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China Will Force the World Off Oil

by
August 23, 2010

As a country’s per capita income increases, its per capita oil consumption increases. Consumption growth tends to be modest up until $15,000 income per head, but then accelerates rapidly. China is quickly approaching this point. South Korea, which consumes 3% of world oil output, is too small to disrupt oil markets.  China is too big not to disrupt them.  Were China’s per capita oil consumption to be brought up to South Korea’s, its share of global consumption would increase from today’s 10% to over 70%.  In order to cap China’s share at 22%, which is the U.S. share today, global oil output would have to increase by a massive 13% per annum over ten years – well beyond the 1% growth averaged since 1975.  This rate of growth is inconceivable, even if vastly more expensive sources of supply, such as the Canadian oil sands, were developed at breakneck speed.  If China’s recent economic growth pace continues, it will surpass South Korea’s current per capita GDP shortly after 2020 – meaning that the world may be forced onto alternative energy sources much sooner than it realizes.

IEA: China Overtakes the U.S. in Energy Consumption
FT: Decoding China’s Modesty
FT: China’s Jump Signals Shift in Global Power

Post a Comment 7 Comments

  • Posted by Negvex

    Oil demand/prices over the next decade will to a large degree be driven by emerging economy demand at the margin. Here is another 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

  • Posted by Jeffrey J. Brown

    The key metric is the global supply of net oil exports, and a simple model, and multiple case histories, show that given a production decline in an oil exporting country, the net export decline rate tends to exceed the production decline rate, and the net export decline rate tends to accelerate with time. For more info, do a Google Search for Net Oil Exports + Jeffrey Brown.

    Our projection is that at their current rate of increase in net oil imports, “Chindia’s” combined net oil imports in 10 years will be equivalent to about 100% of the combined net oil exports from Saudi Arabia Russia, Norway, Iran and the UAE.

    Our forecast is that the US is well on its way to becoming free of its dependence on foreign sources of oil–just not in the way that most people anticipated.

  • Posted by Jonathan Callahan

    Interested readers may wish to review the oil production and consumption trends of various nations at the Energy Export Databrowser.

    Data from the latest BP Statistical Review are presented as a series of intuitive graphics that allow one to get a quick overview of energy trends for coal, oil and natural gas.

    There is nothing like looking at actual data to get a better understanding of how close we are to “peak oil” and. more importantly for OECD nations, “peak exports”

  • Posted by Ashfaq Shaikh

    Just curious..in cas eof China…does these ratio matter…with such huge population combned with high growth rate..doesnt it have to be in absolute numbers…

  • Posted by Gregor Macdonald

    Thanks for you chart. The public was offered this thesis at The Oil Drum, back in July:
    http://www.theoildrum.com/node/6699

    Because oil has not increased in supply in 6 years now, oil is no longer available to fund global growth. This is why the developing world has turned to coal.

    A full discussion of your chart, and the Kopits discussion cited above, would come to the following general conclusion: China can *start* down the road of previous consumption trajectories–but it will never complete historical oil adoption trajectories.

    G

  • Posted by Sun Connect

    I’ve never felt as optimistic about the potential for rapid uptake of renewable energy as I do now after reading this article.

    When faced with this stark reality China has no choice but to act. The ‘necessity is the mother of invention’ mantra really shines in this case. Combine this with the ability of China’s governmental system to enact massive social free from the constraints of time-consuming public consultation, and it seems as if the world is on the cusp of something big.

  • Posted by Talha Jamshaid

    This is a good effort..I also wrote an article about the analysis of Global Oil Prices..The

    link is below..

    http://authorshive.com/2010/11/23/oil-prices-hit-high/

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