Summary
This article was written by China Petroleum and Chemical Industry International Capacity Cooperation Enterprise Alliance, and the interview transcript originated from Pang Guanglian
The situation in Russia and Ukraine has always touched the nerves of the whole world, and after a period of time pulling each other's strings, Russia and Ukraine finally broke out into a war at around 12:00 noon yesterday. According to foreign media reports, Russian President Vladimir Putin decided to carry out a special military operation in the Donbass region, while a number of explosions took place in the Kiev region of the Ukrainian capital. Behind the complicated geopolitical situation of Russia and Ukraine, of course, is the conflict between the interests of Europe and the United States and the West represented by Ukraine and Russia's own interests, so what is the impact of the outbreak of war in Russia and Ukraine on the supply chain of China's energy and chemical industries? With the local unrest caused by the outbreak of war, will inevitably affect the Russian crude oil, natural gas and other energy exports, and the current new Crown pneumonia epidemic has not yet ended at the time, superimposed on the prospects for global economic recovery foggy, multiple factors alternately superimposed on the pressure borne by China's energy chemical industry is also about to increase!
Interview Transcript
Interview subject Pang Guanglian: Standing Committee of the Party Committee of the China Petroleum and Chemical Industry Federation, Deputy Secretary General, Secretary General of the Foreign Investment Committee, Secretary General of the China Petroleum and Chemical Industry International Production Capacity Cooperation Enterprise Alliance
Pang Guanglian: Europe's damage will be certainly energy Sanctions, the Nordic Stream 2 difficult to put into operation smoothly The Ukrainian transit gas pipeline will also be greatly affected, which will inevitably raise the premium for gas in Europe, causing global energy prices to rise.
Europe and the United States sanctions on Russia to alleviate the pressure on China, prompting China and Russia to further deepen cooperation, such as just signed a large oil and gas, to better promote the Belt and Road and the Eurasian strategy
Pang Guanglian: This is certainly not.
Europe relies on Russia for 40% of its natural gas, Russia reduced the amount of gas shipped to Europe via Ukraine by two-thirds in January 2022, Europe has low gas reserves, winter demand is 30% higher than the rest of the year, and exports of liquefied natural gas (LNG) to Europe have reached record levels so far in 2022, with Europe's LNG running at full capacity. UK gas prices could quadruple in the event of a conflict, Meanwhile Russia supplies 20% of the global seaborne ammonia market, and supply disruptions could affect fertilizer and food prices , Soaring oil prices erode profit margins for chemical producers, Higher oil prices have weakened consumer confidence and demand, but chemical firms will struggle to pass on higher costs, hurting profit margins. The closure of the Druzhba pipeline will cut up to 11% of Europe's ethylene, 12% of its propylene capacity, falling demand growth in Asia, and China's economic slowdown, bearing in mind that polyethylene (PE) margins in Asia are already negative.
Pang Guanglian: Petrochemicals are up for sure, but eventually both sides will come back to the negotiating table.
Pang Guanglian: Sanctions are certain, it is estimated that from the beginning of the financial military, energy and other systems will be on the sanctions list
Overall situation of Russia's natural resources
Russia has a wealth of natural resources, and due to the relative maturity of the technology, experienced industrial workers, the territory of the infrastructure is perfect, so in the development and utilization of resources, Russia has always been at the forefront of the world.
Russia is the world's third largest petrochemicals, hydrocarbons, and other energy producers, second only to Saudi Arabia and the United States.
Therefore, Russia's economic and social development is also very dependent on its own energy exports, rich energy resources to the Russian economy supply is quite large, each year, energy exports and related services exports accounted for more than 25% of Russia's GDP, and energy, oil and gas-related tax revenues contribute to two-thirds of Russia's fiscal revenue.
1, crude oil
Crude oil is Russia's most fundamental interest, but also the most influential elements of the international oil and gas market. At present, the interests of all parties in the global crude oil market are intricate, on the one hand, in previous years, due to the uncertainty of the world's economic development prospects, resulting in the reduction of crude oil demand is expected, the international oil prices experienced a round of plummeting, crude oil futures and even fell into a negative number. This has dealt a heavy blow to countries that mainly export crude oil to generate foreign exchange, such as Russia and Saudi Arabia. However, at the same time, the United States, thanks to the shale oil revolution and the record growth in production and export, has managed to grab a lot of market share in the gap of low oil prices, and jumped to become the world's number one producer and seller of crude oil. On the other hand, with the slight easing of the New Crown epidemic and the bottoming out of the economies of Europe and the United States, international oil prices have begun another round of increases, which has brought additional purchasing costs to crude oil importing countries. Now, the outbreak of war between Russia and Ukraine will inevitably affect Russian crude oil production and exports, superimposed on the Biden administration will continue to impose sanctions on Russia, with no intention of adding to the effect. So, after the Russia-Ukraine war, what exactly is the impact on our crude oil supply chain?
First of all, the change in oil prices has a fundamental impact on China's crude oil imports. China's crude oil has long been in a high degree of foreign dependence, according to our Petrochemical Federation of data statistics, in 2021, China's crude oil imports of 513 million tons, crude oil foreign dependence of about 72%. 2020, China's crude oil imports of 540 million tons, crude oil foreign dependence of about 73.6%. Correspondingly, China's annual crude oil imports need to spend as much as 170 billion U.S. dollars, about 1.2 trillion yuan, so the slightest change in oil prices, the cost of purchasing crude oil in China will be an astronomical figure. According to reports just now, the price of Brent crude oil briefly broke through the $100 mark.
Secondly, it may affect China's refining and chemical integration project. Lonzong information data statistics, 2018-2022, the domestic refining capacity will continue to lift, especially the growth of private refining capacity will be very obvious, it is expected that there will be about 100 million tons of primary processing capacity put into operation, it is expected that by 2022, the national refining capacity will reach about 980 million tons, and the annual crude oil processing capacity will reach about 700 million tons. If you throw out our annual crude oil production of close to 200 million tons, that is to say, by 2022 after the completion of these projects, China's annual excess refining capacity of about 780 million tons, in accordance with the 2021, China's imports of 500 million tons of crude oil to calculate the national refineries operate at full capacity, then, but also need to import close to 300 million tons of crude oil. 300 million tons of crude oil? This will be what a large amount of foreign exchange expenditure! Therefore, for the current domestic refining integration project, the raw material side is certainly a very big impact, and refining integration project main products are different from the traditional refinery, they are mainly the production of downstream chemicals, so the downstream chemicals market will also have a certain degree of impact.
Again, the high oil prices, for China's energy transformation, vigorously develop clean energy, to achieve the dual-carbon goals have a significant role in promoting. Reduce the dependence on crude oil, clean energy to enhance the use of proportion has always been one of the pursuit of China's energy strategy, especially in recent years, with the implementation of the dual-carbon goals and the pressure of environmental protection and energy consumption, energy and chemical industry transformation and upgrading has been imminent, and the external geopolitical push up oil prices, it is likely to force the pace of upgrading of the domestic industry, the long pain is not as bad as the short-term pain, prompting the domestic enterprises to the clean, efficient, low-consumption The company's business is also a major player in the market, and the company's business is a major player in the market.
Finally, there is another important environment that must be mentioned. In the past few years, after the outbreak of the new crown epidemic, the United States water, resulting in increased inflation, especially in 2021, global commodities are soaring, then for the European and American countries, in fact, do not want to see the surge in oil prices, in this case, Europe and the United States central banks will likely be forced to accelerate the tightening of monetary policy, leading to a rapid rise in global interest rates, the world's economic recovery and the financial markets have a strong impact. And China's economic environment in 2022 itself is under great pressure, the energy and chemical industry after 2021 in the case of raw material prices, hit the best results in history, but in 2022, multiple unfavorable factors, the development of China's energy and chemical industry is bound to face great challenges.
2, natural gas
According to Cowen's statistics, Russia exports about 23 billion cubic feet of natural gas per day, accounting for about 25% of global trade, of which 85% is exported to Europe. Of particular note, Russia's pipeline network, which transports gas to Europe via Ukraine, could be disrupted during a military conflict; according to Cowen, the pipeline network transports about 4 billion cubic feet of gas to Europe every day at full capacity, but is currently flowing at only 50% of full capacity.
Meanwhile, data show that China's natural gas imports amounted to RMB 360.10 billion in January-December 2021, an increase of 56.3% compared to the same period in 2020.Since 2021, China's imported natural gas prices have shown a sharp increase overall, with the price of imported pipeline gas being relatively stable, and the price of imported LNG rising markedly.China's liquefied natural gas in 2021 The source countries of imports are 27 countries, an increase of 3 countries over 2020. Among them, Australia's import volume is still in the first place, accounting for 39% of the import volume. The United States is second with 11%, followed by Qatar, Malaysia, Indonesia and the Russian Federation in that order.There are six source countries for China's pipeline gas imports in 2021, namely Turkmenistan, the Russian Federation, Kazakhstan, Uzbekistan, Myanmar and the U.S.A. China's imports of pipeline gas from the Russian Federation have increased significantly in 2021, with a year-on-year increase of 154%. Russia has now become China's second largest supplier of pipeline gas.
First of all, natural gas prices are basically converging with the trend of crude oil prices, according to the data show that on February 23, LNG prices for 9,327 yuan / ton, while in early February, the price was only about 5,200 yuan / ton, the impact of the situation in Russia and the Ukraine, the recent LNG prices have risen close to double or so. As Europe is the largest use of natural gas in the region, once the "Nord Stream -2" stop, Russia cut off the supply, then the global price of natural gas will undisputedly rise sharply, our country must also face an increase in the cost of natural gas imports. But on the whole, our natural gas stabilization situation can be controlled, the import source country channel basically will not be affected too much.
Secondly, favorable pipeline gas negotiations in China. As we all know, China's pipeline natural gas with neighboring countries is an important source of one of the channels, especially with Russia in the East, Far East, West has three gas pipelines. In recent years, due to the winter of some countries to China's supply of natural gas volume has a large fluctuation, resulting in some areas of our country from time to time the phenomenon of natural gas shortages, but with Russia's natural gas negotiations, people have the right to take the initiative, so our country has been more passive. Nowadays, if Russia's natural gas delivery to Europe is interrupted, as the pillar of the Russian economy, energy exports, Putin must take into account completely cut off the natural gas delivered to European countries, these natural gas next export country is where, then he will inevitably turn his head to negotiate with our country, hoping to be able to digest the amount of natural gas transported to Europe, which is very favorable to our country's imports of pipeline natural gas.
3, energy chemical trade
According to the latest statistics of our federation, in 2021, China's energy chemical import and export trade volume reached 860.8 billion U.S. dollars, an increase of 38.7%. On the one hand, due to the substantial increase in raw material prices resulting in increased costs, on the other hand, also due to the impact of the epidemic in Europe and the United States, the import and export business is still not restored, and some of the market is accessed by our enterprises. Again, China's adherence to stabilize foreign trade policy in the continued strength of the domestic industrial upgrading to enhance the overall competitiveness of products.
With the outbreak of the war between Russia and Ukraine, the geopolitical crisis is becoming more and more prominent, commodity prices are bound to rise further, and rising commodity prices will continue to lead to increased inflationary pressure, the most direct impact on our energy and chemical trade should be the U.S. to increase the intensity of the interest rate hike. The interest rate hike will certainly benefit our exports of energy and chemical products.
Today's global economy, it can be said that a slight change in the whole body, China as a global economic pin, will also be affected by a certain degree of impact. But as the only country in the world with a full range of industrial sectors, China has a strong resistance to shocks. In the external market downturn, China is also a once-in-a-lifetime opportunity to expand overseas markets and stimulate the domestic market!
Article reprinted from: Petrochemical Industry Going Global Alliance