BEIJING China's oil demand growth next year is unlikely to revisit the blistering pace of 2010 but at around 6 percent it will still be enough to underpin oil prices even as developed world economies struggle.
The world's No.2 fuel user is adding more refining capacity and storage tanks to feed an economy expected to grow at 9 percent or faster, which should allow demand growth to match this year's expected 6 percent.
While half the pace of last year, China's demand this year contributed more than half of global incremental demand, according to the International Energy Agency.
Analysts predict roughly 600,000 bpd of incremental oil use in 2012, which should continue to support global crude prices that have averaged more than $94 this year, nearly $20 above their average for the previous five years.
In contrast the United States, the world's top oil user, will see a tepid 80,000 bpd growth in demand, according to the U.S. government's Energy Information Agency (EIA).
"We expect growth will be faster than consensus estimates over the next 5 years, which will be supportive of global oil prices," Neil Beveridge of Bernstein research wrote in September.
"China remains at the early stage of a secular growth cycle."
A consensus of around 9 percent expansion in the Chinese economy, easing off this year's estimated 9.4 percent but still robust, would in particular support diesel, the main transportation fuel for manufacturing.
As refiners are slated to start about 530,000 bpd of new crude processing facilities, versus 360,000 bpd this year, and as end-2012 is the target for China to complete building its second-phase strategic oil tanks, China's appetite for foreign crude may rise quicker than this year's modest 7 percent.
Beveridge's team has pegged China's compound annual aggregated oil growth at 6.7 percent from now to 2015, citing vehicle ownership and a petrochemical boom as key drivers for growth.
Fu Chengyu, chairman of top Asian refiner Sinopec Corp (0386.HK), told Reuters on Wednesday that he expected Chinese demand to hold steady.
"Global oil demand is unlikely to grow strongly due to the economic outlook, but China will see sustainable growth next year, similar to this year," said Fu.
WORSE POWER SQUEEZE
Apart from the planned refining facilities, including PetroChina's 200,000 bpd greenfield plant in Sichuan and Sinopec Corp's (0386.HK) addition of 160,000 bpd at its east China Jinling plant, China may face a more severe power crunch next summer.
Zhou Xizhou, Beijing-based power analyst at IHS Cambridge Energy Research Associates, warns that a thermal power squeeze in the key consuming eastern provinces next summer may force factories to fire up stand-alone diesel generators and drive up demand for the fuel like it did in 2004.
Under-construction of new thermal plants during the past few years would finally hit supply in Zhejiang, Jiangsu province and financial hub Shanghai, where power demand is growing at double digits.
"It will be a lot worse than this year and may look more like 2004," Zhou said. More than half of Chinese provinces were hit by blackouts and brownouts in 2004 in the worst power crisis in decades as demand spiked ahead of generation capacity.
This year, shortages have hit mostly hydro-dependent central and southern regions due to lower than usual rainfall, but east China was less affected and has taken measures like juggling shifts to off-peak hours.
Even in the case of severe shortage, which Zhou estimated could reach as much as 50 gigawatt, the spur for diesel demand may not be as dramatic as in 2004, as power stations fired by natural gas, barely existent then, would be mobilized to help fill the gap.
After a relatively quiet year for crude stockpiling given pricey crude and volatile markets, China may accelerate filling its emergency oil depots next year, especially as it is scheduled to complete building its second-phase strategic reserve tanks totaling about 200 million barrels capacity.
"Zhang Guobao hinted in early 2009 that $60 is a threshold for SPR fill. If that is not a static view China should step up buying once it accepts the current prices," said Kang Wu, senior advisor at Facts Global Energy.
Wu was referring to China's former top energy official who said China took advantage of an oil market crash in late 2008 to fill the country's first phase of reserves of 100 million barrels at below $60 a barrel.
Wu's research team has forecast benchmark Dubai crude to be several dollars above this year's average of about $100 because of limited spare capacity and because the full return of Libya's lost production will not come until the second half of 2012.
China officially kicked off construction of its phase-two SPR tanks in early 2009 and had filled some of them last year when crude imports surged to an all-time high of around 700,000 bpd, bolstering oil prices that gained 15 percent in 2010.
Bernstein's Beveridge estimated the pace of the emergency stock build was likely to be between 150,000 and 250,000 bpd annually in the next five years.
The other major driver of China's oil demand is gasoline for its ever growing vehicle fleet, the world's largest. This is likely to rise by close to 10 percent this year, a pace that is likely to hold for 2012, analysts said.
(Additional reporting by Judy Hua; Editing by Michael Urquhart)