China's Petroleum Demand Rising Dramatically

Jim Brown
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In the last 20 years China's oil demand has risen nearly 400% and the rate of increase accelerates every year. At the current rate China will consume more oil than the USA by 2020.

Everyone seems to be worried that China is going to slow their economy to the point where global growth will suffer. Every news story out of China regarding new policy moves by the government always brings a wave of volatility to the markets. We should not worry over China's future on oil demand. The first reason is simply China needs to continue its growth at a frantic pace to keep the country running. Everything in China is moving so fast it would be the equivalent of stepping off a treadmill at 10 miles per hour. They have to slow the economy gently and they can't afford to go much below 8% GDP.

Secondly it is not the government stimulating the economic rate race. It is the Chinese consumer. The demand for cars is off the charts in the 30% to 40% annual growth range. In Beijing on Wednesday they held the first ever car license plate lottery. 210,178 people put in a request for a license plate and the government drew numbers to award ONLY 17,600 plates. Beijing will allow only 240,000 new plates in 2011, one-third the rate in 2010, in an effort to slow down the rapid pace of auto sales and the accompanying congestion. More than 800,000 new cars were registered in Beijing alone in 2010.

Televised License Plate Lottery in Beijing on Wednesday

The government has raised parking fees and begun enforcing stricter traffic rules in an effort to cut down congestion. This may work temporarily but consumers will find a way around the restrictions and find a way to buy a car. More than 80% of Chinese consumers say they want to own a car soon (5-7 years) but less than 10% own cars today. That is 80% of a very large number of driving age consumers. At China's current rate of auto sales (12.5 million annually and growing rapidly) it would take decades to fill the need. Serious buyers today have to put down the equivalent of $20,000-$25,000 as a deposit and then wait six months to a year for delivery because of the volume of backorders.

These facts illustrate the inability of the Chinese government to really stem the tide of growing consumer purchases. Even if China could slow auto sales by 10% it would still not dent demand. It might push China move into the world's number one oil consumer position out to 2021 instead of 2020 but it will happen.

Comparison of USA demand to China's demand

Chinese oil consumption has not fallen year-over-year since 1990 and odds are very good it would not decline in this decade except for one important fact. China can't go from nine million barrels per day in consumption to 19 million over the next nine years because that much oil does not exist in a form that can be quickly produced.

This is the irresistible force of China's demand hitting the immovable object of a limit to how much oil the world can produce. Estimates of demand for 2011 are now 89.1 mbpd. That would be a record and it appears we have enough oil and other petroleum liquids like natural gas liquids to make it happen. With demand growing at the rate of 1.5 mbpd, and probably more once the global recovery finds some traction, we are quickly going to run out of excess capacity. Estimates are as soon as the summer of 2012 or as late as 2014. One such system has been put together by Helix Energy and they claim it is fully operational and available for duty. A separate and more comprehensive system put together by Exxon and a consortium of major oil companies won't be ready for several more months and cost over $1 billion. The government said neither system has been referenced in any deepwater applications.

Consulting firm Wood Mackenzie said on Tuesday as many as 3.1 billion barrels of reserves are at risk. Further delays and increasing expenses will make these reserves unprofitable to produce. WM also said the continued delay of the permitting process for the rest of the year could reduce Gulf oil and gas production by 680,000 bpd by the end of the decade. Every action today or maybe I should say "non-action" postpones future production for years into the future. With six rigs leaving the Gulf those projects will be put on hold for years until the permitting process opens up again and future rigs are acquired to be tasked to those projects.

When peak oil hits in a couple years we are going to be wishing we had that 680,000 bpd.

Jim Brown

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The OilSlick Newsletter is based on the expectations for global oil production to peak and begin to decline in the 2012-2014 timeframe. This is called "Peak Oil." This is the point where global production of conventional oil supplies can no longer be supplemented by enough oil sands production, deepwater oil production, biofuels and natural gas liquids to offset the decline in existing fields. The roughly 6% annual decline of existing production due to depletion is larger than the rate of new discoveries and new production being added each year. The Peak Oil countdown clock is ticking and time is growing short. Peak Oil is coming, are you prepared?