Reviewing key stats in China O&G for 11M16

Deutsche Bank Markets Research Asia China Energy Oil & Gas Industry China Oil & Gas Monthly Date 6 January 2017 Periodical Reviewing key stats in China O&G for 11M16 11M16 oil/gas/gasoline/diesel/ethylene demand +6%/+12%/+3%/-7%/+3% YoY ________________________________________________________________________________________________________________ Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016. Johnson Wan Research Analyst (+852 ) 2203 6163 johnson.wan@db.com Vitus Leung Research Analyst (+852 ) 2203 6158 vitus.leung@db.com Top picks Sinopec (0386.HK),HKD5.71 Buy SEG (2386.HK),HKD6.36 Buy Source: Deutsche Bank Companies Featured Sinopec (0386.HK),HKD5.71 Buy PetroChina (0857.HK),HKD5.97 Buy CNOOC Ltd (0883.HK),HKD9.96 Hold SPC - H (0338.HK),HKD4.28 Buy Sinopec Kantons (0934.HK),HKD3.56 Buy Sinopec Oilfield Service (1033.HK),HKD1.53 Hold China Oilfield Services (2883.HK),HKD7.34 Sell Hilong Holding (1623.HK),HKD2.06 Hold SEG (2386.HK),HKD6.36 Buy COOEC (600583.SS),CNY7.65 Hold China BlueChemical (3983.HK),HKD2.08 Buy Sinofert (0297.HK),HKD1.06 Hold QSLI (000792.SZ),CNY19.73 Hold Source: Deutsche Bank Valuation & risks We value our China oil and gas companies with DCF and SOTP models. Risks: 1) oil and gas price volatility; 2) regulatory reform. Source: Deutsche Bank Related recent research Date Read-across Sinopec gas pipeline sale; Buy Kantons on tariff reform Johnson Wan, Vitus Leung 14 December 2016 China Energy Day takeaways: OFS surprises and teapots are a real threat Johnson Wan, Vitus Leung 29 November 2016 VAT rebates for refined product exports most +ve for major refiners Johnson Wan, Vitus Leung 09 November 2016 China Fertilize: Finding support but limited upside on global supply gluts; sole Buy - CBC Vitus Leung, Johnson Wan 02 November 2016 Source: Deutsche Bank We review China’s O&G statistics for 11M16 as we head into 2017. 11M16 crude oil demand and throughput grew 6% YoY and 3% YoY respectively, with c.240mmbbl going to inventory/SPR builds. Oil demand grew by 0.5mmb/d, accounting for 37% of c.1.35mmb/d global demand growth, and DB expects further 0.4mmb/d growth from China in 2017. However, domestic crude production is set to fall in 2017 after shedding 7% in 11M16, raising China's reliance on imports. For refining, teapot refiners will continue to ramp up in 2017, with potential for another 23mt of crude oil import quota to be granted (74mt by Dec). Teapots' run rate surged from 40% at year-start to 60% in Dec. E&P: Seasonal pickup in gas demand amidst cold winter and SPR fills resumed Natural gas demand in Nov grew to its highest levels since Feb, up 16% MoM as a result of strong winter demand. LNG import was the strongest month ytd and grew 46% YoY. Alongside a gas price hike announced by PetroChina in Nov, which is c.10-15%, import prices for LNG and piped gas nudged up only 2% MoM. Crude oil throughput continued its seasonal retreat, down 3% MoM. However, crude oil’s apparent demand rebounded to 8% MoM with SPR fills, resuming after a pause in Oct. Domestic oil production remained sluggish, down 9% YoY and flat MoM, despite the Nov rebound in oil prices. Refining: GRM plunged in Nov; teapot run-rate moves to a new height In Nov, China GRM fell by 18% MoM to USD8.7/bbl compared to SG complex GRM which surged by 31% MoM to USD7.8/bbl. China GRM’s premium to SG complex GRM narrowed to USD0.9/bbl (down from USD4.6/bbl in Oct). China’s refining throughput was at +4.7% YoY and -2.7% MoM. For 11M16, gasoline/diesel/kerosene apparent demands were +3.0%/-6.6%/+9.6% YoY. In Nov, major refiners run rate dropped by 1.2%-pt MoM to 78% while teapot refiners’ surged by 3.2%-pt MoM to 52%, which climbed further to a new high of 60% in mid-Dec. Conversely, MoF issued guidance on ceding windfall refining profits when the oil price fell below US$40/bbl, which is in line with our view as we have not factored any windfall refining profits in our models. Chemicals: Bulk spreads surge except for ethylene and propylene Ethylene and propylene spreads fell by 9.1% and 8.8% MoM in Nov. Conversely, butadiene spread rose by another 13% MoM in Nov after a 14% surge in Oct. Other key product spreads surged ranging from 1.2% to 68% led by styrene, benzene, and MEG of 68%, 24%, and 19%. Ethylene spread in 4Q16 averaged USD669/ton, down 8% QoQ and is the lowest since 2Q