Quarterly Market Commentary: Return to Stable Footing
Persistently rapid economic growth during the first half of 2006 has allowed little relief for China's energy markets. A long-anticipated "soft landing" has yet to play out, compromising Beijing's efforts to rebalance the economy away from energy-intensive fixed-assets investment and implement delayed reforms. For most types of energy, markets have remained tighter than expected during the first half of the year. But the Chinese energy sector is on far more stable footing than a year ago, with supply questions basically resolved and volatility trending steadily downward.
* Oil. Strong economic conditions and sustained inventory buildup amplified demand growth for most oil fuels, although supply constraints appear to have capped demand for diesel. CERA's forecast for 2006 oil demand (excluding additions to primary inventories) is 7.5 percent, an increase from our prior estimate of 6.1 percent.
* Natural gas. Supply development, always the factor inhibiting China's gas market growth, is accelerating, with impressive additions to domestic production and important progress on pipeline and liquefied natural gas (LNG) projects.
* Electric power. Additions to generation capacity are well outpacing demand, all but erasing the specter of shortage in China's power market. CERA expects demand growth of 14 percent for 2006, with trends in the heavy industrial sectors playing the key role.
* Coal. Coal production is up, total production for January through July 2006 was 1.18 billion tons compared to 1.09 billion tons for the same period in 2005, a year-on-year gain of 8.1 percent. Prices remain stable.
