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Asi a-Pacific Oil & Gas

January 23, 2013

Asi a-Pacific Oil & Gas January 23, 2013 Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com •

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com • +852-2918-5741 Michael W. Parker (Senior Analyst) • michael.parker@bernstein.com • +852-2918-5747 Mike Werner (Senior Analyst) • michael.werner@bernstein.com • +852-2918-5748 Vanessa Lau (Senior Analyst) • vanessa.lau@bernstein.com • +852-2918-5717 Lu Wang • lu.wang@bernstein.com • +852-2918-5723 Ying Lou • ying.lou@bernstein.com • +852-2918-5743 Hua Cheng • hua.cheng@bernstein.com • +852-2918-5721 Will Feng • will.feng@bernstein.com • +852-2918-5730

China Economic & Energy Indicators - December 2012; Dragon Year Ends on a High as Energy Demand Heats Up

Please see the Disclosure Appendix for the ratings and price targets of the companies covered in this report.

Highlights

2012 ended with a strong finish despite a weak start. Real GDP growth in 4Q12 improved to 7.9%. Industrial production growth in December accelerated to 10.3%. Both refinery throughput and apparent oil demand surged to all time highs. Electricity production rebounded with 7.2% y-o-y growth in December. Gas demand remained strong with 10% y-o-y growth in November. Latest energy indicators continue to affirm China is on the road to economic recovery.

Year-over-year real GDP growth for Q4 2012 came in at 7.9%, a 50bp improvement from the 7.4% growth reported in Q3 and 10bp above the market expectations of 7.8%. This represents the first time China's economic growth accelerated after 7 consecutive quarters of deceleration. December Industrial production growth improved 20bp m-o-m to 10.3% while the PMI figure was flat at 50.6, supporting the economic rebound in China as we enter 2013.

The December headline loan growth figure came in at RMB 454 billion, 17% below market expectations. This marked the weakest month of loan growth since December 2009. Despite this, total credit formation (total bank loans and non-bank financing) was robust at RMB 1.61 trillion in December, 25% higher than year-to-date average as the issuance of corporate debt and trust loans remained strong.

For December, China's CPI inflation figure (at 2.5%) increased sequentially by 50bp which was more driven by an increase in food price (+4.2%) while the non-food portion of the inflation (at 1.7%) stayed below 2.0% for the 13th consecutive month. Meanwhile, December PPI inflation was up 30bp m- o-m to -1.9%. This marks the third consecutive m-o-m increase to the nation's PPI inflation figure after declining the previous 14 months.

Apparent oil demand surged by 9.1% y-o-y to an all time high of 44.8MT as Chinese refining throughput reached a new high in December. Apparent oil demand averaged 9.67Mbpd in 2012, which was up 4.0% y-o-y. We expect Chinese apparent oil demand will accelerate by 6% y-o-y to 10.3Mbpd, which is 0.3Mbpd higher than current IEA estimates (9.98Mbpd). Crude production improved by 5.6% y-o-y to 17.9MT in December on CNOOC's expanding offshore production and Penglai ramp up. Crude imports increased 8.0% y-o-y to 23.7MT.

Natural gas demand in November increased by 10.2% y-o-y as demand from heating accelerates in winter. Gas imports accounted for 28% of gas demand. Pipeline gas imports from Central Asia increased by 0.34bcf/d (15% m-o-m) to 2.57bcf/d, offsetting LNG imports decrease as spot LNG markets tightened in winter. Natural gas production increased by 8.2% y-o-y to 11.5bcf/d in November.

Electricity production in December was 432.7TWh, up 7.2% Y-o-Y and up 7.9% sequentially from November. The Y-o-Y power generation growth in December 2011 was 9.8%. Power production in 2012 was 4,771TWh up 4.2% Y-o-Y. This is the lowest annual production growth since 2005.

Qinhuangdao spot coal price (5,500kcal/kg) has decreased by RMB15/ton to RMB620/ton since the end of November. Coal prices turned with the end of winter restocking at the end of October. We

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

anticipate – based on seasonal patterns of the last three years – that coal prices will continue to drift down through the end of the first quarter. Coal price is down 26% since last December. The average coal price was RMB699/ton in 2012 down 15% from RMB821/ton in 2011. The coal price was down 24% for the fourth quarter Y-o-Y.

Crude steel production in December was 59.5 million tons, up 14% YoY due to low production in December 2011. 2012 full year saw crude steel production of ~711 million tons i.e. 3.8% growth, only slightly higher than the 2.1% seen in 2008 when the financial crisis hit. Steel prices saw a moderate rebound from mid-September, with China HRC spot price ending the year at RMB3,974 per ton. Despite the rise, this is still 6% lower than the price at the start of 2012.

Aluminum LME price saw a rebound in mid-November, ending the year at US$2,040 per ton, close to where the year started. Alumina price was less volatile than LME price, and only saw a moderate increase to US$331 per ton, averaging at 15.9% of LME price for 2012, which is above what we would see as the more "normal" range of 13-15%.

Within China's energy sector, gas distributors, power companies and oil services outperformed regional index over the last 12 months while steel and coal companies underperformed. Natural gas continues to be the fastest growing component of China's energy complex. With slower electricity growth resulting in lower coal prices, power producers continue to outperform over coal names.

Investment Conclusion

The economic recovery which started in September 2012 continued to gather pace in December. Total energy consumption growth in 4Q reached 7.4%, the highest reading since 1Q12 while GDP growth rebounded to 7.9%. Sectors with a high beta to a recovery in China growth such as steel, cement, refining and petrochemicals are all benefiting from the turnaround in growth in the near term. While China oil demand exceeded 10Mbpd in 4Q12 for the first time ever, strong non-OPEC production continues to put a cap on oil prices which is limiting the benefit to integrated oils and E&Ps. The key question remains how sustainable this recovery will prove. While most expect positive momentum in the first half of 2013, there remains uncertainty beyond this. Policy announcements over the coming months as the new government takes shape could set the tone for how the rest of 2013 pans out.

Our top picks within Chinese energy sector are Huaneng (902.HK; TP HK$8.0) and CR Power (836.HK, TP HK$20.0), Sinopec (386.HK; TP HK$10.0) and CNOOC (883.HK; TP HK$21.7) which we rate as outperform.

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Details

In this note, we review energy and economic statistics published for December 2012, which highlights recent trends in the economic and energy data in China.

Contents

Page

  • 1. Macroeconomic Indicators

5

  • 2. Oil

8

  • 3. Natural Gas

21

  • 4. Electricity & Coal

24

  • 5. Steel & Aluminum

33

  • 6. Share Price Performance by Sector

41

December data affirms that China is on the road to recovery (Exhibit 1). Industrial output continued to accelerate with growth rate of 10.3%. While PMI stayed flat at 50.6 in December, average PMI in the fourth quarter of 2012 turned out 50.5, which represented the first time China's PMI accelerated y-o-y after nine consecutive quarters of deceleration. Apparent oil demand surged by 9.1% y-o-y to a record figure of 44.8MT as Chinese refining throughput reached a new high in December. China's oil production increased by 5.6% y-o-y in December on the back of CNOOC's expanding offshore production and Penglai ramp up as well as improved volumes from CNPC. Electricity production increased 7.2% y-o-y, which marked the second fastest rate in the latest nine months.

Exhibit 1

China economic and energy indicators – December 2012

Nov 12 Dec 12 YoY YoY YoY Indicators Units M-1 M M Last 3M Last 12M
Nov 12
Dec 12
YoY
YoY
YoY
Indicators
Units
M-1
M
M
Last 3M
Last 12M
Momentum
3M vs. 12M
Dec 12
3M vs. 12M

Apparent Oil Demand

MT

43.0

44.8

9.1%

8.8%

4.3%

Crude Imports

MT

23.4

23.7

8.0%

8.1%

6.8%

Oil Production

MT

17.4

17.9

5.6%

6.8%

2.4%

Refinery Throughput

MT

41.6

43.1

9.9%

9.1%

4.3%

Electricity Production

TwH

401.1

432.7

7.2%

7.4%

4.2%

Steel Production

MT

57.5

59.5

14.0%

12.3%

3.8%

Industrial Output

YoY%

10.3%

10.0%

10.3%

Ø

CPI

YoY%

2.5%

2.1%

2.7%

Ø

PPI

YoY%

-1.9%

-2.3%

-1.7%

Ø

PMI

No.

50.6

50.6

0.6%

1.1%

-1.3%

M2

RMB Tn

94.5

97.4

13.8%

13.9%

13.5%

New Loans

RMB bn

523

454

(29.1%)

(17.2%)

9.6%

Ø

January 23, 2013 Asi a-Pacific Oil & Gas Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com •

Note: YoY M equals the % change in the current month (M) over the same month in prior year. YoY Last 3M equals the % change in the rolling 3 month average over the same period in prior year. YoY Last 12M equals the % change in the rolling 12 month average over the same period in prior year.

Source: China NBS, CISA, Bernstein analysis Note: Green indicates improvement; yellow indicates flat and red indicates deteriorating.

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 2 shows how momentum among 12 energy and economic metrics evolved over the last 36 months. Apparent oil demand, oil production, refinery throughput, electricity production and steel production started to exhibit positive momentum since September 2012.

Exhibit 2

China economic and energy indicators 3M vs. 12M momentum heat map

 

Apparent

Oil

Crude

Oil

Refinery

Electricity

Steel

Industrial

Demand

Imports

Production

Throughput

Production

Production

Output

CPI

PPI

PMI

M2

New Loans

Dec-12

5%

1%

4%

5%

3%

8%

8%

-1%

-1%

2%

0%

-27%

Nov-12

5%

-2%

6%

5%

1%

5%

5%

-1%

-1%

2%

1%

-13%

Oct-12

3%

-7%

6%

3%

-1%

2%

2%

-1%

-2%

2%

1%

-1%

Sep-12

1%

-11%

4%

1%

-2%

0%

0%

-1%

-3%

2%

1%

7%

Aug-12

-2%

-6%

3%

-1%

-4%

-1%

-1%

-2%

-3%

2%

0%

17%

Jul-12

-2%

4%

3%

-2%

-4%

-2%

-2%

-2%

-4%

3%

0%

24%

Jun-12

-3%

3%

2%

-3%

-6%

-3%

-3%

-2%

-4%

4%

0%

15%

May-12

-2%

4%

1%

-2%

-4%

-3%

-3%

-1%

-4%

4%

0%

21%

Apr-12

-1%

4%

2%

-1%

0%

-3%

-3%

-2%

-4%

3%

-1%

22%

Mar-12

0%

5%

0%

0%

-3%

-6%

-6%

-1%

-4%

2%

-1%

8%

Feb-12

-2%

5%

0%

-1%

-3%

-8%

-8%

-1%

-4%

0%

-1%

2%

Jan-12

-3%

2%

-3%

-1%

-6%

-9%

-9%

-1%

-4%

-1%

-1%

-2%

Dec-11

-5%

6%

-5%

-4%

-2%

-6%

-6%

-1%

-3%

-3%

-2%

15%

Nov-11

-6%

0%

-7%

-4%

-1%

-1%

-1%

0%

-2%

-4%

-2%

-1%

Oct-11

-5%

-4%

-7%

-4%

0%

3%

3%

0%

0%

-4%

-3%

-4%

Sep-11

-4%

-5%

-6%

-3%

1%

6%

6%

1%

0%

-2%

-3%

-11%

Aug-11

-5%

-8%

-5%

-4%

2%

6%

6%

1%

1%

0%

-2%

-5%

Jul-11

-4%

-3%

-5%

-3%

2%

5%

5%

1%

1%

2%

-2%

-12%

Jun-11

-4%

-5%

-4%

-3%

2%

3%

3%

1%

1%

2%

-2%

-14%

May-11

-1%

-3%

-3%

-1%

2%

2%

2%

1%

1%

1%

-2%

6%

Apr-11

-1%

-6%

-2%

-1%

2%

2%

2%

1%

1%

-1%

-2%

2%

Mar-11

1%

0%

-2%

0%

-1%

2%

2%

1%

1%

-1%

-2%

-13%

Feb-11

4%

-4%

-1%

0%

-4%

2%

2%

1%

1%

-1%

-2%

1%

Jan-11

4%

-3%

1%

-1%

-6%

0%

0%

1%

0%

-1%

-1%

20%

Dec-10

3%

-17%

2%

-2%

-8%

-7%

-7%

1%

0%

-4%

-1%

93%

Nov-10

-1%

-9%

3%

-5%

-9%

-13%

-13%

1%

0%

-7%

-2%

86%

Oct-10

-4%

-12%

2%

-7%

-8%

-17%

-17%

1%

0%

-10%

-3%

72%

Sep-10

-7%

-11%

2%

-9%

-7%

-19%

-19%

1%

1%

-14%

-5%

59%

Aug-10

-7%

-10%

3%

-9%

-6%

-17%

-17%

1%

3%

-14%

-6%

1%

Jul-10

-6%

-14%

3%

-6%

-4%

-13%

-13%

2%

4%

-14%

-6%

-2%

Jun-10

-2%

-6%

3%

-3%

0%

-6%

-6%

2%

6%

-11%

-5%

3%

May-10

-1%

-6%

4%

-1%

3%

-1%

-1%

2%

7%

-10%

-5%

-29%

Apr-10

3%

10%

4%

2%

-9%

3%

3%

2%

8%

-11%

-4%

-42%

Mar-10

7%

13%

5%

8%

-13%

5%

5%

2%

8%

-6%

-3%

-46%

Feb-10

10%

24%

4%

12%

-23%

9%

9%

2%

8%

2%

-1%

-92%

Jan-10

12%

20%

2%

14%

-33%

13%

13%

2%

6%

15%

1%

-140%

Note: Cell number is calculated as the difference between YoY Last 3M and YoY Last 12M, in which YoY Last 3M equals the % change in the rolling 3 month average over the same period in prior year and YoY Last 12M equals the % change in the rolling 12 month average over the same period in prior year.

Source: China NBS, CISA, Bernstein analysis Note: Green indicates improvement; yellow indicates flat and red indicates deteriorating.

Chinese energy consumption growth remains inextricably linked with GDP growth. Historically, quarterly real GDP growth has a close directional relationship with a quarterly blended average energy consumption growth. To calculate the blended average energy consumption growth, we give power production growth a 77% weighting, apparent oil demand growth an 18.5% weighting, and apparent gas demand growth a 4.5% weighting. These weightings are broadly in line with China's overall energy consumption mix. 4Q real GDP growth came in at 7.9%, a 50bp improvement from the 7.4% growth reported in 3Q. In the meantime, blended average energy consumption growth improved sharply to 7.4% in 4Q from 2.4% in 3Q (Exhibit 3).

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 3

China energy consumption growth and real GDP growth

Real GDP Growth (YoY) Energy Consumption Growth (YoY) 13.0% 25.0% 12.0% 20.0% 11.0% 15.0% 10.0% 10.0%
Real GDP Growth (YoY)
Energy Consumption Growth (YoY)
13.0%
25.0%
12.0%
20.0%
11.0%
15.0%
10.0%
10.0%
9.0%
5.0%
8.0%
0.0%
7.0%
- 5.0%
6.0%
-10.0%
5.0%
En erg y Con su m pt ion G ro wt h
2Q 2007
3Q 2007
4Q 2007
1Q 2008
2Q 2008
3Q 2008
4Q 2008
1Q 2009
2Q 2009
3Q 2009
4Q 2009
1Q 2010
2Q 2010
3Q 2010
4Q 2010
1Q 2011
2Q 2011
3Q 2011
4Q 2011
1Q 2012
2Q 2012
3Q 2012
4Q 2012
Real GDP G ro wt h

Source: China NBS, Bernstein analysis and estimates

Part 1 - Macroeconomic Indicators

Consumer inflation was 2.5% for December, up 50bp from the previous month's readings and 20bp above market expectations (see Exhibit 4). China's 2012 full-year CPI inflation rate averaged 2.65%, well below the central bank's full-year target of 4.0%. China's December PPI inflation of -1.9% was up 30bp from November levels but was 10bp below market expectations of -1.8%. This marks the third consecutive MoM increase to China's PPI inflation figure as PPI inflation is now 170bp higher than the 35-month low levels reported in September. As the PPI tends to be a leading indicator to CPI in China, we believe the data supports the view that consumer price inflation will remain moderate in the coming 6 months (though food prices may continue to rise in the short-term).

Exhibit 4

China's y-o-y CPI growth

10.0% 8.0% 6.0% Dec CPI = 2.5% 4.0% 2.0% 0.0% -2.0% -4.0% J an-05 Apr-05 J
10.0%
8.0%
6.0%
Dec CPI = 2.5%
4.0%
2.0%
0.0%
-2.0%
-4.0%
J an-05
Apr-05
J ul-05
Oc t -05
J an-06
Apr-06
J ul-06
Oc t -06
J an-07
Apr-07
J ul-07
Oc t -07
J an-08
Apr-08
J ul-08
Oc t -08
J an-09
Apr-09
J ul-09
Oc t -09
J an-10
Apr-10
J ul-10
Oc t -10
J an-11
Apr-11
J ul-11
Oc t -11
J an-12
Apr-12
J ul-12
Oc t -12

Source: CEIC, NBS, Bernstein analysis

Including the December data, China's economic indicators have exhibited an upward trend over the past 3-4 months that was highlighted by the rebound in the country's Q4 2012 real GDP growth of 7.9%. This

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

marked an improvement of 50bp off the 7.4% reported in Q3 2012 and represented the first QoQ improvement in nearly 2 years.

Regarding the specific factors we track, retail sales and industrial production growth accelerated in December from November levels while the December PMI figures remained above 50 (indicating economic expansion) – see Exhibit 5 and Exhibit 6. Retail sales for the month were 15.2%, 20bp higher than expected and 30bp higher than November. China's PMI Industrial production came in at 50.6 for December, inline with November levels which themselves marked a 7-month high. The only deceleration we saw from a major indictor was on YTD fixed-asset investment where December YTD growth fell 10bp from November levels to 20.6%.

Exhibit 5

China PMI and Industrial Production Growth

Manufacturing PMI Industry Production Growth 55 18% 54 16% 53 52 50.6 14% 51 50 12%
Manufacturing PMI
Industry Production Growth
55
18%
54
16%
53
52
50.6
14%
51
50
12%
49
48
10%
47
46
8%
PM I l
D
ec -10
J an-11
F eb-11
M
ar -11
Apr-11
M
ay -11
J un-11
J ul-11
Aug-11
Sep-11
Oc t -11
N ov -11
D
ec -11
J an-12
F eb-12
M
ar -12
Apr-12
M
ay -12
J un-12
J ul-12
Aug-12
Sep-12
Oc t -12
N ov -12
D
ec -12
I n d u str y Pr o d u cti o n Gr o w th

Source: NBS, CEIC, Bernstein analysis

Exhibit 6

YoY Growth of Key Components to China's GDP Growth

Retail Sales Fixed Asset Investment (YTD) 27% 20% 26% 18% 25% 24% 16% 23% 14% 22%
Retail Sales
Fixed Asset Investment
(YTD)
27%
20%
26%
18%
25%
24%
16%
23%
14%
22%
12%
21%
10%
20%
R etai l Sal es Yo Y Gr o wth
Oc t -10
N ov -10
D
ec -10
J an-11
F eb-11
M
ar-11
Apr-11
M
ay -11
J un-11
J ul-11
Aug-11
Sep-11
Oc t -11
N ov -11
D
ec -11
J an-12
F eb-12
M
ar-12
Apr-12
M
ay -12
J un-12
J ul-12
Aug-12
Sep-12
Oc t -12
N ov -12
D
ec -12
F AI Yo Y Gr o wt h

Source: Bloomberg, Bernstein analysis & estimates

On the export side, China reported a trade surplus of US$31.6 billion in December, the third highest level for 2012 as exports rose 14.1% YoY, up sharply from the 2.9% growth reported in November and well above the year-to-date average of 7.9% (see Exhibit 7).

In light of improving economic data over the past 3-4 months as well as the rising CPI inflation, we'd be surprised to see the central bank cut interest rates again in the coming months, despite the fact that M2

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

money supply growth missed the central bank's target of 14.0% last year (December M2 growth was

13.8%).

Exhibit 7

China's Trade Balance and YoY Growth of Export

Trade Balance (US$, Billion) Export YoY Growth 40 40% 30 35% 30% 20 25% 10 20%
Trade Balance (US$, Billion)
Export YoY Growth
40
40%
30
35%
30%
20
25%
10
20%
0
15%
-10
10%
-20
5%
-30
0%
-40
-5%
U S$ B i l l i o n
Oc t -10
N ov -10
D
ec -10
J an-11
F eb-11
M
ar -11
Apr-11
M
ay -11
J un-11
J ul-11
Aug-11
Sep-11
Oc t -11
N ov -11
D
ec -11
J an-12
F eb-12
M
ar -12
Apr-12
M
ay -12
J un-12
J ul-12
Aug-12
Sep-12
Oc t -12
N ov -12
D
ec -12
Yo Y Gr o wth

Source: General Administration of Customs, CEIC, Bernstein analysis

On the credit front, loan growth for the month of December was RMB 454 billion, 17% below consensus expectations and marked the lowest monthly level of loan issuance in three years (see Exhibit 8). The structure of loan growth deteriorated in December as corporate medium- & long-term (MT&LT) loans at the Chinese banks declined for the second consecutive month after never having declined on a monthly basis since at least 2007.

Driven by robust flows of corporate debt and trust loans, total credit in China was RMB 1.61 trillion in December, up 26% YoY and 25% higher than year-to-date averages. The non-bank financing portion of credit formation has increased significantly over the past 6 months. We expect this "disintermediation" of the commercial banks to continue in the coming months as the banks are limited in the amount of credit they can extend as reflected by their high loan-to-deposit ratio. At 68.7%, the loan-to-deposit ratio of the banks reached its highest year-end level since 2004.

Exhibit 8

China's Credit Formation (Bank Loans & Non-Bank Loans) & Money Supply Growth

China New RMB Loan Other Social Financing China M2 Growth 2.0 22% 20% 1.5 18% 1.0
China New RMB Loan
Other Social Financing
China M2 Growth
2.0
22%
20%
1.5
18%
1.0
16%
14%
0.5
12%
0.0
10%
N ew C r ed i t F o r mati o n , R M B tn
D
ec -10
J an-11
F eb-11
M
ar-11
Apr-11
M
ay -11
J un-11
J ul-11
Aug-11
Sep-11
Oc t -11
N ov -11
D
ec -11
J an-12
F eb-12
M
ar-12
Apr-12
M
ay -12
J un-12
J ul-12
Aug-12
Sep-12
Oc t -12
N ov -12
D
ec -12
C h i n a M 2, Yo Y

Source: CEIC, PBOC, Bernstein analysis

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Part 2 - Oil Oil Demand

Apparent oil demand (crude runs plus net product imports) in December increased by 9.1% y-o-y with a record-high daily demand of 10.64 Mbpd (Exhibits 9).

Exhibit 9

China apparent oil demand

50 Apparent Oil Demand YoY Growth 20% 18% 44.8 16% 45 14% 12% 40 10% 8%
50
Apparent Oil Demand
YoY Growth
20%
18%
44.8
16%
45
14%
12%
40
10%
8%
35
6%
4%
30
2%
0%
25
-2%
Ap p aren t O il Dem an d ,
MMT
Dec - 10
J an - 11
F eb- 11
Mar - 11
Ap r - 11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
Oc t- 11
No v - 11
Dec - 11
J an - 12
F eb- 12
Mar - 12
Ap r - 12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
Oc t- 12
No v - 12
Dec - 12
G ro w t h , Yo Y

Source: China NBS, Bernstein analysis Note: China apparent oil demand is defined as crude runs plus net product imports

Crude imports in December increased 8.0% y-o-y to 23.7MT on higher demand (Exhibit 10).

Exhibit 10

Chinese crude imports

China Crude Imports Crude Imports 27 40% 23.7 25 30% 23 21 20% 19 10% 17
China Crude Imports
Crude Imports
27
40%
23.7
25
30%
23
21
20%
19
10%
17
15
0%
13
-
10%
11
9
-
20%
Ch in a Crud e Im p ort s, MMT
Dec - 10
J an - 11
Feb- 11
Mar - 11
Ap r - 11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
O c t- 11
No v - 11
Dec - 11
J an - 12
Feb- 12
Mar - 12
Ap r - 12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
O c t- 12
No v - 12
Dec - 12
Cru de Imp o rt s Gw th . Yo Y

Source: China NBS, Bernstein analysis

During 2Q12 and 3Q12, demand for oil slumped in China along with industrial production and passenger vehicle sales growth. Since 4Q however there has been a dramatic increase in apparent oil demand, increasing at 9.9% y-o-y in November and 9.1% y-o-y in December as economic conditions improved. This improving trend has been evident in the bottoming out of industrial production growth ( Exhibit 11).

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 11

Industrial output growth vs. apparent oil demand growth

25% 20% 20% 15% December apparent oil demand growth is 9.1% 17% 10% 14% 5% 11%
25%
20%
20%
15%
December apparent
oil demand growth
is 9.1%
17%
10%
14%
5%
11%
0%
-5%
8%
-10%
-15%
5%
Ap p ar en t Oi l D eman d Gr o wth
M
ar-05
J un-05
Sep-05
D
ec -05
M
ar-06
J un-06
Sep-06
D
ec -06
M
ar-07
J un-07
Sep-07
D
ec -07
M
ar-08
J un-08
Sep-08
D
ec -08
M
ar-09
J un-09
Sep-09
D
ec -09
M
ar-10
J un-10
Sep-10
D
ec -10
M
ar-11
J un-11
Sep-11
D
ec -11
M
ar-12
J un-12
Sep-12
D
ec -12
I n d u str i al Ou tp u t Gr o wth
Apparent Oil Demand Growth Industrial Output Growth
Apparent Oil Demand Growth
Industrial Output Growth

Source: China NBS, Bernstein analysis

China's oil market is dominated by growth in demand for transportation fuels. Over the past decade, demand for transportation fuels has more than doubled and now accounts for 54% of total demand. In December, passenger car sales increased by 6.9% y-o-y as Chinese consumers bought 1.46 million cars (Exhibit 12) highlighting continued growth in automobile and transport fuel demand.

Exhibit 12

Passenger car sales in China

Passenger Car Sales Volume YoY Growth 1.8 30% 1.6 1.5 20% 1.4 1.2 10% 1.0 0%
Passenger Car Sales Volume
YoY Growth
1.8
30%
1.6
1.5
20%
1.4
1.2
10%
1.0
0%
0.8
0.6
-
10%
0.4
-
20%
0.2
0.0
-
30%
Sales Vo lu me, MM u nit s
Dec - 10
J an - 11
F eb- 11
Mar - 11
Ap r -11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
O c t-11
No v - 11
Dec - 11
J an - 12
F eb- 12
Mar - 12
Ap r -12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
O c t-12
No v - 12
Dec - 12
Yo Y G w t h

Source: China NBS, Bernstein analysis

Given that industrial demand and transport demand are the two dominant factors which drive oil demand, we use PMI and passenger car sales (both 1 quarter lagged and weighted by 80% PMI and 20% car sales) as

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

leading indicators in forecasting China oil demand growth. Our near term projection for China oil demand are shown in Exhibit 13, Exhibit 14.

4Q12 apparent oil demand achieved a record high of over 10.3Mbpd giving an average apparent demand for 2012 of 9.7Mbpd (4% higher y-o-y). We estimate apparent oil demand in 1Q13 will grow by 7.5% y-o- y to 10.3Mbpd. We estimate Chinese oil demand in 2013 will reach 10.3Mbpd (Exhibit 13), which remains 0.3Mbpd above the IEA estimates despite of IEA's recent upside revision. We expect the IEA to make a number of further positive demand revisions this year.

Exhibit 13

Chinese oil demand estimate

Chinese Oil Demand Summary 1Q12 2Q12 3Q12 4Q12 2012 1Q13E 2Q13E 3Q13E 4Q13E 2013E Mbpd
Chinese Oil Demand Summary
1Q12
2Q12
3Q12
4Q12
2012
1Q13E
2Q13E
3Q13E
4Q13E
2013E
Mbpd

PMI

51.53

51.30

49.70

50.47

50.75

50.70

51.30

50.80

50.70

50.88

YoY change

-2.5%

-1.2%

-2.4%

1.1%

-1.3%

-1.6%

0.0%

2.2%

0.5%

0.2%

Car sales

3.77

3.84

3.65

4.22

15.49

4.06

4.15

3.89

4.51

16.63

YoY change

-1.8%

16.6%

6.7%

7.4%

6.9%

7.5%

7.9%

6.5%

6.9%

7.4%

PMI and car sales index growth

0.2%

1.6%

3.1%

1.7%

1.7%

China apparent oil demand

9.69

9.30

9.37

10.33

9.67

10.31

9.83

9.94

11.02

10.28

YoY change

3.3%

0.2%

3.5%

8.8%

4.0%

6.4%

5.7%

6.1%

6.6%

6.2%

Refining throughput

9.31

9.01

9.14

9.99

9.36

9.90

9.52

9.70

10.65

9.94

Net product import

0.38

0.29

0.23

0.35

0.31

0.41

0.31

0.24

0.37

0.33

China oil demand - IEA - Jan 13

9.59

9.26

9.40

10.12

9.60

9.95

9.81

9.87

10.30

9.98

YoY change

3.1%

-0.4%

4.4%

7.7%

3.9%

3.8%

5.9%

5.0%

1.8%

4.0%

Delta (SCB - IEA)

0.10

0.04

(0.03)

0.21

0.07

0.36

0.02

0.07

0.72

0.30

Source: China NBS, Bernstein analysis and estimates

Exhibit 14

We estimate China oil demand growth using PMI and car sales growth as leading indicators

25% 20% 15% 10% 5% 0% -5% Yo Y C h an g e 4Q06 1Q07
25%
20%
15%
10%
5%
0%
-5%
Yo Y C h an g e
4Q06
1Q07
2Q07
3Q07
4Q07
1Q08
2Q08
3Q08
4Q08
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
Actual oil demand growth Estimate by blended index
Actual oil demand growth
Estimate by blended index

Source: China NBS, Bernstein analysis

Oil Supply

Oil production in December increased by 5.6% y-o-y to 17.9MT (Exhibit 15). PetroChina and Sinopec continued to increase production gradually (Exhibit 16, Exhibit 17). CNOOC delivered exceptionally strong growth in oil production on the back expanding offshore production and Penglai ramp up although we now expect this growth to level off (Exhibit 18).

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 15

Chinese oil production

Oil Production YoY Growth 18.5 17.9 17.5 12% 16.5 7% 15.5 2% 14.5 - 3% 13.5
Oil Production
YoY Growth
18.5
17.9
17.5
12%
16.5
7%
15.5
2%
14.5
-
3%
13.5
12.5
-
8%
O il Prod u ct ion , MMT
Dec - 10
J an -11
F eb- 11
Mar - 11
Ap r - 11
May - 11
J un -11
J ul - 11
Aug - 11
Sep - 11
O c t- 11
No v - 11
Dec - 11
J an -12
F eb- 12
Mar - 12
Ap r - 12
May - 12
J un -12
J ul - 12
Aug - 12
Sep - 12
O c t- 12
No v - 12
Dec - 12
Yo Y G ro w th

Source: China NBS, Bernstein analysis

Exhibit 16

PetroChina oil production

Exhibit 17

Sinopec oil production

Exhibit 18

CNOOC and others oil production

2.0 7% 1.8 6% 1.6 5% 1.4 4% 1.2 3% 1.0 2% 0.8 1% 0.6 0%
2.0
7%
1.8
6%
1.6
5%
1.4
4%
1.2
3%
1.0
2%
0.8
1%
0.6
0%
0.4
0.2
-
1%
0.0
-
2%
Daqing
Changqing
Tarim
Other
YoY Growth
mmbpd
Jul-
09
Sep-
09
Nov-
09
Jan-
M
ar - - - 12 11 10
10
M
ay-
10
Jul-
10
Sep-
10
Nov-
10
Jan-
M
ar
11
M
ay-
11
Jul-
11
Sep-
11
Nov-
11
Jan-
M
ar
12
M
ay-
12
Jul-
12
Sep-
12
Nov-
12
YoY Grow t h

Source: China OGP, Bernstein analysis

2.0 4.5% 1.8 4.0% 1.6 3.5% 1.4 3.0% 1.2 2.5% 1.0 2.0% 0.8 1.5% 0.6 1.0%
2.0
4.5%
1.8
4.0%
1.6
3.5%
1.4
3.0%
1.2
2.5%
1.0
2.0%
0.8
1.5%
0.6
1.0%
0.4
0.5%
0.2
0.0%
0.0
- 0.5%
Shengli
Other
YoY Growth
mmbpd
Jul-
09
Sep-
09
Nov-
09
Jan-
M
ar - - 11 10
10
M
ay-
10
Jul-
10
Sep-
10
Nov-
10
Jan-
M
ar
11
M
ay-
11
Jul-
11
Sep-
11
Nov-
11
M Jan- ay-
ar - 12
12
M
12
Jul- 12
12
Sep-
12
Nov-
YoY Grow th
2.0 60% 1.8 50% 1.6 40% 1.4 30% 1.2 20% 1.0 10% 0.8 0% 0.6 -
2.0
60%
1.8
50%
1.6
40%
1.4
30%
1.2
20%
1.0
10%
0.8
0%
0.6
-
10%
0.4
-
20%
0.2
-
30%
0.0
-
40%
CNOOC & Others
YoY Growth
mmbpd
Jul-
09
Sep-
09
Nov-
09
Jan-
M
ar - - - 12 11 10
10
M
ay-
10
Jul-
10
Sep-
10
Nov-
10
Jan-
M
ar
11
M
ay-
11
Jul-
11
Sep-
11
Nov-
11
Jan-
M
ar
12
M
ay-
12
Jul-
12
Sep-
12
Nov-
12
YoY Grow t h

Source: China OGP, Bernstein analysis

Source: China OGP, Bernstein analysis

Exhibit 19 summarizes China monthly crude oil production by key fields. CNPC's Changqing oil field achieved 20.3% y-o-y growth in November and contributed 18.5% of CNPC's overall production. This is largely driven by the growth in tight oil fraccing in Central China. CNOOC and others' production increased sharply by 14.6% in November as Peng Lai volumes continued to ramp up. While offshore China oilfields (Fanyu 4-2/5-1 and Liuhua 4-1) started production in December 2012, we expect production will start to flatten off in the near term.

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 19

China monthly crude oil production

Mbpd

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

M-o-M

Y-o-Y

CNPC

2.52

2.52

2.50

2.50

2.49

2.50

2.49

2.49

2.52

2.51

2.51

0.0%

4.3%

Daqing

0.82

0.82

0.82

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.80

0.0%

0.3%

Changqing

0.45

0.43

0.43

0.45

0.46

0.46

0.46

0.47

0.47

0.47

0.46

-0.9%

20.3%

Tarim

0.12

0.12

0.12

0.11

0.11

0.10

0.12

0.12

0.12

0.12

0.13

2.8%

2.9%

Other

1.13

1.15

1.14

1.13

1.13

1.14

1.11

1.11

1.13

1.11

1.11

0.1%

1.7%

Sinopec

0.86

0.86

0.87

0.87

0.87

0.87

0.87

0.87

0.87

0.87

0.88

0.6%

1.4%

Shengli

0.55

0.55

0.55

0.55

0.56

0.56

0.55

0.55

0.55

0.56

0.56

0.3%

0.9%

Other

0.31

0.31

0.31

0.31

0.31

0.31

0.32

0.32

0.32

0.32

0.32

1.0%

2.3%

CNOOC & other

0.74

0.76

0.74

0.65

0.78

0.68

0.69

0.81

0.90

0.71

0.89

24.5%

14.6%

Total China

4.13

4.15

4.11

4.01

4.14

4.05

4.05

4.17

4.28

4.09

4.27

4.4%

5.6%

Source: China OGP, Bernstein analysis

Inventory

Total commercial oil (crude + oil products) dropped by 0.4MT (1% m-o-m) to 46.2MT in December (Exhibit 20), which represented 32.6 days cover of forward Chinese apparent oil demand its weakest reading in over 12 months(Exhibit 21).

Exhibit 20

Total commercial stocks (crude + oil products) inventory

52 50 48 46 44 42 40 2010- 11 Range 2012 In ven t o ry
52
50
48
46
44
42
40
2010- 11 Range
2012
In ven t o ry Vo lu m ne, MM To n s
J an
F eb
Mar
Ap r
May
J un
J ul
Aug
Sep
O c t
No v
Dec

Source: China OGP, Bernstein analysis

Exhibit 21

Total commercial stocks (crude + oil products) inventory

days of forward demand

38 37 36 35 34 33 32 31 30 2010-11 Range 2012 In ven t o
38
37
36
35
34
33
32
31
30
2010-11 Range
2012
In ven t o ry Days of F o rw ard Demand
J an
F eb
Mar
Ap r
May
J un
J ul
Aug
Sep
O c t
No v
Dec

Source: China OGP, Bernstein analysis

Commercial crude inventories fell by 1.1MT (3.62% m-o-m) in December (Exhibit 22), leading to 20.6 days cover of forward total oil demand which was below the recent historical range (Exhibit 23).

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 22

Commercial crude inventory

34 32 30 28 26 24 22 2010- 11 Range 2012 In vento ry Vo lu
34
32
30
28
26
24
22
2010- 11 Range
2012
In vento ry Vo lu mn e, MM T o n s
J an
Feb
Mar
Ap r
May
J un
J ul
Aug
Sep
O c t
No v
Dec

Source: China OGP, Bernstein analysis

Exhibit 23

Commercial crude inventory days of forward demand

24 23 22 21 20 19 18 2010-11 Range 2012 In ven t o ry Days
24
23
22
21
20
19
18
2010-11 Range
2012
In ven t o ry Days o f F orward Deman d
J an
F eb
Mar
Ap r
May
J un
J ul
Aug
Sep
O c t
No v
Dec

Source: China OGP, Bernstein analysis

The commercial oil products inventory grew by 0.88MT (4.15% m-o-m) to in December (Exhibit 24), implying 12.3 days cover of forward apparent oil demand ( Exhibit 25) which was in line with seasonal averages

Exhibit 24

Commercial oil products inventory

Exhibit 25

Commercial oil products inventory days of forward demand

22 20 18 16 14 12 10 2010- 11 Range 2012 In ven t o ry
22
20
18
16
14
12
10
2010- 11 Range
2012
In ven t o ry Vo lu mn e, MM T o n s
J an
F eb
Mar
Ap r
May
J un
J ul
Aug
Sep
O c t
No v
Dec

Source: China OGP, Bernstein analysis

16 15 14 13 12 11 10 2010-11 Range 2012 In vent ory Days o f
16
15
14
13
12
11
10
2010-11 Range
2012
In vent ory Days o f Fo rw ard Dem an d
J an
F eb
Mar
Ap r
May
J un
J ul
Aug
Sep
O c t
No v
Dec

Source: China OGP, Bernstein analysis

Gasoline inventory accounted for 44% of total oil products inventory. In December, gasoline inventory increased by 0.59MT (8.54% m-o-m) (Exhibit 26), leading to 30.7 days cover of forward apparent gasoline demand which was in line with the historical range (Exhibit 27).

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 26

Exhibit 27

Gasoline inventory

Gasoline inventory days of forward demand

10 9 8 7 6 5 4 2010- 11 Range 2012 In vent o ry Vo
10
9
8
7
6
5
4
2010- 11 Range
2012
In vent o ry Vo lu mn e, MM To n s
J an
F eb
Mar
Ap r
May
J un
J ul
Aug
Sep
O c t
No v
Dec

Source: China OGP, Bernstein analysis

36 34 32 30 28 26 24 22 20 2010-11 Range 2012 In ven t o
36
34
32
30
28
26
24
22
20
2010-11 Range
2012
In ven t o ry Days o f F orward Deman d
J an
F eb
Mar
Ap r
May
J un
J ul
Aug
Sep
O c t
No v
Dec

Source: China OGP, Bernstein analysis and estimates

Diesel inventories accounted for 48% of total oil products inventory. In December the diesel inventory increased slightly by 0.88MT (1.90% m-o-m) (Exhibit 28), implying 16.7 days cover of forward apparent diesel demand (Exhibit 29) which was in line with seasonal trends.

Exhibit 28

Diesel inventory

14 12 10 8 6 4 2 0 2010- 11 Range 2012 In ven t o
14
12
10
8
6
4
2
0
2010- 11 Range
2012
In ven t o ry Vo lu m ne, MM To n s
J an
F eb
Mar
Ap r
May
J un
J ul
Aug
Sep
O c t
No v
Dec

Source: China OGP, Bernstein analysis

Exhibit 29

Diesel inventory days of forward demand

28 26 24 22 20 18 16 14 12 2010-11 Range 2012 In ven t o
28
26
24
22
20
18
16
14
12
2010-11 Range
2012
In ven t o ry Days of F o rw ard Demand
J an
F eb
Mar
Ap r
May
J un
J ul
Aug
Sep
O c t
No v
Dec

Source: China OGP, Bernstein analysis and estimates

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Refining

Refining throughput surged by 9.9% y-o-y in December to all time high amount of 43.1MT (Exhibit 30). We expect high refining throughput growth to continue as Chinese refiners add 1.2Mblsd of additional refining capacity in 2013.

Exhibit 30

Chinese refinery throughput

Refinery Throughput YoY 45 43.1 14% 12% 40 10% 8% 35 6% 4% 30 2% 0%
Refinery Throughput
YoY
45
43.1
14%
12%
40
10%
8%
35
6%
4%
30
2%
0%
25
-
2%
T h ro ug h put , MMT
Dec - 10
J an - 11
F eb- 11
Mar - 11
Ap r - 11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
O c t- 11
No v - 11
Dec - 11
J an - 12
F eb- 12
Mar - 12
Ap r - 12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
O c t- 12
No v - 12
Dec - 12
Th ro u gh t G wt h, YoY

Source: China NBS, Bernstein analysis and estimates

Net products imports were 1.6MT for December, which marked the highest reading over the last nine months as seasonal demand for fuel oil and diesel increased (Exhibit 31).

Exhibit 31

Chinese net products imports

Net products imports YoY 2.5 200% 150% 2.0 1.6 100% 1.5 50% 1.0 0% 0.5 -
Net products imports
YoY
2.5
200%
150%
2.0
1.6
100%
1.5
50%
1.0
0%
0.5
-
50%
0.0
-
100%
Net p rod u ct s imp o rts, MMT
Dec - 10
J an - 11
F eb- 11
Mar - 11
Ap r - 11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
Oc t- 11
No v - 11
Dec - 11
J an - 12
F eb- 12
Mar - 12
Ap r - 12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
Oc t- 12
No v - 12
Dec - 12
T h ro u g ht Gwt h, Yo Y

Source: China NBS, Bernstein analysis and estimates

Apparent gasoline demand in November was 7.7MMT, up 17.6% y-o-y (Exhibit 32) and diesel demand increased by 3.2% y-o-y to 14.7MMT (Exhibit 33). Again this highlights the importance in transportation demand over industrial demand in driving overall oil demand in China.

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 32

China gasoline demand

Apparent Gasoline Demand yoy % 8.0 7.7 25% 7.5 20% 7.0 15% 6.5 6.0 10% 5.5
Apparent Gasoline Demand
yoy %
8.0
7.7
25%
7.5
20%
7.0
15%
6.5
6.0
10%
5.5
5%
5.0
0%
4.5
4.0
-5%
App aren t G aso lin e Dem and
( MMT )
Dec - 10
J an - 11
Feb-11
Mar -11
Ap r - 11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
O c t- 11
No v - 11
Dec - 11
J an - 12
Feb-12
Mar -12
Ap r - 12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
O c t- 12
No v - 12
Yo Y G ro w th

Source: China NBS, Bernstein analysis

Exhibit 33

China diesel demand

Apparent Diesel Demand yoy % 16 20% 14.7 15 15% 14 10% 13 12 5% 11
Apparent Diesel Demand
yoy %
16
20%
14.7
15
15%
14
10%
13
12
5%
11
0%
10
9
-5%
Ap p arent Diesel Demand
( MMT )
Dec - 10
J an - 11
F eb- 11
Mar - 11
Ap r - 11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
O c t- 11
No v - 11
Dec - 11
J an - 12
F eb- 12
Mar - 12
Ap r - 12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
O c t- 12
No v - 12
Yo Y G ro w th

Source: China NBS, Bernstein analysis

Since the introduction of the NDRC's current retail pricing mechanism in 2009 there have been 14 upward adjustments to product prices and 9 downward adjustments (Exhibit 34). China's NDRC announced the fourth fuel price reduction this year on November 15 th , cutting retail gasoline and diesel prices by 3.2% and 3.4% respectively.

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 34

NDRC retail fuel price changes have lagged crude prices on since the start of the current pricing system

11 120 110 100 9 90 80 70 7 60 50 5 40 RM B/L Jan-
11
120
110
100
9
90
80
70
7
60
50
5
40
RM B/L
Jan- 09
Feb- 09
Mar - 09
A pr - 09
May - 09
Jun- 09
Jul- 09
A ug- 09
Sep- 09
Oc t- 09
Nov - 09
Dec - 09
Jan- 10
Feb- 10
Mar - 10
A pr - 10
May - 10
Jun- 10
Jul- 10
A ug- 10
Sep- 10
Oc t- 10
Nov - 10
Dec - 10
Jan- 11
Feb- 11
Mar - 11
A pr - 11
May - 11
Jun- 11
Jul- 11
A ug- 11
Sep- 11
Oc t- 11
Nov - 11
Dec - 11
Jan- 12
Feb- 12
Mar - 12
A pr - 12
May - 12
Jun- 12
Jul- 12
A ug- 12
Sep- 12
Oc t- 12
Nov - 12
Dec - 12
$/b b l
China Gaso93 (RMB/L) China Diesel (RMB/L) Dubai Crude ($/bbl) Source: Company reports, Bloomberg, Bernstein analysis and
China Gaso93 (RMB/L)
China Diesel (RMB/L)
Dubai Crude ($/bbl)
Source: Company reports, Bloomberg, Bernstein analysis and estimates

Despite the price cut, refining margins should still remain positive for Sinopec. Gasoline & diesel/crude price ratios correlate strongly with Sinopec's refining margins. The ratio between gasoline/diesel prices and crude bottomed out in 2Q12, which should mean that 2Q12 was probably the low point for refining margins this year. The improvement in refining margins going into 3Q and 4Q is a major positive for Sinopec given the scale of their refining division (Exhibit 35). We believe that in 2013, the government could take steps to reform product pricing to a shorter time window for pricing adjustment, a lower threshold for changes and an agency outside of NDRC to announce changes.

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 35

Sinopec refining margins have tracked the price ratio of retail fuels and crude

3.0x 20 2.6x 15 2.2x 10 1.8x 5 1.4x 0 1.0x - 5 Rat io o
3.0x
20
2.6x
15
2.2x
10
1.8x
5
1.4x
0
1.0x
- 5
Rat io o f ret ail p rices ( ad ju st ed f or
co n su m pt ion t ax) o ver crud e p rices
J an - 09
Feb- 09
Mar- 09
Ap r- 09
May - 09
J un - 09
J ul -09
Aug - 09
Sep - 09
O c t- 09
No v - 09
Dec - 09
J an - 10
Feb- 10
Mar- 10
Ap r- 10
May - 10
J un - 10
J ul -10
Aug - 10
Sep - 10
O c t- 10
No v - 10
Dec - 10
J an - 11
Feb- 11
Mar- 11
Ap r- 11
May - 11
J un - 11
J ul -11
Aug - 11
Sep - 11
O c t- 11
No v - 11
Dec - 11
J an - 12
Feb- 12
Mar- 12
Ap r- 12
May - 12
J un - 12
J ul -12
Aug - 12
Sep - 12
O c t- 12
No v - 12
Dec - 12
SNP rep o rt ed G RM, $/b b l
Gaso / Dubai Diesel / Dubai SNP Reported GRM
Gaso / Dubai
Diesel / Dubai
SNP Reported GRM

Source: Company reports, Bloomberg, Bernstein analysis and estimates

Strategic Petroleum Reserves (SPR)

China does not release SPR fill on a regular basis. In addition, there is limited data to track the SPR fill. We estimate monthly SPR change and commercial inventory level change (Exhibit 36) through the difference between total oil demand (China crude production and net imports) and apparent oil demand (refining throughput and net products imports).

Exhibit 36

Implied monthly change in China's commercial crude and products inventory and SPR level

5 130 4 120 3 110 2 1 100 0 90 - 1 -1.6 80 -
5
130
4
120
3
110
2
1
100
0
90
-
1
-1.6
80
-
2
-
3
70
In ven tory Ch an ge, MM
T o ns
Dec - 10
J an - 11
Feb- 11
Mar - 11
Ap r -11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
O c t-11
No v - 11
Dec - 11
J an - 12
Feb- 12
Mar - 12
Ap r -12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
O c t-12
No v - 12
Dec - 12
Brent , US$/b bl

Source: China NBS, Bernstein analysis Note: Implied commercial crude and products inventory and SPR is calculated as the difference between total oil demand and apparent oil demand

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 37

Implied monthly change in China's SPR level

5 130 4 120 3 110 2 1 100 0 90 (1.3) (1.2) - 1 80
5
130
4
120
3
110
2
1
100
0
90
(1.3)
(1.2)
-
1
80
-
2
-
3
70
SPR L evel Chang e, MM
T on s
Dec - 10
J an - 11
F eb- 11
Mar- 11
Ap r - 11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
O c t- 11
No v - 11
Dec - 11
J an - 12
F eb- 12
Mar- 12
Ap r - 12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
O c t- 12
No v - 12
Dec - 12
Brent , US$/b bl

Source: China NBS, Bernstein analysis

Note: Implied SPR level change is calculated as the difference between total oil demand and apparent oil demand minus commercial crude and products inventory change.

Through monitoring implied SPR level change every month ( Exhibit 37), we estimate that China SPR level by December 2012 was close to 280mmbbls (Exhibit 38), indicating that Phase 2 SPR has been filled. Beyond Phase 2, China will begin the construction of Phase 3 storage bases this year with a total capacity of 28.2 cubic meters. We expect 200mbd of demand outside of 'apparent demand' for the filling of this capacity.

Exhibit 38

China's SPR level and SPR capacity

400 350 300 250 200 150 100 50 - SPR SPR Capacity m m bbls D
400
350
300
250
200
150
100
50
-
SPR
SPR Capacity
m m bbls
D
e c-0 6
Fe b -0 7
Ap r-0 7
Ju n -0 7
Au g -0 7
Oct-0 7
D
e c-0 7
Fe b -0 8
Ap r-0 8
Ju n -0 8
Au g -0 8
Oct-0 8
D
e c-0 8
Fe b -0 9
Ap r-0 9
Ju n -0 9
Au g -0 9
D
Oct-0 9
e c-0 9
Fe b -1 0
Ap r-1 0
Ju n -1 0
Au g -1 0
D
Oct-1 0
e c-1 0
Fe b -1 1
Ap r-1 1
Ju n -1 1
Au g -1 1
D
Oct-1 1
e c-1 1
Fe b -1 2
Ap r-1 2
Ju n -1 2
Au g -1 2
D
Oct-1 2
e c-1 2
Fe b -1 3
Ap r-1 3
Ju n -1 3
Au g -1 3
D
Oct-1 3
e c-1 3

Source: China NBS, Bernstein analysis

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Petrochemicals

China ethylene production increased by 8% m-o-m to 1.3MMT in December (Exhibit 39) as Sinopec's Wuhan ethylene unit (0.8MTPA capacity) finished construction and demand for Petrochemicals picked up along with the recovery in China's growth.

Exhibit 39

China ethylene production

Ethylene Production (MMT) YoY Growth 1.5 50% 1.4 1.3 40% 1.3 30% 1.2 20% 1.1 10%
Ethylene Production (MMT)
YoY Growth
1.5
50%
1.4
1.3
40%
1.3
30%
1.2
20%
1.1
10%
1.0
0%
0.9
-
10%
0.8
-
20%
0.7
-
30%
0.6
-
40%
0.5
-
50%
Et hylene Pro du ctio n ( MMT )
Dec - 10
J an - 11
Feb- 11
Mar- 11
Ap r - 11
May - 11
J un - 11
J ul -11
Aug - 11
Sep - 11
O c t- 11
No v - 11
Dec - 11
J an - 12
Feb- 12
Mar- 12
Ap r - 12
May - 12
J un - 12
J ul -12
Aug - 12
Sep - 12
O c t- 12
No v - 12
Dec - 12
Yo Y G row t h

Source: China NBS, Bernstein analysis

Exhibit 40

China apparent ethylene demand

Ethylene Demand (MMT) YoY Growth 1.6 1.46 50% 1.4 40% 30% 1.2 20% 1.0 10% 0.8
Ethylene Demand (MMT)
YoY Growth
1.6
1.46
50%
1.4
40%
30%
1.2
20%
1.0
10%
0.8
0%
0.6
-
10%
0.4
-
20%
0.2
-
30%
0.0
-
40%
App arent Et hyl en e
Demand ( MMT )
Dec - 10
J an - 11
F eb- 11
Mar - 11
Ap r - 11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
O c t- 11
No v - 11
Dec - 11
J an - 12
F eb- 12
Mar - 12
Ap r - 12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
O c t- 12
No v - 12
Dec - 12
Yo Y G row t h

Source: China NBS, Bernstein analysis Note: Last Ethylene imports number is provisional

Asian naphtha cracker margins bottomed out in December ( Exhibit 41). Asian petrochemical spreads – benzene-naphtha, LDPE-naphtha and PP-naphtha -all improved in December (Exhibit 42, Exhibit 43, Exhibit 44). As China's economic recovery continues and inventories start to deplete, we expect petrochemical demand to pick up and margins to improve.

January 23, 2013

January 23, 2013

US$/to n

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 41

Short-term Asian Naphtha cracker margins

700 600 500 400 300 200 100 - J an -11 Feb-11 Mar -11 Ap r-
700
600
500
400
300
200
100
-
J an -11
Feb-11
Mar -11
Ap r- 11
May- 11
J un -11
J ul-11
Aug -11
Sep -11
Oc t- 11
No v -11
Dec -11
J an -12
Feb-12
Mar -12
Ap r- 12
May- 12
J un -12
J ul-12
Aug -12
Sep -12
Oc t- 12
No v -12
Dec -12
J an -13
Naphtha Cracker Margin
Naphtha Cracker Margin

Source: Bloomberg, Bernstein estimates

1 ton of naphtha yields 0.29 ton of ethylene, 0.17 ton of propylene, 0.11 ton of butadiene, 0.08 ton of benzene, 0.04 ton of toluene, 0.11 ton of xylene, 0.15 ton of methanol fuel and 0.05 ton of fuel oil.

Exhibit 42

Short-term Benzene-Naphtha Spread

600 550 500 450 400 350 300 250 200 150 100 $/ ton J an-11 Feb
600
550
500
450
400
350
300
250
200
150
100
$/ ton
J an-11
Feb -11
Mar-11
Ap r-11
May -11
J un-11
J ul-11
Aug -11
Sep -11
Oc t -11
No v -11
D
ec -11
J an-12
Feb -12
Mar-12
Ap r-12
May -12
J un-12
J ul-12
Aug -12
Sep -12
Oc t -12
No v -12
D
ec -12
J an-13
Benzene-Naphtha
Benzene-Naphtha

Source: Bloomberg, Bernstein estimates

Exhibit 43

Short-term LDPE-Naphtha Petrochemical Spread

Exhibit 44

Short -term PP(Polypropylene)-Naphtha Spread

900 800 750 800 700 700 650 600 600 550 500 500 450 400 400 350
900
800
750
800
700
700
650
600
600
550
500
500
450
400
400
350
300
LDPE-Naphtha
Polypropylene-Naphtha
$/ ton
J an-11
Feb -11
Mar-11
Ap r-11
May -11
J un-11
J ul-11
Aug -11
Sep -11
Oc t -11
No v -11
D ec -11
J an-12
Feb -12
Mar-12
Ap r-12
May -12
J un-12
J ul-12
Aug -12
Sep -12
Oc t -12
No v -12
D ec -12
J an-13
$/ ton
J an-11
Feb -11
Mar-11
Ap r-11
May -11
J un-11
J ul-11
Aug -11
Sep -11
Oc t-11
No v -11
D ec -11
J an-12
Feb -12
Mar-12
Ap r-12
May -12
J un-12
J ul-12
Aug -12
Sep -12
Oc t-12
No v -12
D ec -12
J an-13

Source: Bloomberg, Bernstein estimates

Part 3 - Natural Gas

Source: Bloomberg, Bernstein estimates

In November, domestic gas demand grew 10.2% y-o-y to 16.0bcf/d (Exhibit 45) as demand from heating surges in winter.

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 45

China apparent gas demand

Natural Gas Demand YoY Growth 40% 17 16.0 35% 15 30% 13 25% 11 20% 15%
Natural Gas Demand
YoY Growth
40%
17
16.0
35%
15
30%
13
25%
11
20%
15%
9
10%
7
5%
5
0%
Gas Dem an d, b cf /d
Dec - 10
J an - 11
Feb- 11
Mar -11
Ap r - 11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
O c t- 11
No v - 11
Dec - 11
J an - 12
Feb- 12
Mar -12
Ap r - 12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
O c t- 12
No v - 12
Yo Y G ro w th

Source: China NBS, Bernstein analysis

Gas production increased by 8.2% y-o-y to 11.5bcf/d in November (Exhibit 46), which represented a significant improvement from the weak growth recorded over the past several months. CNPC and Sinopec achieved 11% y-o-y and 18% y-o-y growth in November respectively (Exhibit 47, Exhibit 48) while CNOOC and others' gas production decreased by 15% in November (Exhibit 49).

Exhibit 46

China domestic gas production

Natural Gas Production YoY Growth 40% 13 11.5 35% 12 30% 11 25% 10 20% 9
Natural Gas Production
YoY Growth
40%
13
11.5
35%
12
30%
11
25%
10
20%
9
15%
8
10%
7
5%
6
0%
5
- 5%
Gas Pro du ct io n , b cf /d
No v - 10
Dec - 10
J an - 11
F eb- 11
Mar - 11
Ap r - 11
May - 11
J un - 11
J ul - 11
Aug - 11
Sep - 11
Oc t- 11
No v - 11
Dec - 11
J an - 12
F eb- 12
Mar - 12
Ap r - 12
May - 12
J un - 12
J ul - 12
Aug - 12
Sep - 12
Oc t- 12
No v - 12
Yo Y G ro wt h

Source: China NBS, Bernstein analysis

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 47

PetroChina gas production

Exhibit 48

Sinopec gas production

Exhibit 49

CNOOC and others gas production

10.0 20% 9.0 15% 8.0 7.0 10% 6.0 5.0 5% 4.0 0% 3.0 2.0 - 5%
10.0
20%
9.0
15%
8.0
7.0
10%
6.0
5.0
5%
4.0
0%
3.0
2.0
-
5%
1.0
0.0
-
10%
Total CNPC
YoY Growth
bcf /d
09
ov-
09
ar- 12 11 10 09 12 11 10 12 11 10
10
M N Sep- N Sep- N Sep- N Sep- M M M Jan- Jan- Jan- Jul- Jul- Jul- Jul- ay- ay- ay-
10
ov-
10
ar-
11
M
11
ov-
11
ar-
12
M
12
ov-
12
YoY Grow t h

Source: China OGP, Bernstein analysis

2.0 70% 1.8 60% 1.6 50% 1.4 1.2 40% 1.0 30% 0.8 0.6 20% 0.4 10%
2.0
70%
1.8
60%
1.6
50%
1.4
1.2
40%
1.0
30%
0.8
0.6
20%
0.4
10%
0.2
0.0
0%
Total Sinopec
YoY Growth
bcf /d
09
09
ar- 12 11 10 09 12 12 11 11 10 10
10
M Nov- Sep- Nov- Sep- Nov- Sep- Nov- Sep- M M M Jan- Jan- Jan- Jul- Jul- Jul- Jul-
ay-
10
10
ar-
11
M
ay-
11
11
ar-
12
M
ay-
12
12
YoY Grow th

Source: China OGP, Bernstein analysis

3.5 200% 3.0 150% 2.5 100% 2.0 50% 1.5 0% 1.0 - 50% 0.5 0.0 -
3.5
200%
3.0
150%
2.5
100%
2.0
50%
1.5
0%
1.0
-
50%
0.5
0.0
-
100%
Total CNOOC & Others
YoY Growth
bcf /d
09
09
ar- 12 11 10 09 12 12 11 11 10 10
10
ay-
10
10
ar-
11
M M Nov- Sep- Nov- Sep- Nov- Sep- Nov- Sep- M M M Jan- Jan- Jan- Jul- Jul- Jul- Jul-
ay-
11
11
ar-
12
M
ay-
12
12
YoY Grow th

Source: China OGP, Bernstein analysis

Imports made up 28% of the total demand in November ( Exhibit 50). Pipeline gas imports increased by 0.34bcf/d (15% m-o-m) to 2.57bcf/d (Exhibit 52), offsetting LNG imports decrease as spot LNG markets tightened in winter (Exhibit 51). Pipeline gas imports accounted for 58% of total gas imports in November. As China's second West-to-East gas pipeline became completely operational on December 30, 2012 and Myanmar pipeline will finish construction in May 2013, we expect pipeline gas imports continue to growthin 2013.

Exhibit 50

China monthly gas supply and demand summary

Bcf/d

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

M-o-M

Y-o-Y

Production

12.55

13.22

12.88

9.98

9.49

9.59

9.40

9.44

9.62

9.86

11.52

16.8%

8.2%

Imports

3.78

3.62

3.76

3.91

3.92

4.11

4.22

3.81

4.58

4.45

4.45

0.0%

16.0%

Pipeline gas

1.59

2.13

1.87

2.07

2.01

2.01

1.99

1.99

2.19

2.23

2.57

15.2%

61.7%

LNG

2.19

1.49

1.89

1.83

1.91

2.10

2.23

1.82

2.39

2.22

1.88

-15.4%

-16.4%

Gas Demand

16.33

16.84

16.64

13.89

13.41

13.70

13.62

13.26

14.19

14.31

15.97

11.6%

10.2%

Imports as % of demand

23%

21%

23%

28%

29%

30%

31%

29%

32%

31%

28%

Source: Bloomberg, China OGP, Bernstein analysis

January 23, 2013

January 23, 2013

Asi a-Pacific Oil & Gas

Neil Beveridge, Ph.D. (Senior Analyst) • neil.beveridge@bernstein.com +852-2918-5741

Exhibit 51

China LNG imports

Natural Gas Imports YoY Growth 3.0 100% 2.5 80% 1.9 60% 2.0 40% 1.5 20% 1.0
Natural Gas Imports
YoY Growth
3.0
100%
2.5
80%
1.9
60%
2.0
40%
1.5
20%
1.0
0%