China car craze won't dent gasoline exports

An employee fills the tank of a vehicle at a gas station in Changzhi, Shanxi province May 20, 2009.

BEIJING (Reuters) - Gasoline demand in China this year is forecast to grow half the rate at which citizens drive shiny new cars out of showrooms, but refineries will be more than able to keep pace, and exports will mop up the excess fuel.

Tax incentives are expected to fuel sales of a record 11.9 million new cars in 2010, after last year's jump of 53 percent, but there will be few queues at petrol pumps because many models have small fuel-efficient engines, or don't use gasoline at all.

Besides, China's total fleet of cars has not yet reached the critical stage that will stop refiners from meeting new demand.

China's move last year to set retail fuel rates in line with global prices of crude triggered a surge in refinery runs that yielded so much gasoline, exports rose despite the surge in sales of new cars that consume 90 percent of the fuel.

"So long as China raises crude runs, the configuration of Chinese refineries will mean increasing supplies of gasoline that will outpace, or at best, be on par with gasoline demand," said Kang Wu, a senior fellow at the Hawaii-based East-West Center.

Net gasoline exports rose to 4.9 million tonnes, or 114,000 barrels per day (bpd) in 2009, from 46,618 tonnes (1,000 bpd) in 2008 left over from a stockpile built for the Olympic games.

And in a signal for production this year, China exported almost 1 million tonnes of gasoline in December, easily the biggest monthly volume ever, with refiners forecast to process 560,000 bpd more crude than the 7.5 million they did in 2009.

Early in 2009, China began adjusting retail fuel prices on a 22-day moving average if global crude prices rise or fell more than 4 percent, something that happened eight times last year and gave refineries guaranteed margins.

With crude now below $75 a barrel, gasoline prices, at 7,900 yuan per tonne (0.83 U.S. cents per liter) are higher than at a time of peak global crude prices near $137 in June 2008, when China's subsidy regime held prices at 6,980 yuan ($73.7 cents).

Analysts said China's surplus situation was unlikely to change soon, despite the robust car sales and downward pressure on the global light distillates' crack spread.

"Gasoline demand will grow at a faster pace than in 2009, but not in tandem with the nominal rate of car sales," said Dai Jiaquan, a senior market researcher at China National Petroleum Corp, China's biggest oil firm.

China's total gasoline demand will grow by 7.8 percent in 2010 to 72.2 million tonnes, 2.2 percentage points faster than 2009 growth, Dai estimated, slightly higher than the 6.2 percent growth envisaged by a Reuters calculation.

China's automobile sales are forecast to grow 15 percent in 2010 to 11.9 million cars following a jump in sales above 10 million last year.

Those vehicles are ushering in lifestyle changes for people like publishing house employee Liu Xiao and his wife, who spent three years of savings last year to buy a small car for $11,000.

"All my friends and colleagues have bought cars," said Liu, who had tired of riding Beijing's breathlessly crowded subway at rush hour. "I can't lose face. I can afford it anyway."

FOCUS ON THE TOTAL

Rapid car sales growth has not overwhelmed gasoline supply because the total number of passenger vehicles in China amount to just about a fifth of those in the United States, for example.

"Reading data on car stocks is a more reliable approach than checking the car sales figures. That makes the growth gap with gasoline use much narrower," said Yan Kefeng, a senior analyst at Cambridge Energy Research Associates (CERA).

China had a total of 39.2 million gasoline-fueled cars by the end of 2008. Assuming a retirement rate of 2 percent, there were about 48.7 million cars at the end of 2009, 24 percent more than 2008, according to CERA estimates.

By comparison, there are more than 250 million passenger vehicles on the road in the United States.

While the 2010 sales forecast implies 20 percent more cars in total in just one year, a record 70 percent of cars sold in 2009 had engines of 1.6-liter size or smaller, thanks to government incentives for energy efficient cars, CERA says.

A change in the majority of car buyers, to households from businesses, has also affected demand.

"On average, household cars drive only a fifth as much as corporate or government cars and a tenth of the distance covered by taxis," said another CERA analyst, Wang Xiaolu.

INCENTIVES AND GLOBAL WARMING

China plans more tax incentives in 2010 to support its auto industry and its cash-for-clunkers car rebates will rise to 5,000-18,000 yuan ($732-$2,635) from 3,000-6,000 yuan in 2009.

Increasingly new car sales in China feature models that don't require gasoline at all.

China's best-selling car in most of 2009 was the F3 sedan, made by BYD Co Ltd (1211.HK), a battery maker 10 percent owned by U.S. investor Warren Buffett's Berkshire Hathaway (BRKa.N), which can run on electricity, gasoline or natural gas.

China also aims to expand a pilot scheme to subsidise clean-energy vehicles for public transport to between 13 and 20 cities this year and give rebates to private green vehicle buyers in five cities.

(Editing by Ed Lane)