China's Energy Power Play
The U.S. could lose its #1 spot in this critical segment of the oil and gas industry.
China has its sights set on taking over and is succeeding.
For investors though, the change could turn a solid growth investment into a stellar one with years of steady revenues, margins, and earnings.
Xi's So Refine
I’m talking about the oil and gas refining sector.
It’s the critical middle of the oil and gas market that turns crude oil into useful, in-demand products.
The U.S. has long been the global leader in oil and gas refining.
But China has been slowly eating away at the U.S. lead and this year could be when China takes the lead.
The American Fuel & Petrochemical Manufacturers (AFPM) has stated, “Trade press reports suggest China will overtake the United States as the country with the most refining capacity by year’s end.”
Here’s the data that shows China, if it’s not already #1, is well on its way.
It starts with the steady decline of U.S. refining capacity.
The chart below from the Energy Information Administration of U.S. refining capacity shows the decline:
It’s nothing too dramatic.
It’s the trend that’s much more worrisome.
Because U.S. refining capacity is declining at the same time the global oil industry needs to add another one million barrels per day of refining capacity.
China has seen its opportunity in refining and taking it.
The chart below Statista shows China’s refining capacity over the years:
The chart shows China has had a long-term plan.
It also shows China is on the verge of eclipsing the United States in capacity too.
China was climbing up to 17 million barrels per day and rising while the U.S. fell below 18 million barrels per day and is falling.
But that’s just the snapshot of current data.
The future will be determined by investment in refining.
That’s where China is really running away with it all.
The chart below, also from Statista, shows how much more aggressively China (dark blue) has been investing in refining compared to the North America (light green):
The difference is striking.
China ramped up refining capacity investment from $5.9 billion to $21 billion.
North America, meanwhile, saw a decline of $7.7 billion to just $4 billion.
China is basically investing five times more in refining than North America.
It will be number one.
It’s only a matter of time.
How Refiners Get Rich
As a result of all this, oil refining could be set to become a safe, reliable long-term growth sector.
We don’t see how China plays nice in this scenario.
If China flexes its muscle, U.S. and North American refiners could become extremely valuable.
And the North American refining stocks that are maintaining their capacity could be set to provide a steady stream increasing earnings and dividends for years to come.
It’s not an ideal situation for America. But it could be a good one for investors though.
