Unlike 2004, China oil demand unmoved by power woes

By Chen Aizhu - analysis

BEIJING (Reuters) - China's worsening power woes are all but guaranteed to trigger a surge in imported oil, just as they did in 2004 during the worst crisis in decades, right?

Wrong, say experts and industry sources. While the theme is familiar, the circumstances couldn't be more different, suggesting that oil bulls looking for a reason to push crude beyond $150 a barrel will need to look elsewhere.

This year, it's coal availability and price -- not a lack of generating capacity -- that have curbed supplies, forcing more than a dozen provinces to ration electricity amid a deficit now totaling as much as 27 gigawatts (GW), about 4 percent of total capacity in the world's second-biggest power user.

This year, Asian diesel prices are at record highs near $180 a barrel, over four times what they were in mid-2004, and most of the pain is being felt by huge power-guzzling metals firms that are cutting back output in the face of rising costs.

And this year, a slowing global economy and a rising yuan are conspiring against the smaller-scale industrial users who would otherwise be desperate to keep their conveyor belts humming.

"This time is quiet, very different from last time we had power cuts," said a manager surnamed Kong, who owns a diesel generator plant in the city of Ningbo, one of the regions worst hit in 2004, when a peak shortfall of some 40 GW caused brownouts or blackouts in nearly three-quarters of China's provinces.

"We haven't seen any unusual demand for small generators. Our stocks are plentiful," he told Reuters.

Yan Kefeng, a senior Beijing-based analyst at Cambridge Energy Research Associates, also sees little incremental demand.

"Oil prices are at levels that metal firms cannot afford. And export-oriented small industries are having a really tough time this year," he said.

On top of all that, China appears to be well-stocked with foreign fuel after 8 months of steady inventory builds that caused diesel imports to surge 9-fold in the first five months this year.

A senior marketing official at top refiner Sinopec Corp (0386.HK) said the company had seen a bit of extra demand from small users like hotels and restaurants which were stocking up in case the brownouts spread, but little beyond that.

"We are talking about several hundred tonnes a month of extra use for a hotel to stock up," he said. "We are not going to see a more than 10 percent jump in monthly sales that we saw in 2004."

GENERATORS ABUNDANT, POWER SHORT

And there's little to suggest a quick pick-up.

Kong has sold fewer than a hundred 30- to 50-kilowatt diesel generators this year versus about 1,000 in the summer of 2004, when small private manufacturers in his province and southern Guangdong scrambled to generate their own electricity as the local grid cut their supplies for several days a week.