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IEA says China oil demand increase is astonishing
Published on March 12, 2010 by oilprices · 1 CommentThe IEA has said that China’s demand for oil jumped by an astonishing 28% in January 2010 compared with the same month a year earlier. The IEA added that demand for oil in 2010 would be underpinned by rising demand from emerging markets, with half of all growth coming from Asia.
But the IEA predicted demand in developed countries would fall by 0.3%. The IEA has increased its global oil demand forecast for 2010 by 1.8% to 86.6 million barrels a day. Oil prices are currently at their highest point for two months, with US light, sweet crude above $82 a barrel and Brent crude more than $80 a barrel.
The IEA said the high price level was due to “heightening of geopolitical tensions affecting some producing countries”, but that this had been balanced by “ample physical oil supplies”.
The Paris based IEA on Friday revised up by 70,000 barrels a day its oil demand forecast for both 2009 and 2010, saying that higher-than-expected non-OECD data largely offset persistently weak OECD readings.
“Chinese officials have made it clear that the government will continue to foster strong economic growth as long as inflation remains moderate, thus raising the possibility of potential upside sensitivity for the country’s oil demand outlook,” the IEA said.
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Any discussion about oil prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand:
- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year over the next 30 years
- No peak in global production
In next 10 years we must find 44 million BOPD:
- 26 million BOPD to maintain supply – 30% of current production, almost 3 times Saudi Arabia’s output
- 18 million BOPD to keep up with demand – 22% of current production, almost 2 times Saudi Arabia’s output
If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years:
- Oil demand elasticity of -0.3
- Current production 84 million BOPD, current price US$ 80
- Peak production 100 million BOPD
- Post peak decline rate of 3-4%
If you want to try the model for yourself using your own assumptions it can be found at Petrocapita: http://www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86