IEA Raises China's 2006 Oil Demand Forecast

The International Energy Agency on Tuesday raised its 2006 oil consumption forecast for the second consecutive month but kept its consumption forecast for this year unchanged due to weak oil demand in January.

The Paris-based agency pointed out that China's oil demand in October-December last year was particularly underestimated. Analysts believe that at that time, China significantly increased its domestic strategic oil reserves.

Based on the above reasons, the International Energy Agency currently believes that China's average daily oil demand last year was 7.2 million barrels, 6.9% higher than in 2005.

This latest forecast is closer to data from other agencies such as the U.S. Energy Information Administration. The International Energy Agency previously predicted that China's oil demand in 2006 would increase by 6.4% compared with the previous year.

However, the International Energy Agency still maintains its forecast for China's total oil demand this year, which is an increase of 6.1% over the previous year, with an average of 7.6 million barrels per day. This is mainly due to the fact that the timing of the Chinese Lunar New Year holiday is different from last year, resulting in relatively mild oil demand growth in January. .

Demand for jet fuel and gasoline soars as people typically take trains or planes to visit relatives and friends during the week-long Lunar New Year holiday, which fell in January last year and in February this year.

The International Energy Agency said the Chinese government also asked refiners to reduce gasoline exports in January to cope with the surge in domestic demand in February.

The Chinese government announced at the end of January that it would reduce fuel surcharges on domestic flights by 17%-20%. The International Energy Agency said the move was expected to encourage more tourists to travel by air.

The International Energy Agency also pointed out in its monthly oil market report that the rapid increase in China's power generation capacity means that the surge in oil demand that occurred three years ago is unlikely to be repeated in the short term.

China is the world's second largest energy consumer after the United States. Last year, it added 102 million kilowatts of new power generation capacity. Analysts had previously expected 75 to 80 million kilowatts.

The International Energy Agency stated that the scale of this expansion is almost equivalent to the total power generation capacity of large European countries such as France and the United Kingdom, and it is expected that this growth momentum may return in 2007.

The agency said that even if the official data is wrong, China's new power generation capacity last year was actually only 75 million kilowatts, which is enough to avoid the recurrence of large-scale power outages. China's backup power generation capacity to cope with peak electricity demand this summer has reached 10 million kilowatts, and the gap in 2004 was 40 million kilowatts.

The newly installed capacity of thermal power plants accounted for 90% of China’s new power generation last year. In 2004, a large part of the electricity supply gap was filled by small oil-fired power plants, especially in rural areas.

The International Energy Agency stated that the reason for the higher proportion of thermal power generation is that coal is cheaper than other fuels. The price of LNG needs to reach around US$3.30-3.60/million British Thermal Units (BTU) to put competitive pressure on coal, while the current price of LNG is about US$7-9/BTU.