Power Cuts Trigger Diesel Shortage in Parts of China

By Jiang Lei
Published: 2010-11-09

Economic Observer Online
November 9, 2010
Translated by Chen Ximeng
Original article:

A new wave of diesel shortages has swept across the country. However, in contrast to previous shortages, this time it seems that energy restrictions forced on high-polluting and energy-intensive industries across various provinces over the latter half of this year are directly to blame for the shortages.

A source at Sinopec told the EO that "all industries that need electricity in order to maintain production need to do is buy a diesel generator."

A report from the Commercial Petroluem Flow Committee of China revealed that 2,000 private gas stations in China's south had closed due to the diesel shortage. In Zhejiang, Jiangsu, Hunan and other provinces, many stations had also put limits on how much each individual customer could purchase.

According to our source at Sinopec, the biggest difference from the previous diesel shortages is that this time the shortage is not being caused by a lack of diesel production or by the high price of crude oil causing consumers to substitute the cheaper diesel for oil.

This time many industries are turning to diesel generators in order to maintain their power needs.

According to in-house research conducted by Sinopec, orders and sales for diesel generators produced by a few of the leading manufacturers rocketed by 200 percent in October when compared to the figures for September.

According to energy efficiency targets set in China's 11th Five-year program, the country is supposed to have become 20 percent more energy efficient (as measured in terms of energy use relative to GDP growth) over the next five years.

In order to meet this target, local areas have come under pressure from the central government to reduce emissions and cut energy use.

Starting from September, Guangxi, Guangdong, Jiangsu, Zhejiang and other areas introduced measures that forced power restrictions on certain industries.

UBS has also published a report that forecasts that demand for refined oil imports may suddenly rise, leading to a short-term jump in international oil prices.

According to a source at the National Development and Reform Commission (NDRC), this latest diesel shortage will only be temporary and limited to certain areas of the country, he went on to add that currently refined oil production is in excess of demand and a shortage of crude oil will not occur.

The EO has learned that up until August this year diesel production at both PetroChina and Sinopec exceeded demand.

In order to meet sales targets, both companies have increased their diesel exports and even submitted an application to the Ministry of Commerce to increase refined oil export quotas.

From January to June China exports of diesel climbed to 2.62 million tons, up 22 percent over the same period last year. In contrast, during the first half of this year, China's diesel imports dropped to 764,000 tons, down by nearly 27 percent when compared to a year earlier.

According to Wang Yan, the general manager of Puyuan Linyang Investment Corporation, the current diesel shortage allows us to see the disorder that reigns in the current system of domestic oil production which is dominated by the two state-owned oil giants.

This article was edited by Paul Pennay