By Terrence Murray, The Financialist

Though headlines suggest the Chinese economy is slowing, a recent Credit Suisse report predicts the country’s appetite for energy will continue to grow in the coming decade.

Before the great recession of 2008, China’s nearly insatiable appetite for crude oil was a boon to oil-exporting countries. It was hard, though, on the world’s consumers, who watched as Chinese demand helped send the price per barrel into triple digit territory. But recent data indicate China’s current economic slump is the worst since the depths of the 2008 financial crisis. With the Chinese economy seemingly ready to take a breather, conventional wisdom suggests that there should be a corresponding dip in energy prices.

In China, of course, everything is relative. Official statistics released in early July showed second-quarter growth slowing further to 7.6%, from about 8.1 %in the previous quarter. However, those hoping that a cooling Chinese economy could spell lower energy prices may be disappointed. Credit Suisse analysts David Hewitt and Horace Tse argue in a recent report that Chinese energy consumption will remain strong, even in the face of a slowing economy.

Hewitt and Tse expect Chinese oil demand to rise to 12.2 million barrels per day by 2015 and 15 million barrels per day by 2020. A large part of the demand will literally be fueled by a continued expansion of the country’s passenger car fleet. With consumers set to purchase more automobiles once the economy gets back to full strength, Hewitt and Tse estimate the country’s consumption of gasoline will rise about 8% per year through 2020, and that’s even when factoring in increased fuel efficiency of newer models. This growing demand for vehicles by China’s emerging middle class is one of the rationales motivating the blockbuster $15.1 billion buyout by CNOOC, a Chinese state oil company, of Canadian oil and gas producer Nexen. If approved, the deal, which was announced on July 23, would be the biggest overseas acquisition by a Chinese company to date.

If Chinese car buyers opt for less fuel efficient cars, then gasoline consumption could rise at greater than 10% a year, though Tse and Hewitt point out that, over the last decade, small passenger cars have increased their market share at the expense of larger vehicles.

While Chinese demand for gasoline is projected to increase regardless of the type of vehicles drivers ultimately choose, the country will not consume all types of refined products with the same gusto as standard petrol. The Credit Suisse report anticipates growth in diesel consumption will slow in the coming decade, with Hewitt and Tse forecasting demand growth will decline from a current 8.3% clip to a more modest 5.4% over the next three years.

Still, despite a slackening call for specific types of refined products, the report shows that, even in the most bearish scenarios, Chinese oil demand will continue to grow through 2020. While economists may be worrying that a slowdown in China’s overall economy will keep consumers from buying German, American or Korean products, oil producers can take comfort knowing that China will, at the very least, still want more crude.

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http://www.thefinancialist.com/chinese-energy-demand-to-stay-strong-in-face-of-economic-headwinds-oil-crude/