China is the world’s largest net importer of crude oil, and in recent years, China’s crude oil imports have increasingly come from countries outside the Organization of the Petroleum Exporting Countries (OPEC). While OPEC countries still made up most (57%) of China’s 7.6 million barrels per day (b/d) of crude oil imports in 2016, crude oil from non-OPEC countries made up 65% of the growth in China’s imports between 2012 and 2016. Leading non-OPEC suppliers included Russia (14% of total imports), Oman (9%), and Brazil (5%).
On an average annual basis, China’s crude oil imports increased by 2.2 million b/d between 2012 and 2016, and the non-OPEC countries’ share increased from 34% to 43% over the period. Market shares for China’s top three non-OPEC suppliers (Russia, Oman, and Brazil), all increased over these years. 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, and imports from the United Kingdom reached a 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. U.S. crude oil production fell by more than 0.5 million b/d in 2016, but total liquids declined by less than 0.3 million b/d because other liquids production increased by less than 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) in older fields. As oil prices declined during 2016, investments in developing new reserves also fell and were not high enough to offset the natural production declines of older fields.
Source: U.S. Energy Information Administration, Short-Term Energy Outlook
China’s demand growth has remained the world’s largest in every year since 2009, increasing 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 (crude oil and petroleum products) in 2014. The United States imports more crude oil and exports more crude oil and petroleum products than China.
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. Another factor is the Chinese government’s filling of new Strategic Petroleum Reserve sites.
EIA’s latest 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. Absent any domestic production increases, China’s crude oil imports are expected to continue increasing. More information about China’s crude oil imports and various market forces that may suggest continued growth in non-OPEC crude oil imports are available in EIA’s This Week in Petroleum.
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Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
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Midstream & Downstream
Global liquid fuels
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)