Current Situation and Forecasting of China’s Crude Oil Market China Petroleum and Chemical Industry Federation Current Situation and Forecasting of China’s Crude Oil Market Zhu Fang Director/Research Fellow Information & Marketing Department China Petroleum and Chemical Industry Federation May 25th. 2017, Shanghai

Contents I II III Consumption growth-driven China’s crude oil market China Petroleum and Chemical Industry Federation Contents Consumption growth-driven China’s crude oil market I Gradually improved industrial structure layout II Forecasting of China’s crude oil market III www.cpcia.org.cn

I. Consumption growth-driven China’s crude oil market China Petroleum and Chemical Industry Federation I. Consumption growth-driven China’s crude oil market China’s crude oil production & consumption in 2016 Annual crude oil processing volume: 541 million tons, with a year-on-year growth of 2.8% Crude oil apparent consumption: 577.8 million tons, with a year-on-year growth of 5.6% Domestic crude oil output: 199.7 million tons, with a year-on-year decrease of 6.9% Crude oil import: 381 million tons, up 13.6%; Crude oil export: 2.9 million tons, up 2.6%; Crude oil net import: 378.1 million tons. www.cpcia.org.cn

I. Consumption growth-driven China’s crude oil market China Petroleum and Chemical Industry Federation I. Consumption growth-driven China’s crude oil market Unit: 100 million tons Crude oil quarterly consumption trend in China since 2009 www.cpcia.org.cn

I. Consumption growth-driven China’s crude oil market China Petroleum and Chemical Industry Federation I. Consumption growth-driven China’s crude oil market Steady growth of China’s economy provides the most critical support to the consumption growth of crude oil. Quarter changing trends in China’s GDP since 2012 China’s macro economy has shift gear to a new normal growth since the first quarter of 2012. X-axis: Q3,2002, Q1,2003, Q3,2003, Q1,2004, Q3,2004,Q1,2005, Q3,2005,Q1.2006, Q3,2006, Q1,2007,Q3,2007,Q1,2008,Q3,2008,Q1,2009,Q3,2009,Q1,2010, Q3,2010,Q1,2011,Q3,2011,Q1,2012,Q3,2012,Q1,2013,Q3,2013,Q1,2014,Q3,2014,Q1,2015,Q3,2015,Q1,2016,Q3,2016,Q1,2017 www.cpcia.org.cn

I. Consumption growth-driven China’s crude oil market China Petroleum and Chemical Industry Federation I. Consumption growth-driven China’s crude oil market Main operation incomes and changing trend of petroleum and chemical Industry since 2003 Main operation income (Unit: RMB 100 million yuan) Year-on-year increase/decrease (Right-axis) X-axis: 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 www.cpcia.org.cn

I. Consumption growth-driven China’s crude oil market China Petroleum and Chemical Industry Federation I. Consumption growth-driven China’s crude oil market Consumption trend of petroleum product, gasoline and diesel oil since 2009 Petroleum products, gasoline, diesel oil, Index (Petroleum product) Index (gasoline) Index (diesel oil) www.cpcia.org.cn

I II III Contents Consumption growth-driven China’s crude oil market China Petroleum and Chemical Industry Federation Contents Consumption growth-driven China’s crude oil market I Gradually improved industrial structure layout II Forecasting of China’s crude oil market III www.cpcia.org.cn

II. Gradually improved industrial structure layout China Petroleum and Chemical Industry Federation II. Gradually improved industrial structure layout Import sources of crude oil in 2016 Crude oil output by province in 2016 -2016 -2015 -Accumulated growth (%) Left figure: Heilongjiang Shanxi Tianjin Xinjiang Shandong Guangdong Liaoning Jilin Hebei Henan Qinghai Jiangsu Hubei Guangxi Inner Mongolia Gansu Hainan Sichuan Shanghai Ningxia Right figure: Russia 14% Saudi Arabia 13% Angola11% Iraq 10% Oman 9% Iran 8% Venezuela 5% Brazil 5% Russian Federation Saudi Arabia Angola Iraq Oman Iran Venezuela Brazil Kuwait UAE Columbia Congo Republic of South Sudan U.K. Vietnam Australia Kazakhstan Gabon Indonesia Ghana Malaysia Argentina Equatorial Guinea Ecuador Mongolia Sudan Libya Mexico Azerbaijan Thailand Nigeria Norway Egypt USA Qatar Yemen Cameroon Brunei Chad Congo (Kinshasa) South Africa Canada Bahamas Albania Netherlands Philippines Singapore Crude oil imported from 47 countries 原油进口来自47个国家 www.cpcia.org.cn

II. Gradually improved industrial structure layout China Petroleum and Chemical Industry Federation II. Gradually improved industrial structure layout Local independent refinery plants have been granted the use-right of imported crude oil since 2015. Outdated industrial capacity has been eliminated by 58.08 million tons in 2016, resulting in a statistical capacity of crude oil processing up to 804 million tons.。 Domestic crude oil processing volume by provinces in 2016 -2016 -2015 -Accumulated growth (%) Year-on-year growth% X-axis: Shandong Liaoning Guangdong Jiangsu Zhejiang Shanghai Xinjiang Fujian Shanxi Hebei Heilongjiang Tianjin Gansu Guangxi Hubei Hainan Jilin Sichuan Beijing Hunan Jiangxi Henan Ningxia Anhui Inner Mongolia Qinghai Chongqing Yunnan Tibet Shanxi Guizhou Unit:10,000tons www.cpcia.org.cn

二、布局逐渐完善的产业结构 Major oil producing provinces in 2016 -2016 -2015 Heilongjiang Shanxi Tianjin Shandong Guangdong Liaoning Jilin Hebei Henan 354 million tons by sea 陆路0.26亿吨 海上3.54亿吨 26 million tons by land www.cpcia.org.cn

I II III Contents Consumption growth-driven China’s crude oil market China Petroleum and Chemical Industry Federation Contents Consumption growth-driven China’s crude oil market I Gradually improved industrial structure layout II Forecasting of China’s crude oil market III www.cpcia.org.cn

III. Forecasting of China’s crude oil market China Petroleum and Chemical Industry Federation III. Forecasting of China’s crude oil market Forecast 1: China’s crude oil consumption will continue to maintain steady growth. Output and consumption of petrochemical down-stream products will sustain growth. Rate of capacity utilization will be improved to some extent. In 2016, the average rate of capacity utilization for 25 major products under the monitoring of CPCIF is increased by 1.1% compared with the previous year, realizing a moderate but stable and sound growth.　　 Rate of capacity utilization Number of products Description Up by more than 5% 5 Caustic soda, organosilicon methyl monomer, butadiene rubber MDI and polyoxymethylene Up by more than 10% Coal-to-liquids, coal gas, coal-to-olefin, coal-to-glycol and TDI About the same as the previous year 4 Sodium carbonate, acetic acid, PTA and polyether polyol Slightly down from the previous year Methyl alcohol, adipic acid, caprolactam and polypropylene Average capacity utilization rate has been down by 7.2% in the urea industry due to market factors. www.cpcia.org.cn www.cpcia.org.cn

III. Forecasting of China’s crude oil market China Petroleum and Chemical Industry Federation III. Forecasting of China’s crude oil market Forecast 2: Volatility in crude oil prices will smoothly transmitted to the down-stream in China. CPI and PPI trends since 2010 -CPI -PPI - Difference value X-axis: Jun. 2010, Aug. 2010, Oct.2010, Dec.2010 Feb.2011, Apr.2011, Jun. 2011, Aug. 2011, Oct.2011, Dec.2011 Feb.2012, Apr.2012, Jun. 2012, Aug. 2012, Oct.2012, Dec.2012 Feb.2013, Apr.2013, Jun. 2013, Aug. 2013, Oct.2013, Dec.2013 Feb.2014, Apr.2014, Jun. 2014, Aug. 2014, Oct.2014, Dec.2014 Feb.2015, Apr.2015, Jun. 2015, Aug. 2015, Oct.2015, Dec.2015 Feb.2016, Apr.2016, Jun. 2016, Aug. 2016, Oct.2016, Dec.2016 Feb.2017 www.cpcia.org.cn

III. Forecasting of China’s crude oil market China Petroleum and Chemical Industry Federation III. Forecasting of China’s crude oil market Forecast 3: China’s modern coal chemical industry will restrain the growth in crude oil needs. The development of energy chemical sector will focus on the modernization of coal chemical processing, or clean conversion of coal. 煤炭 煤气化 变换净化 FT合成 空分 硫磺回收 甲烷合成 甲醇合成 氨合成 X…… 合成油 甲醇下游MTO、MTP 氮肥 煤制天然气 混合醇、乙醇、IGCC等 能源化工的发展重点是现代煤化工，属于煤炭清洁转化 FT synthesis Synthetic oil Down-stream products of methyl alcohol: MTO, MTP and nitrogenous fertilizer Coal gas mixed alcohols, ethyl alcohol and IGCC Sulfur recycling Methanol synthesis Conversion & Purification Coal Coal gasification Ammonia synthesis Methane synthesis Air separation www.cpcia.org.cn

III. Forecasting of China’s crude oil market China Petroleum and Chemical Industry Federation III. Forecasting of China’s crude oil market Forecast 4: Changes in China’s primary energy consumption structure will impact the consumption of crude oil in China. Shale gas, shale oil Natural gas Green and renewable energy sources Others www.cpcia.org.cn

III. Forecasting of China’s crude oil market China Petroleum and Chemical Industry Federation III. Forecasting of China’s crude oil market Forecast 5: Domestic industrial structure will enter into a rebalancing stage due to the market access granted to non-state oil refinery enterprises and loosening control on import and export trade. www.cpcia.org.cn

III. Forecasting of China’s crude oil market China Petroleum and Chemical Industry Federation III. Forecasting of China’s crude oil market Forecast 6: Rapid development of new energy automobile in the down-stream will bring about a new uncertain impact on the needs of petroleum products. www.cpcia.org.cn

China Petroleum and Chemical Industry Federation Summary Along with the stable and sustained development of China’s economy, crude oil still will be the important energy source and raw materials source of the country for a long time. Crude oil consumption and pricing will continue to impact the economic development of China’s petroleum and chemical industry in an extended period. Any other energy sources such as coal, lightweight materials or new energy will, grow to exert a long-time progressive influence, but cannot replace crude oil in short time. www.cpcia.org.cn

Thank you for your attention! China Petroleum and Chemical Industry Federation Thank you for your attention! Contact info: E-mail: zhuf@cpcia.org.cn