October 23, 2009

Will Chinese oil demand grow? Part 2

The concern is often heard that growing oil consumption in China will necessarily cause demand for oil to skyrocket, regardless of supply or pricing, such that other countries will be forced to settle for a smaller share of the oil production pie. So, what does the Chinese history of oil consumption tell us?

Average oil consumption in China in 2007 was 7.29 million b/d. In 2008, when oil prices peaked, Chinese consumption fell to 6.92 b/d. When prices fell again in 2009, consumption rose to 7.84 b/d. Source: http://www.peakoil.nl/wp-content/uploads/2009/10/2009_October_Oilwatch_Monthly.pdf

So, we see that Chinese oil demand does indeed respond to supply and demand.

1 comment:

Anonymous said...

Oil demand/prices over the next decade will to a large degree be driven by emerging economy demand at the margin. Here is a simple thought experiment using Chinese demand to generate some rough “back of the envelope” forecasts:
- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year over the next 30 years
- No peak in global production

Result: In next 10 years we must find 44 million BOPD - 26 million BOPD to maintain supply and 18 million BOPD to keep up with demand increases.

If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years – most likely something would give far before that price level:
- Oil demand elasticity of -0.3
- Current production 84 million BOPD, current price US$ 80
- Peak production 100 million BOPD
- Post peak decline rate of 3-4%

If you want to try the china oil demand or the peak oil models for yourself using your own assumptions they can be found at Enquirica in the “Research” section: http://www.enquirica.com/index.php?option=com_content&view=article&id=11&Itemid=13