LPG China Market

June 2002
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.

Consumption per Capita (kg/yr) LPG Market Potential

USA 191 The China LPG market has grown to become the 3rd largest
Japan
150 market in the world ranked behind the USA and Japan.
China
11 However, in terms of consumption per capita, China is a
Mexico 111 relatively untapped market which significantly lags behind the
Brazil
42 gasification rates of the other top 5 consuming nations.
S. Korea
144
India China’s economic momentum is continuing. The 1997/8 Asian
6 financial crisis hardly touched China. The global/US recession
0 50 100 150 200
of 2001 slowed export growth and tempered Chinese
economic growth slightly to an estimated 7.3%.

Domestic LPG Demand (History & Forecast) Thus for LPG the outlook is also one of continued growth.
Whilst growth rates are not expected to match those of the
30000 past, higher income levels and rising urban populations are
25000 expected to accelerate the use of cleaner fuels – like LPG &
20000 gas.. Against the backdrop of sustained economic growth and
k mt/yr

15000 low gasification rates industry forecasts ranging from 6-8%

10000 CAGR for LPG are considered robust
5000
0 By 2010, the LPG market in China is expected to be ca. 22-25
mtpa thus overtaking Japan to become the second largest
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market in the world.

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Demand Low Demand High Demand

LPG Market within China

LPG Focus Markets

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

In terms of LPG these coastal regions also account for

70% of the total LPG demand. The dominance of these
Beijing coastal economies is repeated across the consumer
Tianjin
Hebei spectrum and thus the RSS strategy identified these
Shandong coastal regions as the key focus markets.
Jiangsu
The LPG market in China is heavily skewed towards
Shanghai residential consumption (cooking, heating) with >80% of all
Zhejiang LPG sold in China today being consumed within the
household sector.

Guangdong Whilst the fastest growth is expected to occur in the Auto-

gas segment (15%) followed by the Commercial and
Industrial sector (7%), residential segment will still account
for >70% of total demand by 2010.
 Growing dependence on Imports

Domestic LPG Prodroduction (History & Forecast)

Supply/Demand balance
When the decision was taken to issue BBT licences, LPG
16000 imports amounted to 2mtpa or 40% of market demand
14000 with refinery production accounting for the remaining 60%.
12000 Today the balance between imports and exports remains
10000 at ca. 40/60, however, the growth in the total market has
k mt/yr

8000 meant that imports have risen to a total of 5mtpa in 2001.

6000 Whilst evidence suggests that local refineries will shift
4000 yields to maximise LPG production in periods of high
2000 pricing (relative to crude) the dominant factor driving LPG
0 production is the requirement to meet light oil demand
(gasoline, diesel and jet). A recent study of refinery LPG
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2010
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production over the past 5 years has confirmed that the
increases reflect plant expansions focused on light oil
Prod Low Prod High Prod production and are not related to a drive to produce LPG
per se.

However, with an average LPG yields of 18% of crude

LPG Import (History and Forecast) input, expansions focused on meeting light oil demand will
not be sufficient to satisfy the growing demand for LPG
12000 (CAGR 6-8% pa). A recent development by the Chinese
10000
authorities to issue Light Oil imports quotas is perhaps a
signal that they do not even expect refineries to keep pace
8000 with light oil demand which is a further shot in the arm for
k mt/yr

6000 LPG importers such as ourselves.

4000
Our forecasts indicate that LPG imports will grow from the
2000 current level of 4mtpa to a range of between 8-10mtpa by
0 2010.
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Import Wedge Low Case High Case

END