Tuesday, January 25, 2011
Time for an update on Chinese oil consumption growth. I took the annual data from the BP spreadsheet, and extended it to 2010 based on the data in the first three quarters vs the same quarters of 2009 (from the EIA Table 2.4). This next graph plots both consumption (blue, left scale in millions of barrels/day) and the annual percentage growth (red, right scale):
You can see that consumption in 2010 looks well over 9mbd, and will likely exceed 10mbd in 2011. The growth rate was somewhat suppressed during the 1998 Asian flu event and the 2000-2001 tech crash, then grew rapidly in the early 2000s, fell in the 2005-2008 oil shock, but then recovered to almost 10% - above trend - by 2010 with the moderation of prices. Chinese consumption hasn't fallen year-on-year since 1990.
What is trend growth exactly? Well, if we take the prior decade compound annual growth rate (CAGR), that looks as follow:
You can see that since the reforms of Deng Xiaoping really took hold, growth has tended to average about 7%/year on the decadal time scale. If you assume they can maintain that 7% average pace for one more decade, this is how Chinese consumption will stack up next to the United States:
I would take it as rather likely that US consumption will have to shrink further from the 2005 peak in the face of this kind of growth in China (not to mention the Middle East and other emerging markets) and given the difficulties in increasing supply much further. If so, China will exceed the US as an oil consumer sometime late in the current decade.
Finally, here's the recent history of the oil future price for December 2015:
Price calls are very difficult to make, but I think you'd have to be betting on some kind of major economic calamity in some part of the world to think we'd only be paying $95/barrel for oil in 2015. In particular, US consumption seems to have grown about 2.1% in the first three quarters of 2010 (over 2009) at $80ish oil, and despite an anaemic recovery. Since I don't see how US consumption can grow over the next decade on average, it seems like prices will have to go higher to prevent that.