德银-中国-石油与天然气行业-中国石油与天然气行业月报：天然气进口录得新高，市场价差回升-20180125-78页_5mb

China Oil & Gas Market Summary - January 2018

Core Content Overview

This report provides a detailed analysis of the Chinese oil and gas market in December 2017 and early January 2018, highlighting key trends in crude oil, natural gas, refining, marketing, and chemicals sectors, as well as insights into offshore drilling and valuation approaches.

Key Market Trends

Crude Oil

• Demand and Production:
  • China's crude oil production and apparent demand slowed in December 2017, down 5% and 6% yoy, respectively.
  • Despite a 5% mom drop in crude throughput, demand for crude oil in December was 5% lower than November due to slower inventory builds.
  • Crude self-sufficiency dropped to 32% in 2017, compared to 35% in 2016.
• Imports:
  • Crude oil imports declined by 7% mom in December, but still surged by 10% yoy.
  • Teapots in Shandong imported 8% more crude oil than in November to utilize their 2017 import quota.
• Refining and Margins:
  • Crude processing volume was flat mom but grew 3% yoy.
  • Gross refining margin (GRM) fell by 5% mom to USD12.28/bbl, but rebounded to USD13.34/bbl in January.
  • 4Q17 ended with refining spreads at a seven-year high of USD12.28/bbl, up 18% yoy.
• Refining Output:
  • Production halts are expected to affect major refined oil products (gasoline, diesel, kerosene), though December figures are not yet released.

Natural Gas

• Demand:
  • Natural gas demand continued to grow robustly in December at 13% yoy, though slower than in October and November.
• Imports:
  • Natural gas imports reached a new monthly high of 10.6bcm in December, likely driven by increased spot LNG.
  • Domestic production grew only 2% for the second consecutive month, with imports compensating for the gap.
• Self-Sufficiency:
  • Natural gas self-sufficiency dropped to 62% in 2017, compared to 66% in 2016.

Marketing

• Marketing Spreads:
  • Marketing spreads rebounded, with #92 gasoline retail spread rising 1.9% mom to RMB1,353/t.
  • New consumption tax rules were released on Jan 8, 2018.
• Diesel:
  • The wholesale spread for #0 diesel dropped 5% mom in December, following a 20% mom improvement in November.
• Quarterly Trends:
  • Diesel and gasoline margins increased by RMB154/t and RMB19/t qoq, respectively, indicating a decline in the "price war".

Chemicals Sector

• Ethylene Demand:
  • Ethylene demand growth slowed to 7.1% yoy in November, down from 12.2% in October and 19% in September.
• Production and Imports:
  • Domestic production and imports increased by 7% and 12%, respectively.
• Margins:
  • Ethylene spread expanded by USD69/t, or 8.2% mom, to USD902/t, showing resilience to higher oil prices.
• Other Chemicals:
  • Butadiene, PP, and HDPE margins improved by 12.7%, 2.6%, and 2.2% mom, respectively.
  • Propylene margin increased by 8.5% mom.
• Aromatics:
  • SM, PS, ABS, and benzene spreads declined by 9.9%, 8.8%, 5.0%, and 0.1% mom, respectively.
• Fertilizers:
  • Urea prices surged to RMB2,000/t in December, up 14.1% mom, reaching a level not seen since May 2013.
  • The China/global urea price ratio widened to 131% in January, up from 116% in December, much higher than the seven-year average of 86%.
  • The high urea prices are expected to persist until March due to seasonality and tight supply/demand balance.

Offshore Drilling and Supply-Demand

• Global Rig Counts:
  • Global rig counts increased by 32 mom to 2,089, with the US and Latin America adding 19 and 14 rigs, respectively.
  • Africa saw 8 rigs idled.
• China Offshore Rig Counts:
  • Offshore drillers in China increased by 1 to 32 in December.
• Utilization Rates:
  • Semi-sub utilization rate remained flat at 56%, while jack-up utilization fell by 1ppt mom to 59%.
  • Far East and SE Asia saw a 2ppt and 1ppt mom drop in semi-sub utilization, respectively.
• Day Rates:
  • Day rates for jack-ups and semisubs remained challenging at -40% and -29% yoy, respectively.
  • No meaningful recovery in day rates is expected due to a large supply of 70 new rigs and low demand.

Valuation and Investment Outlook

• Valuation Methodology:
  • Oil majors are valued using DCF for upstream and P/B vs. ROE for downstream.
  • Other China oil & gas companies are valued using DCF, EVEBITDA, and PB.
• Top Picks:
  • Sinopec (0386.HK): HKD6.53, Buy
  • CNOOC Ltd (0883.HK): HKD12.14, Buy
  • China Oilfield Services (2883.HK): HKD9.22, Buy
  • SEG (2386.HK): HKD8.71, Buy

Risks

• Oil Price Volatility:
  • Unexpected changes in oil prices and production volumes could impact the market.
• Policy Changes:
  • Policy shifts, such as new consumption tax rules, may affect refining and marketing margins.

Summary

• Crude Oil: Demand and production slowed in December, but imports rose sharply, leading to a lower self-sufficiency ratio.
• Natural Gas: Imports hit a new monthly high, with strong demand growth despite slower domestic production.
• Refining: Refining spreads reached a seven-year high in Q4, but some declines were observed in the month of December.
• Marketing: Marketing spreads rebounded, with a notable rise in gasoline margins and the introduction of new tax rules.
• Chemicals: Ethylene and other chemicals showed resilient margins despite slower demand growth.
• OFS: Utilization rates remained flat, with day rates still under pressure due to supply and demand imbalances.
• Valuation: DCF, P/B, and EVEBITDA are used to value companies, with a focus on key players in the sector.

Key Figures