Tuesday, January 25, 2011

Chinese Oil Consumption Growth

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.


KLR said...

Thought I'd see how their component consumption has changed, assuming EIA had any numbers for 2007; latest I had on my big spreadsheet is 2006. Indeed they do, but I also noticed that the preceding years had been sharply revised downward from what I'd noted in April of last year.

Well, checking further, the entire series for Chinese consumption has been massively revised - including numbers as far back as the EIA provides, ie 1986, for the individual components (gasoline, distillates, etc, as opposed to the total).

Why on Earth did they do such a thing? Answer's simple, of course - someone in the DOE has been reading stuff I've posted at TOD. The new component numbers now neatly match the total given, unlike the old ones, as I pointed out last September.

What? You have a better answer? Keep in mind some sharp and high profile commentators read TOD, Steve Kopits and the like. Maybe word got out. Also keep in mind what a nerd Obama is. Our first POTUS who reads Spider Man comics. A greater attention to detail might be part and parcel of this regime. Also China is such an important part of how the world turns these days. Add 'em up and you got some serious bookkeeping going on.

Will have to check and see if other nations have gotten similar Total Makerovers. Previously I'd only analyzed major members of the OECD in this manner, but it would be a snap to just compare whole sheets downloaded from the EIA.

KLR said...

For the curious: My spreadsheet, OpenOffice .ods file, 1.5 mb. "China" tab is in the middle. As stated above I created this sheet in April of last year.

Alexander Ac said...


I think the price will CRASH to prevent that,


IrishVirtue said...

Something worth considering is that growth costs money.

To sustain its 7% and 10 year target of matching the US, Chinese investors/industry will be charged with the higher costs of oil that they are responsible for rising. This will have the obvious affect of slowing growth.

the fear is that China's economy may be growing too quickly to the point where few businesses will afford to operate.

Double price of energy = cuts in profit = slowed expansion/Research/development/growth.

I wouldn’t be surprised if huge Chinese government subsidies were introduced to cover the energy costs of select industries and businesses. I mean its a political game after all and keeping face as the guy who made it happen is what gets people re-elected even if it is digging a huge hole for the bubble to burst in.

The Chinese Economic Tiger is as much a propaganda tool for politicians as it is for business speculators looking to cash in on the next big thing.

Any rise in oil costs will be reflected in lesser growth.

oni said...

"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."

Funny finding old posts by presumably very intelligent people being so so so wrong. Really puts things into perspective.

No major calamity. Just lots of new oil production. And now oil is less than half of your improbable minimum, futures contracts are barely above $60 years away, and China's economy is falling apart at the seams for obvious, predictable reasons.