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27 comments on Is this the Economic stage of the Peak?

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TI on November 22, 2005 - 4:15am Permalink | Subthread | Comments top
We have here the problem of the Chinese domestic production. It is about to peak very soon, quite possibly this year or next. This will surely increase the Chinese import demand. Much depends on the world economic growth. If the growth continues and the prices do not rise the demand will increase.

We have quite high oil prices volatility and this makes the demand foreacasting very difficult. It is not very likely that we would now have an oil glut. There is also the natural gas problem. Oil may again become a rational alternative to gas there where gas prices are real high and no other fuels (coal) are not easily avalaible.

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Twilight on November 22, 2005 - 6:05am Permalink | Subthread | Parent | Comments top
I had read somewhere that the Chinese had made reat efforts to reduce demand growth recently, but that these efforts appeared to be coming to an end.  I wish I could remember where I saw that.  The gist was that they were having too many other negative effects and could not be sustained.
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Jack on November 22, 2005 - 8:06am Permalink | Subthread | Parent | Comments top
It is more compex than that. The Chinese, like most countries, have some programs in place to reduce energy demand. However, they subsidize gasoline at the retail level, which is a massive incentive to use more. I think it would be inaccurate to say that the Chinese are doing much at a system level to reduce their dependence on oil.
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Twilight on November 22, 2005 - 8:44am Permalink | Subthread | Parent | Comments top
Thanks for the feedback - I've been wanting to investigate that further.  I suppose it would be more instructive to look at actual Chinese energy use compared to, say growth in their GDP, and see what the results are.
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TI on November 22, 2005 - 3:41pm Permalink | Subthread | Parent | Comments top
Domestic coal is the main energy source in China - over 70%. Oil makes most of the rest and half of it is produced home and the other half is imported. So the share of oil in the Chinese energy mix is lower than the world or US average. China is very self-sufficient in energy - 94%. And of course the oil use per capita is very low.

We could say that China has succeeded at least somewhat to curb oil consumption. But it is developing rapidly and this is more difficult than before. Even if China keeps the share of oil in its energy mix constant, a 10+ % economic growth means that the oil consumption rises. China has little domestic natural gas, so there are not many choices. The Chinese oil consumption has grown roughly at the same pace as GDP. Now, if Chinese domestic oil production (3.4 mbpd 2004) starts to decline this means increasing market demand and a decreasing supply.

More, the all important Chinese coal production growth seems to be slowing down somewhat from the present (10%) level. This would increase import demand, also for oil.

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Leanan on November 22, 2005 - 4:27pm Permalink | Subthread | Parent | Comments top
Yup.  In July of 2004, there was an article in Discover magazine about China's attempts to clean up their environment. Their country is being decimated by pollution. Sulfuric acid generated by their coal-burning plants (which provide 75% of their energy) is killing their crops. Deforestation and erosion is causing huge dust storms. They want China to be greener (especially for the Olympics).

The article said that they plan to quadruple the size of their economy by 2020, while "only" doubling their use of coal. The article talked about solar and wind, but I have to think that oil is also a big part of their plans. No way can solar or wind provide that much energy.

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TI on November 23, 2005 - 3:48am Permalink | Subthread | Parent | Comments top
"The article said that they plan to quadruple the size of their economy by 2020, while "only" doubling their use of coal." This would mean that should produce about 4 billion tons of coal or 4 times the US current production. This is not possible. In fact the Chinese coal industry is predicting a far lower growth of coal production during the next few years.

China needs a lot more oil, that's for sure.

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Dave Cohen on November 22, 2005 - 3:43pm Permalink | Subthread | Parent | Comments top
Oh, TI, I wouldn't worry about that Chinese production.
China will produce 180 mln tons of crude oil in 2005 and proven oil reserves continued to grow year on year, [director of the foreign trade department of the Ministry of Commerce] Lu said.
And China Daily--which I regard as an official source if there ever was one--agrees that demand growth is falling
It is estimated that China will import 130 million tons of crude oil in 2005, rising only six percent year on year. This means the rate of growth of oil imports has dropped 30 percent, said Lu.

China imported 120 million tons of crude oil in 2004, accounting for 40 percent of its oil consumption.
And higher prices? Here's Lu again:

"Lu Jianhua, Director of Foreign Trade Department of the MOC, told the Asian Business Forum held recently, that it is unfair to blame China for rising international oil prices."

But really, China is feeling pinched. Check out the cited China Daily article.
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jkissing on November 22, 2005 - 10:09pm Permalink | Subthread | Parent | Comments top
I noticed earlier that this article has several inconsistencies, not least that 130/120 = 1.083.  And, 8.3% is not that much less than their growth rate.
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TI on November 23, 2005 - 3:53am Permalink | Subthread | Parent | Comments top
Yes, BP statistics show an average 2% growth of the Chinese domestic oil production during the recent years. The share of domestic oil of consumption is falling anyway. The Chinese may try to curb the demand of oil, and they may be even successful in this, but the Chinese economic growth is so high that it makes the demand go up anyway.
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