May 6 (Bloomberg) — China, the world’s biggest oil user after the U.S., is buying a record amount of African crude oil this year as Asian prices surge and on concern attacks on pipelines and terminals may disrupt supply from the Middle East.

China Petroleum & Chemical Corp. and PetroChina Corp., the nation’s biggest refiners, doubled purchases of oil this year from West African suppliers such as Angola and Gabon, according to interviews with 10 oil traders in Asia. West African oil exports to China and other Asian buyers are rising at seven times the rate of the region’s sales to the U.S., according to Purvin & Gertz Inc., a consultant in Houston, Texas.

(96)`(96)`The volumes heading east to Asia will grow and grow,’ said Abdallah Kharma, acting head of international oil trading at China Aviation (Singapore) Corp. (96)`(96)`Western traders will have less and less West African crude for the U.S.’

West African crude oils are prized by gasoline makers because they contain less sulfur than most Middle East grades, making them cheaper to turn into the motor fuel. Competition from China has contributed to shortages in the U.S. that have driven gasoline prices to a record.

The average U.S. retail price for regular-grade gasoline rose to $1.844 a gallon on May 3, the fifth record in six weeks, according to a U.S. Energy Department survey of about 900 filling stations in 50 states.

Asian refiners may buy 1.7 million barrels a day of West African crude by 2010, almost double the 1 million barrels a day they bought from the region last year, according to a study by Purvin & Gertz.

Competing for Crude

(96)`(96)`Rising demand from the U.S. refiners for this grade is clearly playing a role in keeping prices high,’ Frederic Lasserre, Paris-based head of commodities research at Societe Generale, said in an interview.

(96)`(96)`European refiners, the bulk of the Chinese refiners, they all are looking at processing the same type of crude.’

The price of Malaysia’s Tapis low-sulfur crude oil rose to a record $37.03 a barrel in February as Asian demand for high- quality crude surged. That made Tapis 8 percent more expensive than Bonny Light, a similar grade from Nigeria.

China’s oil demand has exceeded output at domestic wells such as the 44-year-old Daqing field after a decade of annual economic growth averaging 9 percent. Rising premiums for Asian crude oils have made it economic for traders to book tankers for the four- week voyage from Angola to ports such as Singapore.

Can’t Meet Demand

(96)`(96)`The trend in Asia is to go for better quality crude oil and Asian producers can’t meet that demand,’ said Kharma.

Chen Ge, China Petroleum’s Beijing-based company secretary, didn’t return calls seeking comment. Mao Zefeng, head of investor relations for PetroChina in Hong Kong, said the company doesn’t provide a breakdown of its crude-oil imports by country.

A plan by China to slow its economy won’t cut demand for oil because the government wants to halt expansion in industries such as steel and aluminum, and channel investment to power plants, oil and other energy-related industries.

China’s banks should give preferential treatment for loans to oil, coal, electricity, transport, water, utilities and infrastructure projects, the China Banking Regulatory Commission, the nation’s banking regulator, said last month.

Concerns about terrorism disrupting supplies from the Middle East may also boost Asian imports of African crude oil in the wake of an attempt by suicide bombers to ram explosive-laden boats into Iraq’s biggest oil-export terminal on April 24.

(96)`Choke Points’

(96)`(96)`There is no reason to believe that this couldn’t happen, God forbid, in any other port in the Middle East,’ said Kurt Barrow, a Singapore-based energy consultant at Purvin & Gertz. (96)`(96)`These are choke points. If they sink a tanker at port it can shut it down for a long period of time.’

The attacks raised concern that terrorists may target oil tankers in Middle East shipping lanes. On Oct. 7, 2002, suicide bombers blew a hole in the side of the French oil tanker, the Limburg, off the coast of Yemen.

(96)`(96)`After the Limburg incident, tanker rates went up because it was a direct attack on shipping,’ said Mathieu Philipe, general manager of BRS Middle East LLC, the Dubai-based subsidiary of a French shipbroking company. (96)`(96)`Owners may look more at others parts of the world such as West Africa.’

Oil from Nigeria, Angola, Gabon, Equatorial Guinea and Cameroon now accounts for about 8 percent of Asia’s imports, according to a Bloomberg survey of 10 traders in the region.

The Middle East still accounts for more than 80 percent of Asia’s crude oil imports, they said.

Escravos, Bonny Light

Angola sells grades such as Girassol, Nemba and Palanca. Other West African grades include Nkossa and Djeno from Congo, Mandji from Gabon, Bonny Light, Forcados and Escravos from Nigeria and Zafiro and Ceiba from Equatorial Guinea.

Asia’s share of the region’s exports will increase as production rises at West African fields operated by Exxon Mobil Corp., Royal Dutch/Shell Group., Total SA, ChevronTexaco Corp. and ENI SpA, said traders including Tetsu Emori, chief commodity strategist at Mitsui Busan Futures in Tokyo.

West African oil production may rise 45 percent to 4.8 million barrels a day by 2010, Purvin & Gertz forecasts. Asian output is growing at about 4 percent a year, not fast enough to meet demand in China, where consumption will jump 13 percent this year, according to International Energy Agency estimates.

(96)`(96)`They will have to find a market, and a good part of it will come to Asia,’ said Dennis Ang, president of Statoil Asia Pacific Pte, a unit of Norway’s biggest oil producer.

Exxon, Shell

Companies including Exxon, Shell and Total have the most to gain from the surge in demand for African oil, Statoil’s Ang said. Unlike Middle East producers, which sell oil under annual contracts negotiated by state oil companies, many West African cargoes are sold in the so-called spot market at prevailing prices by the trading arms of the companies that pump the oil.

An Exxon spokesman in Singapore declined to comment on the company’s marketing operations in West Africa. Foo Hsu-Yi, a spokeswoman for Shell in Singapore, also declined to comment.

In an effort to tap the Asian market, Angola’s state oil company Sonangol set up an office late last year in Singapore, the first West African producer to open a representative office in Asia’s biggest oil-trading center.

Angola replaced Oman last year as China’s third-biggest oil supplier, behind Saudi Arabia and Iran. The country, which relies on crude oil for 90 percent of its export income, boosted oil sales to China 77 percent in 2003.

Chinese Imports

China’s crude imports rose 36 percent to 30.14 million metric tons in the first quarter, according to government statistics. China may import at least 110 million tons of crude oil this year, the Ministry of Commerce said last month.

(96)`(96)`China has been increasing its crude oil imports considerably and West African oil has had their share of that,’ Statoil’s Ang said.

Trading units of China Petroleum, known as Sinopec, PetroChina and Indian Oil Corp. are Asia’s biggest buyers of West African crude. India mostly buys oil from Nigeria, while most of the oil China buys from the region comes from Angola, according to the survey of traders in New Delhi, Taipei, Beijing and the southern Chinese city of Guangzhou. Other buyers include Taiwan, Indonesia and refiners in Japan and South Korea.

To contact the reporter on this story:
Lawrence Yong in Singapore at [email protected].

To contact the editor of this story:
Reinie Booysen at [email protected].
Last Updated: May 5, 2004 12:01 EDT

Source: Bloomberg.com
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