Monday, April 29, 2013

Extrapolating China's Oil Consumption

Here is a graph of China's oil consumption according to two data sources.  The annual data run 1965-2011 (2012 is not available yet):

This has obviously grown hugely.  If we look at the average growth rates over the prior decade at each year, that looks as follows (blue curve, left scale):

Growth has been stable in a band between 6% and 8% for several decades, with 7.2% being the figure for the latest decade available.  The red curve on the right scale shows real oil prices over the same time period, demonstrating that Chinese oil consumption growth going back into the eighties is not at all price sensitive.

If we note that Chinese population is four times larger than the US population, and 2011 US consumption was almost 19mbd, we see that Chinese per-capita consumption is still only something like 1/8 of that of the US.  So there's a lot of room to grow still.  Also, China is in the middle of building an expressway system that will be substantially larger than the US freeway system.

If, then, Chinese consumption were to continue to grow around 7% out through 2025, it would look like this:

That's another 15mbd in the next thirteen years or so.  Just for China.  If you compare this to things like the extra 4mbd you might hope for from tar sands in this time frame, or the 2mbd that global crude supply has increased since 2005, you can see that this is going to stress the global oil system a lot.  Either the global crude supply is going to grow a lot faster than it has been, or OECD oil consumers are going to have to consume a great deal less than they are now, or China (and other rapidly growing consumers) are going to have to slow down a lot.

Whichever is the case, it's hard to see how any combination of the above happens on the necessary scale without prices a lot higher than the $100-$120 we've been paying in the last few years.  The comparative truce in the oil markets during 2009-2013 seems like it cannot last forever.

Data-nerdish aside:

I noted a few months back that the EIA's data showed Chinese consumption falling 4% in 2011.  That didn't seem very plausible and I speculated they had some data problem.  That now seems to be confirmed as they've extensively revised their numbers and the 2011 fall has gone away.  Here's what they show now:

Here's what it was before:


Joe said...

I think that you have identified the three possibilities, but they are not exclusive. Higher oil prices squeeze OECD economies, creating less OECD demand, which also slows Chinese export growth, which slows Chinese oil demand growth.

Tougher question becomes, what are the political implications of a long-term slowing of growth in the OECD and Chinese economies; OECD countries may be able to manage as their populations age and slow in consumption, but China is a different story: too much pent-up demand and promised future consumption.

Maybe the next ten years look like the last five.

sunbeam said...

Going to be interesting. The physical supply just isn't there. Particularly since I think we are going to have a 5, maybe 10 year plateau on production, followed by a decline.

Looking at that graph makes me think I might see 15 and 20 dollars a gallon for gas.

Greg said...

This might look worse than it really is.

If 'oil' (C&C + refinery gain + heavy oil/tar sands) grows 4 Mb/d, and biofuels grow 3 Mb/d, OECD demand falls 3 Mb/d, vehicle efficiency improvement accelerates slightly over the historical 1991-2008 rate, and so does substitution (electric vehicles, LPG, Natural gas and public transport) , together taking 3 Mb/d off the top, then we're not too far away from balancing supply and demand.

So, not so bad, perhaps.

That is, until you remember that that's only China. We still have to balance demand growth in India, Brazil, SE Asian economies and in oil producers themselves.

I think we can expect a mad scramble for oil in Africa.

Emil said...

"Going to be interesting. The physical supply just isn't there."


Europe is mired in permanent depression and that will continue if they Chinese are to grow.

But even so, we've seen a deceleration of their growth rates.
Gone are the days of 10%+ growth rates. Now we're in the 7.5% camp.

But it's going to get lower. India is bouncing around 5%, too.

The tight oil boom in NA has merely kept things afloat; namely, the oil supply has been mostly flat as Stuart has shown on this blog.

Even IF the world could supply oil at those levels, in purely geophysical terms, it's going to be at very high prices, thus nullifying the possibility through economics(lack of growth, demand destruction etc).

They would need about 7 mb/d of new capacity by 2020. That's in 7 years. And this doesn't even include India, Malaysia, Vietnam and other growing countries.

Sorry, but this can't be done. Europe would have to be joined by America in a perma-depression too. And even then, China/India would need to decelerate further. I'm saying, we'll see India at 3% within 2 years and China at 5% within 3 years.

And then further downwards.

Emil said...

"If 'oil' (C&C + refinery gain + heavy oil/tar sands) grows 4 Mb/d, and biofuels grow 3 Mb/d, OECD demand falls 3 Mb/d, vehicle efficiency improvement accelerates slightly over the historical 1991-2008 rate, and so does substitution (electric vehicles, LPG, Natural gas and public transport) , together taking 3 Mb/d off the top, then we're not too far away from balancing supply and demand."

Right, but that statement is undercut by your later statement, which understands that China alone isn't enough.

Also, Brazil has had falling oil output for 10 consecutive months now. The fantasy of Brazil as an oil exporter is dying a public death right as we write this.

Secondly, biofuels isn't the same as oil. It has a much lower energy output.

Third, increasing efficiency will not "take 3 mb/d off the top". Not even close. Even if you count in electrical vehicles(which, may I remind you, sell for less than 0.01% of the market as of now).

Sorry, but you just haven't done the math on this issue.

The only thing that counts is the increased MPG of new cars but that will take a decade to seriously kick in, which puts us at around 2023-2025, which is exactly the period Stuart talks about.

But we won't see the continued growth in oil anymore. China won't be able to do it. And as you yourself wrote, we have India, SE Asia and Africa to contend with as well.

Despite very substantial increases in oil from NA, we've been basically flat. And this is because Europe is mired in a perma-depression so they've been losing oil consumption. America can cut more, since it's not as efficient and Obama took a step towards that by introducing very high fuel standards. But they kick in at 2017 and again, see previous comment about 17 years to replace a vehicle fleet.

And finally, oil in Africa? Are you kidding me? The only place there that makes sense is deep oil off the west coast. And that has gone nowhere compared to the cornucopian fantasies spun by people like yourself.

We're in a bizarre situation right now. It's a lull between two seismic events, if you can call them that. The first was the GFC of 2008. The second, much more important in my opinion, is the permanent dragdown of China and India to growth levels that would be high by Western standards but are low by their standards, around 3 to 5% for both of them.

Only by decreasing the growth rates of both countries will this be kept under control. And it will be kept under control, whether China and India wants it or not.