Douglas-Westwood Warns Congress On Chinese Oil, Gas Demand

May 2011, Vol. 238 No. 5

Speaking before the House of Representatives’ subcommittee on Energy and Power’s hearing regarding “The American Energy Initiative”, Douglas-Westwood LLP’s Managing Director Steve Kopits gave dire warnings about the likely development of China’s future energy demand.

“China’s oil demand will likely keep pressure on oil prices for the indefinite future,” said Kopits. “China consumes 10 million barrels of oil per day (MMBpd) on global consumption of about 88 MMBpd. it is already the second-biggest consumer of oil in the world . We see China surpassing U.S. consumption levels around 2018.”

On supply Kopits stated, “China’s conventional oil fields are mature. Today, it must be active in global markets to secure domestic needs and the situation will deteriorate markedly in the coming decade. By 2020, China’s dependence on foreign oil may be as much as 80%, vs. an anticipated 40% for the U.S. China’s vulnerability is cause for concern for the country’s policymakers.”

Turning to natural gas, Kopits said, “China consumed only 3.9 Tcf of natural gas in 2010. The U.S. consumed six times as much. China’s per capita consumption is about 1/26th of the U.S. As a consequence, there is considerable scope for rapid consumption growth in China.

“China’s natural gas demand surged 22% last year and growth has averaged nearly 15% over the last decade and we anticipate this pace to continue. This would imply demand doubling to 2015, nearly quadrupling to 2020. China’s natural gas production has tripled in the last decade, a growth rate of 13.3%.

“We project this to double in 2015 and nearly triple to 8.6 Tcf in 2020, implying 10% annual growth. Coal bed methane and shale gas are hoped to each constitute 5-10% of the natural gas supply in 10 years time. As late as 2006, China was self-sufficient in natural gas. However, the country has been a net importer since then, with imports soaring to 550 Bcf in 2010,” he said.

Commenting on the future outlook, Douglas-Westwood’s Chairman, John Westwood, said, “The U.S. citizen uses twice the amount of oil per annum than a European and 10 times the amount of a Chinese citizen – but Chinese demand is growing strongly. We face a future where China needs to fuel its economic development and it is likely that can only be achieved by outbidding the West for the world’s increasingly limited oil supplies.

“The effect on oil prices will have major consequences not only for the U.S., but indeed for the entire global economy in the years ahead. The impact of recent dramatic events in Japan and the Middle East on oil prices are merely warnings of the shape of thing to come. The days of cheap oil are over and America needs to sit up and take notice. So it is good to see the Obama administration endeavoring to address the serious challenges posed by the nation’s excessive use of energy. To secure its energy future, America needs to produce more and use less.”