per gallon, and the West Coast price increased less than one cent, remaining at $2.85 per gallon. The Rocky Mountain price fell less than one cent, remaining at $2.30 per gallon.
The U.S. average diesel fuel price increased over two cents to $2.56 per gallon on April 3, 44 cents higher than a year ago. The Gulf Coast price increased nearly four cents to $2.41 per gallon, the Rocky Mountain price rose nearly three cents to $2.62 per gallon, and the West Coast, East Coast, and Midwest prices each increased two cents to $2.84 per gallon, $2.61 per gallon, and $2.48 per gallon, respectively.
Propane inventories fall
U.S. propane stocks decreased by 1.2 million barrels last week to 41.6 million barrels as of March 31, 2017, 23.3 million barrels (35.9%) lower than a year ago. Gulf Coast and East Coast inventories decreased by 1.1 million barrels and 0.5 million barrels, respectively, while Midwest inventories increased by 0.4 million barrels, and Rocky Mountain/West Coast inventories rose slightly, remaining essentially unchanged. Propylene non-fuel-use inventories represented 5.9% of total propane inventories.
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In 2021, the makeup of renewables has also changed drastically. Technologies such as solar and wind are no longer novel, as is the idea of blending vegetable oils into road fuels or switching to electric-based vehicles. Such ideas are now entrenched and are not considered enough to shift the world into a carbon neutral future. The new wave of renewables focus on converting by-products from other carbon-intensive industries into usable fuels. Research into such technologies has been pioneered in universities and start-ups over the past two decades, but the impetus of global climate goals is now seeing an incredible amount of money being poured into them as oil & gas giants seek to rebalance their portfolios away from pure hydrocarbons with a goal of balancing their total carbon emissions in aggregate to zero.
Traditionally, the European players have led this drive. Which is unsurprising, since the EU has been the most driven in this acceleration. But even the US giants are following suit. In the past year, Chevron has poured an incredible amount of cash and effort in pioneering renewables. Its motives might be less than altruistic, shareholders across America have been particularly vocal about driving this transformation but the net results will be positive for all.
Chevron’s recent efforts have focused on biomethane, through a partnership with global waste solutions company Brightmark. The joint venture Brightmark RNG Holdings operations focused on convert cow manure to renewable natural gas, which are then converted into fuel for long-haul trucks, the very kind that criss-cross the vast highways of the US delivering goods from coast to coast. Launched in October 2020, the joint venture was extended and expanded in August, now encompassing 38 biomethane plants in seven US states, with first production set to begin later in 2021. The targeting of livestock waste is particularly crucial: methane emissions from farms is the second-largest contributor to climate change emissions globally. The technology to capture methane from manure (as well as landfills and other waste sites) has existed for years, but has only recently been commercialised to convert methane emissions from decomposition to useful products.
This is an arena that another supermajor – BP – has also made a recent significant investment in. BP signed a 15-year agreement with CleanBay Renewables to purchase the latter’s renewable natural gas (RNG) to be mixed and sold into select US state markets. Beginning with California, which has one of the strictest fuel standards in the US and provides incentives under the Low Carbon Fuel Standard to reduce carbon intensity – CleanBay’s RNG is derived not from cows, but from poultry. Chicken manure, feathers and bedding are all converted into RNG using anaerobic digesters, providing a carbon intensity that is said to be 95% less than the lifecycle greenhouse gas emissions of pure fossil fuels and non-conversion of poultry waste matter. BP also has an agreement with Gevo Inc in Iowa to purchase RNG produced from cow manure, also for sale in California.
But road fuels aren’t the only avenue for large-scale embracing of renewables. It could take to the air, literally. After all, the global commercial airline fleet currently stands at over 25,000 aircraft and is expected to grow to over 35,000 by 2030. All those planes will burn a lot of fuel. With the airline industry embracing the idea of AAF (or Alternative Aviation Fuels), developments into renewable jet fuels have been striking, from traditional bio-sources such as palm or soybean oil to advanced organic matter conversion from agricultural waste and manure. Chevron, again, has signed a landmark deal to advance the commercialisation. Together with Delta Airlines and Google, Chevron will be producing a batch of sustainable aviation fuel at its El Segundo refinery in California. Delta will then use the fuel, with Google providing a cloud-based framework to analyse the data. That data will then allow for a transparent analysis into carbon emissions from the use of sustainable aviation fuel, as benchmark for others to follow. The analysis should be able to confirm whether or not the International Air Transport Association (IATA)’s estimates that renewable jet fuel can reduce lifecycle carbon intensity by up to 80%. And to strengthen the measure, Delta has pledged to replace 10% of its jet fuel with sustainable aviation fuel by 2030.
In a parallel, but no less pioneering lane, France’s TotalEnergies has announced that it is developing a 100% renewable fuel for use in motorsports, using bioethanol sourced from residues produced by the French wine industry (among others) at its Feyzin refinery in Lyon. This, it believes, will reduce the racing sports’ carbon emissions by an immediate 65%. The fuel, named Excellium Racing 100, is set to debut at the next season of the FIA World Endurance Championship, which includes the iconic 24 Hours of Le Mans 2022 race.
But Chevron isn’t done yet. It is also falling back on the long-standing use of vegetable oils blended into US transport fuels by signing a wide-ranging agreement with commodity giant Bunge. Called a ‘farmer-to-fuelling station’ solution, Bunge’s soybean processing facilities in Louisiana and Illinois will be the source of meal and oil that will be converted by Chevron into diesel and jet fuel. With an investment of US$600 million, Chevron will assist Bunge in doubling the combined capacity of both plants by 2024, in line with anticipated increases in the US biofuels blending mandates.
Even ExxonMobil, one of the most reticent of the supermajors to embrace renewables wholesale, is getting in on the action. Its Imperial Oil subsidiary in Canada has announced plans to commercialise renewable diesel at a new facility near Edmonton using plant-based feedstock and hydrogen. The venture does only target the Canadian market – where political will to drive renewable adoption is far higher than in the US – but similar moves have already been adopted by other refiners for the US market, including major investments by Phillips 66 and Valero.
Ultimately, these recent moves are driven out of necessity. This is the way the industry is moving and anyone stubborn enough to ignore it will be left behind. Combined with other major investments driven by European supermajors over the past five years, this wider and wider adoption of renewable can only be better for the planet and, eventually, individual bottom lines. The renewables ball is rolling fast and is only gaining momentum.
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