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Oil & Gas Journal

Sam Fletcher
Senior Writer

Days after the massive May 12 earthquake hit the Sichuan province of central China, its potential impact on world energy markets remained uncertain, but damage to hydroelectric and nuclear power plants could prove critical, analysts said.

The earthquake was reported to have damaged as many as 17 dams in Sichuan and neighboring provinces. French nuclear experts said it possibly could have damaged several nuclear fuel and research sites as well. Moreover, recovery efforts could boost demand for petroleum fuels for construction and transportation.

"Oil demand growth from 2007 to 2008 in China was recently estimated by the International Energy Agency to come in at 350,000 b/d on a base of 7.54 million b/d. In our view, the earthquake may actually add to this forecast," said Adam Sieminski, chief energy economist, Deutsche Bank, Washington.

The Sichuan province is China's main gas producer and consumer, accounting for a quarter of the country's gas production. PetroChina, the primary operator, said it had restored a third of the daily output of 6 million cu m of gas that was shut in after the quake. Sinopec's giant Chuanxi gas field in Sichuan was reported to be producing at 20% of capacity after many chemical plants were closed, up from only 10% earlier when 1,000 gas wells were shut in. As of May 15, the field was reported to be producing 1.6 million cu m/d.

OPEC's outlook
In its latest monthly market report, the Organization of Petroleum Exporting Countries still sees world economic growth at 3.9% in 2008, unchanged from the previous month amid signs that the credit crisis may be easing. Forecasts for Japan were revised slightly up, while those for the "euro zone" were slightly down. OPEC's forecast for US economic growth was unchanged at 1.1%.

"In the narrow technical sense, the US is not yet in recession. Advance figures for US gross domestic product in the first quarter still indicate positive growth, albeit at a meager 0.6% yearly rate, mainly on continued strength in exports and a rise in inventories. US payrolls in April fell for the fourth month, but the loss of 20,000 jobs was much smaller than the average of 80,000/month in the first quarter of 2008," said OPEC analysts. "Overall, the better-than-expected data and signs that the Fed's easing cycle were at an end helped lift the dollar from its lows vs. the euro and yen. Inflation continued to trouble China, India, and other emerging markets and could dampen growth in the months ahead."

Oil demand in April was "very weak" within the Organization for Economic Cooperation and Development, although winter product demand improved across Europe. US oil consumption declined sharply, due to both the slowing economy and warm winter weather, and is expected to experience the usual seasonal drop in consumption in the second quarter. "This year's summer driving season is not likely to show its normal annual growth due to the anticipated weaker gasoline demand in the US," OPEC said. "North America is forecast to be flat, while oil demand in other OECD regions is expected to decline due to weakening transport fuel demand in the second quarter."