lpg in china market 2002

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LPG China MarketLPG China Market

June 2002June 2002


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The China LPG Market

LPG demand driven by Economic Growth

Economic fundamentals in China are relatively sound. GDP growth has been in excess of 7% pa for the past 10

years and consequently LPG demand has surged by 300% to over 14 mtpa (CAGR of >15%). The forecast is for

continued strong growth in both GDP and household incomes which will translate into LPG demand.

LPG Market Potential

The China LPG market has grown to become the 3rd largest

market in the world ranked behind the USA and Japan.

However, in terms of consumption per capita, China is a

relatively untapped market which significantly lags behind the

gasification rates of the other top 5 consuming nations.

Chinas economic momentum is continuing. The 1997/8 Asian

financial crisis hardly touched China. The global/US recession

of 2001 slowed export growth and tempered Chinese

economic growth slightly to an estimated 7.3%.

Thus for LPG the outlook is also one of continued growth.

Whilst growth rates are not expected to match those of the

past, higher income levels and rising urban populations areexpected to accelerate the use of cleaner fuels like LPG &

gas.. Against the backdrop of sustained economic growth and

low gasification rates industry forecasts ranging from 6-8%

CAGR for LPG are considered robust

By 2010, the LPG market in China is expected to be ca. 22-25

mtpa thus overtaking Japan to become the second largest

market in the world.

Domestic LPG Demand (History & Forecast)

0

5000

10000

15000

20000

2500030000

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kmt/yr

Demand Low Demand High Demand

Consumption per Capita (kg/yr)

0 50 100 150 200

191

150

144

111

42

11

6

USA

Japan

China

Mexico

BrazilS. Korea

India


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LPG Market within ChinaLPG Market within China

LPG Focus MarketsChina is made up of a multitude of regional economies andmarkets. The economic power and growth potential ofChina is primarily driven by a number of coastal marketswhere GDP per capita and household incomes are up to 6times the China average.

In terms of LPG these coastal regions also account for70% of the total LPG demand. The dominance of these

coastal economies is repeated across the consumerspectrum and thus the RSS strategy identified thesecoastal regions as the key focus markets.

The LPG market in China is heavily skewed towardsresidential consumption (cooking, heating) with >80% of allLPG sold in China today being consumed within thehousehold sector.

Whilst the fastest growth is expected to occur in the Auto-gas segment (15%) followed by the Commercial andIndustrial sector (7%), residential segment will still accountfor >70% of total demand by 2010.

Shandong

Jiangsu

Shanghai

Guangdong

Zhejiang

Hebei

BeijingTianjin


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Supply/Demand balance

When the decision was taken to issue BBT licences, LPGimports amounted to 2mtpa or 40% of market demandwith refinery production accounting for the remaining 60%.Today the balance between imports and exports remainsat ca. 40/60, however, the growth in the total market hasmeant that imports have risen to a total of 5mtpa in 2001.Whilst evidence suggests that local refineries will shiftyields to maximise LPG production in periods of highpricing (relative to crude) the dominant factor driving LPGproduction is the requirement to meet light oil demand

(gasoline, diesel and jet). A recent study of refinery LPGproduction over the past 5 years has confirmed that theincreases reflect plant expansions focused on light oilproduction and are not related to a drive to produce LPGper se.

However, with an average LPG yields of 18% of crudeinput, expansions focused on meeting light oil demand willnot be sufficient to satisfy the growing demand for LPG(CAGR 6-8% pa). A recent development by the Chineseauthorities to issue Light Oil imports quotas is perhaps a

signal that they do not even expect refineries to keep pacewith light oil demand which is a further shot in the arm forLPG importers such as ourselves.

Our forecasts indicate that LPG imports will grow from thecurrent level of 4mtpa to a range of between 8-10mtpa by2010.

Growing dependence on ImportsGrowing dependence on Imports

Domestic LPG Prodroduction (History & Forecast)

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Prod Low Prod High Prod

LPG Import (History and Forecast)

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Import Wedge Low Case High Case


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lpg in china market 2002

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