The latest China Oil & Gas Report from BMI forecasts that the country will account for 34.28% of Asia Pacific regional oil demand by 2012, while providing 43.12% of supply. Asia Pacific regional oil use of 21.4mn barrels per day (b/d) in 2001 reached an estimated 25.56mn b/d in 2007. It should rise to around 29.38mn b/d by 2012. In terms of natural gas, the region in 2007 consumed an estimated 436bcm, with demand of 591bcm targeted for 2012, representing growth of 35.57% between 2007 and 2012. Production of an estimated 354bcm in 2007 should reach 455bcm in 2012, but implies net imports rising from an estimated 82bcm per annum to 136bcm.

China’s share of gas consumption in 2007 was an estimated 14.28%, while its share of production was 17.54%. By 2012, its share of gas consumption is forecast to be 17.11%, with the country accounting for 17.88% of supply. In Q108, we estimate that the OPEC basket price averaged US$92.64 per barrel – up around 9% from the Q407 level. The OPEC basket price had exceeded US$102 by the middle of March, slipping back towards US$96/bbl later in the month. The estimated Q108 average prices for the main marker blends are now US$96.54 for Brent, US$97.31 for WTI and US$93.44/bbl for Russian Urals (Mediterranean delivery). Our projections for 2008 as a whole are revised upwards from BMI’s last quarterly report.

We are now assuming an OPEC basket price average of US$81 per barrel for 2008, compared with the US$74 estimate provided by our last quarterly report. Based on recent price differentials, this implies Brent at US$84.71, WTI averaging US$85.63/bbl, and Urals at US$81.88/bbl. Chinese GDP growth is now forecast by BMI at 10.7% for 2008, down from an estimated 11.4% in 2007. We are assuming 9.5% growth in 2009-12. While partly privatised, the oil and gas industry remains under state control, with PetroChina, Sinopec and CNOOC charged with maintaining domestic production. We are assuming oil and gas liquids output of no more than 3.71mn b/d by 2012, although the country is expected to pump 3.88mn b/d in 2008. Oil consumption is forecast to increase by around 27.6% in 2007- 2012, implying demand of 10.07mn b/d by the end of the forecast period.

The import requirement would therefore be about 6.36mn b/d by 2012. Between 2007 and 2018, we are forecasting an increase in Chinese oil production of just 9.4%, with crude volumes peaking in 2018 at 4.10mn b/d, having fallen steadily from 3.88mn b/d in 2008 to 3.68mn b/d in 2015, before beginning to recover at the end of the forecast period. Oil consumption between 2007 and 2018 is set to increase by 61.5%, with growth slowing to an assumed 4.0% per annum towards the end of the period and the country using 12.74mn b/d by 2018. Gas production is expected to rise rapidly, from around 67bcm in 2007 to a possible 104bcm by 2018 (+68%). With demand growth of 130%, this provides an import requirement rising from zero to 39bcm, partly in the form of LNG. Details of the new BMI 10-year forecasts can be found in the Appendix of this report, which provides global, regional and country-specific projections.

China now ranks outright sixth in BMI’s newly revised Upstream Business Environment rating (just behind the Philippines), with a strong resource position being countered by a less impressive regulatory structure and substantial state involvement. The risk environment is also less attractive than for many Asian peers. The country sits ahead of Malaysia. Over the medium to long term, China has the capability to progress up through the rankings and claim a higher slot in the regional league table. It is now first in BMI’s updated Downstream Business Environment rating, reflecting its status as a high-growth energy market with strongly positive population and demand trends, plus a low level of retail site intensity limited growth potential. It has this quarter beaten India to first place out of the 14 states.