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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (2427)	1/8/2004 7:59:39 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

Mainland energy needs may doom Japanese deal Rajat Bhattacharya and Le-Min Lim Bloomberg News Thursday, January 8, 2004 A oil-sales deal with Japan that was begun when Mao Zedong was leader of China appears to have collapsed after 30 years, a victim of China's growing demand for energy, traders said Thursday. China is East Asia's biggest oil producer. The traders said it stopped exports of PetroChina's Daqing grade crude oil to Japan after 30 years because Japanese refiners refused to pay a higher premium for the fuel. In their annual contract talks in Beijing, Japanese buyers had asked for about 1.85 million metric tons of Daqing oil this year. China offered about 500,000 tons at a premium of about $6.30 per barrel. Japan, which paid a premium of 45 cents a barrel to benchmark oil prices for Daqing oil last year, had been offering a premium 65 cents a barrel. China's 8 percent annual economic growth has raised demand for oil in the country, reducing the availability of Daqing oil for Japan, where China sold 3 million tons last year. Raising the premium this year "is an indirect way for China to turn down Japan's request to renew the contract," said Michael Lee, a Hong Kong-based analyst with UOB-Kay Hian. "China doesn't have enough for domestic consumption. It may think it's better to reserve Daqing crude for domestic consumption." PetroChina's Daqing oilfield, the country's largest, will cut production by an annual 2 million metric tons, or 14.7 million barrels, for the next few years as reserves dwindle, the government has said. China uses the average of Indonesia's Minas and Cinta crude oils as its benchmark for pricing Daqing oil. PetroChina's Hong Kong-listed shares fell 3.4 percent to close Thursday at 4.275 Hong Kong dollars, or 55 U.S. cents. The shares have lost 12 percent in the past three days, after more than doubling last year. Oil production at Daqing, which accounts for a third of China's total output and half of PetroChina's production, fell to 48.4 million tons last year, the first time in almost three decades that output has dropped below the 50 million-ton mark. PetroChina may compensate for falling Daqing supplies by raising output from other fields, S&P Asian Equity Research said this week, citing unidentified officials. Daqing is in China's northeastern Heilongjiang province. Last year China overtook Japan as the world's second-largest crude oil consumer, trailing only the United States. Rising consumption has forced China to import more from the Middle East and to curb exports. This year's negotiations between China and Japan were part of a five-year contract that still has two years to go. A trader at PetroChina's oil trading unit said talks with Japanese buyers could continue. "It's true we haven't received any instructions from PetroChina to export Daqing crude to Japan in January," said Zheng Jun, a Beijing-based trader with China National United Oil, PetroChina's trading arm. "It may be that talks are still continuing between PetroChina" and Japanese buyers. The loss of Daqing supply could force Japanese power companies such as Tokyo Electric Power to pay more for alternative crudes should the company fail to restart nuclear power plants it was forced to close last year. "Everything depends on how big a demand there is from power companies this year," said Kenji Morita, general manager of the crude oil and products buying division of Japan Energy. Tokyo Electric's purchases of crude oil and fuel oil tripled in the April-to-September period from a year earlier, as it replaced nuclear power capacity by restarting oil-fired plants. On Wednesday the company said four of the 12 closed reactors have passed their final safety test. "With the nuclear power plants coming back on line, demand for heavy oil is declining," said Tomoki Ohira, a spokesman at Idemitsu Kosan, Japan's second-largest refiner. The 1.85 million tons, or about 40,000 barrels a day, that Japanese buyers were seeking from PetroChina this year would be equal to 1 percent of Japan's daily oil imports of about 4.2 million barrels a day last year. Bloomberg News iht.com