When Americans are asked what country first comes to mind when thinking about the oil industry, first on the list would be probably be Saudi Arabia or Iraq – at least somewhere in the Middle East. Some might think of the long-time oil power, Russia. The Washington Post reports, however, that anyone interested in investing in oil should understand that the key nation for the future of the oil industry is not one of the big producers, but China, the fastest growing consumer.
The U.S. remains the largest consumer of oil in the world, using 18.95 million barrels per day in 2011, according to the U.S. Energy Information Administration. But China has caught up quickly, reaching 9.8 million barrels per day in 2011 – more than half that of the U.S. – after having used less than 5 million barrels per day as recently as 2001.
The more important point, however, is not how quickly consumption in China has already grown, but where it seems likely to go from here. Current estimates suggest that U.S. oil consumption would still amount to more than 60 barrels per day per 1,000 people, even despite major declines in demand over the past decade. Meanwhile, with more than four times America’s population, China remains in the single digits at around 7 barrels per day per 1,000 people.
As the Chinese economy continues to grow at a staggering pace, if slightly reduced from recent years, more fuel will be needed for manufacturing and transportation, while wealthier workers will be able to spend more on oil-based products for their own needs.
In the past few years, the Post notes that Chinese oil consumption has risen steadily at 7 percent annually. If that trend continues over the next decade – optimistic, but hardly unachievable – the country’s consumption could reach as high as 25 million barrels per day by 2025. That would be more than 4 million barrels per day more than the highest level of consumption ever seen in the U.S.
According to The Wall Street Journal, the Organization of the Petroleum Exporting Countries already projects China will become the single largest oil importer in the world by 2014, thanks to relatively limited domestic production compared to the U.S.
“With the shale boom in the (U.S.) threatening to drastically reduce America’s oil-import needs, China is expected to take its place in the number one spot,” OPEC said in a report.
And all of this ignores the ongoing growth from countries like India, Brazil, the Philippines and other developing economies.
China has started ramping up efforts to increase its domestic energy production, with UPI reporting that China National Offshore Oil Corp. has started oil exploration in the South China Sea and increased efforts going toward unlocking the nation’s well-known shale gas deposits.
Given that booming production from the Bakken shale formation in North Dakota still amounts to less than 1 million barrels per day – closer to 700,000 barrels – the Post suggests that higher oil prices are the only possible result over the coming decade.
Many might imagine that this would mean the poorer developing economies would be priced out of the market, but the more likely scenario is that developed countries will start to curtail their own consumption, as they gain a lesser benefit from the oil than the less developed nations. This suggests that it will become increasingly important over the coming decade for oil investments to come along with sufficient transportation capacity to ship oil abroad in order to take advantage of heightened international prices.
This issue is highlighted by the recent spread that has developed between Brent and West Texas Intermediate crude oil prices.