China May Face Energy Oversupply Over Next Two Years

By Wang Ying

Dec. 12 (Bloomberg) -- China, the world's second-biggest energy consumer, may face an energy oversupply within the next two years as the global recession slows the country's economy.

The nation may see a surplus of coal, fuels and electricity because of waning demand and a ``sizable'' expansion in output capacity, Wang Siqiang, a deputy director at the National Energy Administration, said at the China Energy and Environment Summit in Beijing today.

Chinese exports fell for the first time last month in seven years as the worst financial crisis since the Great Depression slashed demand, retarding industrial fuel consumption and electricity use. The government is expediting project approvals in the energy sector to help stimulate the economy, which expanded at the weakest pace in five years in the third quarter.

``China's energy demand growth has slowed and previously tight supplies have turned relatively ample,'' said Wang.

The shares of PetroChina Co., the nation's biggest oil producer, fell as much as 11 percent in Hong Kong trading to HK$6.43, the steepest decline in more than six weeks, and were at HK6.74 at 3:44 p.m. local time.

Datang International Power Generation Co., the biggest Chinese electricity producer listed in Hong Kong by market value, dropped 7 percent, while China Shenhua Energy Co., the country's biggest coal miner, plunged 11 percent on the city's exchange.

``Concerns over potential oversupplies are driving coal stocks down today,'' Zhang Shun, a coal analyst at Beijing-based Bohai Co., said by telephone.

Expansion Plans

Shenhua Group Corp., China's biggest coal producer, plans to build a 4,000-megawatt coal-fired power plant in the eastern province of Shandong. PetroChina aims to start up a 12 billion- yuan ($1.74 billion) refinery in Guangxi province in the first half of 2010 to supply fuel to the country's southwest.

``The planned expansion in coal mines, power plants and refineries for this year and next is still relatively sizable, so if new projects are completed, a new round of energy oversupply is likely,'' Wang said.

China's power production slumped 7.1 percent last month, the biggest decline in more than seven years, as factories shut because of reduced exports, according to preliminary data from an internal newsletter by the State Grid Corp. of China.

Consumption of gasoline, diesel and kerosene fell about 2 percent to 18.2 million metric tons in October from the previous month, Zhu Fang, a deputy director of information at the China Petroleum and Chemical Industry Association, said on Dec. 8.

The International Energy Agency, an adviser to 28 nations, cut its 2009 forecast for Chinese oil demand in its November report by 3.7 percent to 8.2 million barrels a day. The agency yesterday predicted global oil consumption will contract this year for the first time since 1983 and lowered its outlook for 2009.

To contact the reporter on this story: Wang Ying in Beijing at wang30@bloomberg.net.