CHINA'S LPG EVOLUTION IN THE GLOBAL CONTEXT
This brochure will cover briefly the following issues:
· International LPG Industry
· China's LPG industry: a brief review and expectation
· Impact of China's LPG growth
· World LPG Association and LPG development in China
INTERNATIONAL LPG INDUSTRY
LPG As a Fuel
LPG, Liquefied Petroleum Gas, is a mixture of light hydrocarbons, more specifically, propane and butane in varying proportion, or no mixture at all.
LPG is used by about 500 million people worldwide. As a form of energy, its advantage lies in the fact that: first, it is an efficient fuel since its state of liquid provides a significant supply of energy in a comparatively small volume. It is also a clean and environmentally friendly energy that has a variety of residential, commercial, industrial and transportation usage. It can be used at home for cooking and heating and helps to protect the environment by replacing wood, kerosene and coal, etc. Its use in hotel and catering industry accounts for a major share of commercial demand. LPG can be also applied to generate electricity and to produce petrochemicals as feed stocks. LPG use is of great seasonality, increasing considerably during the winter months and declining in the summer as fuel use demand drops.
LPG PERFORMANCE WORLDWIDE
The global LPG markets are integrated part of the world primary energy markets and a subset of the great oil and gas markets. In the past decades, the world LPG application has been increasing steadily. In the period 1990 through 1996, LPG consumption increased from 135 to 174 million tons, corresponding to an annual average rate of growth of 4.3%, higher that that of most oil products and other energy forms such as coal. In 1996, LPG consumption worldwide accounted for about 2% of the world primary energy consumption.
LPG consumption varies from place to place. The industrialized countries such as the United States, United Kingdom and Japan have been the traditional LPG consumers. Among the emerging markets the most distinguishing ones are China, India and South Korea in Asia, Poland in Eastern Europe, and Venezuela in South America. Increasing demand for LPG as an efficient fuel has been a driving force behind the increasing output of LPG across the world, especially in the emerging markets. In the meantime the increase in demand for oil and gas worldwide has led to the rise in crude oil and gas production, hence the increasing capacity of crude oil refineries. In addition, there have been increased efforts in rationalizing gas processing and collection, and rising commercialization of oil and gas companies. As a result, the global LPG production industry has been able to get along with the level of demand. The United States and Japan are large LPG producers; However, they are net LPG importers due to their heavy consumption. Canada, United Kingdom, Norway and so on have been outstanding in both LPG production and export. Clustered in the Middle East are the dominant forces of world LPG exportation; among them are Saudi Arabia, United Arab Emirates, Kuwait and Iran. In addition, Indonesia in Southeast Asia and Algeria in Africa have also emerged to be import LPG sources. The LPG industry is not wholly dependent on the growth in an economy, because LPG is considered a substitute fuel for kerosene, wood and coal in heating homes and cooking, particularly in the developing countries. The growing trend of LPG industry is expected to remain in the foreseeable future. To take the advantage, some LPG production states such as Saudi Arabia, Qatar, Malaysia, Algeria and Venezuela, etc. will supply extra tons totaling four million into the market in summer, 1998. By the year 2000, total global LPG production is estimated to exceed 200 million tons. The growing markets like China are expected to maintain their consumption momentum in the coming decade, while it is the above mentioned production states, particularly the those in Middle East and Africa, that will be the most significant sources to satisfy the increasing global needs.
LPG INDUSTRY IN CHINA
AN ENERGY HISTORY OF COAL
All through its history of energy production and consumption, coal has been the dominant force in China.
In the early 1950's, the structure of energy production and consumption was basically coal, which accounted for about 96% of the total production and 94% of the consumption. Since the 1960's, the growth of the oil industry as well as other forms of energy has brought forth changes to the energy format. In recent years the share of coal in the primary energy production and consumption decreased to 75%, while oil, natural gas, and hydropower increased to 17%, 2% and 6% respectively, according to the Chinese official statistics.
THE CHINESE ECONOMY AND NEW ENERGY STRUCTURE
Since its opening up, China has achieved remarkable progress in the economic development. Particularly in the past few years, the national economy has maintained rapid growth at a consecutive rate of about 10% making it one of the most distinguished economies in the world.
The economic development has led to more energy production and consumption. By 1995, China had ranked second in the world in terms of total primary energy production and consumption. Its coal output was the largest and crude oil, with an amount of 150 million tons, was the sixth across the world. The production of natural gas developed from scratch to 17.6 billion cubic meters. A new energy structure composed mainly of coal and complemented by various other energy resources has basically come into being.
However, an energy history set on coal has led to be one of the heaviest sources of pollution in the world, contributing a large degree to the global warning up. As a result, the economic development also requires the environmental improvement. LPG, though a clean and cost-effective form of energy, was trivial in either production and consumption in China, since it used to be considered only a by-product of crude oil production and refining.
LPG IN CHINA: PRODUCTION, CONSUMPTION AND IMPORTATION
With China's attention to the environmental protection and the increasing knowledge about LPG as an efficient and clean fuel, LPG consumption has been growing at a remarkable rate since the beginning of 1990's. In 1990, LPG consumption was slightly over 2 million tons, while in 1996, nearly 7.4 million tons. The average annual growth rate in this period was more than 20%. With that from 1994 to 1995 reaching almost 33%.
In the same period of fast growth of LPG consumption, LPG production has turned out to be relatively stable. In 1990, the output was 2.056 million tons which could hardly meet the LPG demand. Six years later in 1996, the production was roughly 3.8 million tons, only about half of what was needed in the LPG markets. The average annual growth rate in that period was about 13%, apparently much lower than the development of consumption. Evidently, a big gap has been existing between LPG production and consumption which the domestic supply cannot bridge. Importation of LPG as a result, has emerged since the beginning of 1990's to fill the vacuum left by the domestic LPG production.
China has seen the fastest growth in LPG importation among other oil products since 1990, because of the demand in the coastal markets in South and East China, as well as the growing demand for LPG in the markets inland. Imported LPG constitutes a growing share of national consumption, from 4% in 1990 to 30% in 1994, 39% in 1995 and as high as 48% in 1996, according to the statistics.
Even though LPG consumption has been developing very fast in the past decade, LPG consumption per capita is still very low, partly due to the large population in China. At present it is around only 6 kg nationwide which is far small in comparison to 50 kg per capita in the European county of Finland, and 100 kg in its Asian neighbor, South Korea, for example.
Besides , the LPG development in China shows remarkable geographical variance. South China has been leading the nation in terms of per capita consumption. At present, it is nearly 35 kg. East China follows with per capita consumption of about 10 kg. North China is far less, only half of that in East China. And still in many places inland, the LPG consumption per capita is negligible, if there is any.
FLOATING STORAGE
Floating storage's, by anchoring LPG vessels in the seas close to the coastal cities for a period of time, have been expedient means of supplying the market demand in time. Over the past twenty years, floating storage's have been used by a number of countries in the world.
For lack of large-scale operational LPG terminals in the coastline cities, for the time being the floating storage's serve as an alternative means of LPG throughout, thus a useful supplement to meeting the growing LPG demand in China, before large refrigerated terminals are put into operation.
Currently, there are about seven floating storage's in the Chinese International waters along its coast. They are scattered from south to East, close to the coastal cities of Zhuhai, Shantou, Kaohsiong, Wenzhou, Ningbo and Shanghai which handle a large amount of LPG terminating in China.
However, the floating storage's are in the Chinese International waters which are obviously beyond the immediate reach of the Chinese authorities, thus a risk factor. Floating in nature and small in size, the floating storage's are in no way guaranteed source of LPG supply to China but a temporary means of serving Chinese LPG demand. With the investment in and build-up of more and more large-scale LPG terminals in the coastal cities, the floating storage will play a decreasingly important role in the China LPG markets.
LARGE-SCALE LPG TERMINALS
Because of its needs for imported energy, and LPG specially, to meet its economic development, China has provided both domestic and foreign companies the opportunities to expand their LPG businesses. Furthermore, the market-oriented pricing approaches and some preferential policies in the LPG sector are another incentive to foreign companies wishing to play a part in the emerging market.
Foreign players' roles in this market are diversified thanks to market evolvement in recent years. Besides being suppliers to the market, many companies are now venturing into the downstream distribution sector, marketing and retailing brand name LPG to end-users. Some have been participating discretely in projects of pipeline aspect.
LPG terminals used to be small capacity. Large-scale LPG terminals have been emerging into the Chinese LPG landscape in recent years. Currently, there are ten projects of scale, either under feasibility study or construction or in operation, by Chinese companies alone or jointly by domestic and foreign companies. Among them some are refrigerated ones and some cavern type where there are geographical preferences.
As can be seen, these terminals are concentrated along the China coastline, aiming at serving the economically developed cities and the neighboring areas where LPG consumption has been a common scenery or a growing fashion. With the planned economic growth in other parts of China, it is expected that some LPG terminals of scale will come into sight in the Southwestern areas such as Guangxi Province and so on.
IMPACT OF CHINA LPG GROWTH
LPG markets in Asia are an integrated part of the world LPG markets. While in Asia, China has become one of the most important players, with a large influence on spot markets and prices.
Currently, China is the second largest in LPG production in East Asia, following Japan and the fourth in the whole Asian area. However, for several years, the growth of LPG production in China has been lagging far behind the phenomenal increase of consumption which has brought China to the second place in this region, surpassing South Korea. In 1985, the LPG consumption in China was only 3.6% of the regional total in Asia. While in the beginning of 1990's, China doubled its share to about 7%. Coming to the year of 1996, its share in the regional total consumption increased to over 16%. As a result, China has experienced the most distinguishing growth rate in terms of LPG consumption in this area.
The impact of LPG growth of China can also be seen from its LPG importation. With its LPG demand much larger than the production capability, China is now the second largest LPG importer in the Asian area. From less than ten thousand tons in 1990 to over 3.5 million tons in 1996, the annual LPG import growth of over 20% has been the fastest in Asia. The increasingly large amount of LPG import not only has had much influence on the LPG production and export countries such as Saudi Arabia and Iran in Asia and Australia in the Pacific, but has led China to be the LPG price maker in the far East as well.
Market-oriented economic policy and the growing demand for LPG have been attracting foreign companies either as participants in the market directly or as investors in existing Chinese companies. It is estimated that the investment in the large-scale LPG terminals along China coasts alone, either foreign or joint venture, will approach roughly one billion US dollars.
The energy development planning in near future by the Chinese authorities concerned seems unlikely to meet the economic growth, nor does the expansion of natural gas projects in the Northwest China, or the upgrading of the existing oil refineries to the demand for LPG nationwide, particularly in the coastal regions, south to north. In Asia, the LPG imports are expected to increase at an annual average of about 6-7% in the coming decade, while China is estimated to achieve a higher growth rate which is intended to be in pace with its economic progress. In consequence, its emergence as a huge LPG market in Asia will continue. The fastest LPG growth rate, if sustained as projected, will bring forth more business opportunities to both Asian and other foreign companies on the LPG sector. Therefore, it is reasonably optimistic to predict that the Chinese LPG industry will play a more significant part on the Asian and global LPG stage in the forthcoming years.
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