What next for Chinese diesel demand?

A fascinating (and ever so slightly gruesome) story from Leslie Hook, reporting from Beijing in today’s FT.

The Chinese government’s commitment reduce energy consumption per unit of GDP by 20 per cent from 2005 levels has led to power rationing, which in turn has fuelled a boom in diesel-powered electricity generators.

Leslie reports:

In China’s southern city of Chongqing, a crematorium has been unable to fire its furnaces because of a lack of diesel, leaving 10 corpses to go uncremated.

The gory tale, which made headlines in the local press, vividly highlights the shortages of diesel sweeping across China as industries turn on their electricity generators for the first time in five years to bridge a gap in power supply.

This has seen oil companies ramp up production to meet the increased demand for diesel, and some people are even starting to hoard supplies. To a cetain extent, this will be a short-term phenomenon, driven by the need to hit end of year targets. But Amrita Sen from Barcap says that there could be longer-term consequences, and even opportunities for companies to export to the world’s fastest growing economy.

She says:

Unipec has reportedly imported some 0.02mb/d of diesel for November delivery – its first in almost two years.

While the current surge in diesel demand may well be temporary, with the government becoming more environmentally cautious, diesel demand could inadvertently remain the marginal source of power for quite some time.

While we would expect the current shortages to be resolved by an increase in domestic production from the newly commissioned refineries (rather than through imports), China is perhaps yet to become entirely self-sufficient in meeting its own product demand.

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