February 1, 2018 / 8:02 AM / 2 months ago

UPDATE 2-Sinopec sees China's fuel exports rising, shale gas ops nearly in red

(Adds comment on blending stocks; shale gas; byline)

By Chen Aizhu

BEIJING, Feb 1 (Reuters) - State-run Sinopec Group said it expects China’s refined fuel exports to keep rising in the medium to long term as domestic demand growth slows and new refining capacity comes onstream in 2020, while its shale gas operations struggle with high costs.

China’s shipments abroad of refined fuel products will rise by 4 percent this year to 41 million tonnes, it said in its annual oil and gas sector outlook released on Thursday.

The country exported record volumes of fuel in 2017 as refineries churned out more product to take advantage of decent profit margins at home and abroad, with the government issuing generous export quotas.

Domestic oil product demand in the world’s second-largest oil consumer will rise by around 3 percent this year, Sinopec said in the report.

China’s gasoline consumption will hit a peak between 2025 and 2030, it said.

While forecasting gasoline demand to rise 7.3 percent this year, the top Asian refiner expects China’s diesel demand to fall 1 percent in 2018, as Beijing’s fight against pollution leads to a greater shift to natural gas as industrial fuel.

On the domestic supply of gasoline and diesel, the refining giant said the government’s tightening tax rules will squeeze the margins of small blenders and independent refiners, leading to a cut in imports of blending stocks this year.

China imports roughly 20 million tonnes annually of mixed aromatics and light cycle oil, two refinery products widely used as blending components for gasoline and diesel.

The report also said China’s 2018 crude oil imports from the United States would top 10 million tonnes (200,000 barrels per day). That would be up from 7.7 million tonnes that China brought in from the United States last year.

Sinopec, which leads China’s shale gas sector developing the country’s largest commercial discovery, is however struggling to break even in the nascent business, said Ma Yongsheng, a vice president of the state group.

“If without government subsidy, our shale gas business is on the verge of being loss-making,” Ma told Reuters on the sidelines of the industry outlook briefing.

The full cost of producing each cubic metre of gas at its flagship shale project Fuling, in the southwestern mountainous region of Chongqing, was around 1.1 yuan, Ma added.

Sinopec has said it pumped a record 6 billion cubic metres of gas from Fuling last year, out of the country’s total shale output of around 9 bcm.

China’s natural gas output last year was nearly 150 bcm.

Reporting by Chen Aizhu; Writing by Josephine Mason; Editing by Dale Hudson

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