Best of the Week
Most Popular
1.Spain Ignores Scotland Lesson as Catalan Independence Referendum Could Spark Civil War - Nadeem_Walayat
2.Used Car Buying From UK Dealer Top Tips, CarMotion.co.uk Real Customer Experience - N_Walayat
3.Spanish New Civil War Begins as Madrid Regime Storm Troopers Quell Catalan Independence Rebellion - Nadeem_Walayat
4.Virgin Media Broadband Down, Catastrophic UK Wide Failure! - Nadeem_Walayat
5.Are the US Markets setting up for an Early October Surprise? - Chris_Vermeulen
6.The Pension Storm Is Coming To Europe—It May Be The End Of Europe As We Know It -John_Mauldin
7.Stock Market Crash 2018; Will it Prove to be Another Buying Opportunity - Sol_Palha
8.The Profoundly Personal Impact Of The National Debt On Our Retirements - Dan_Amerman
9.Stock Market as Good as it Gets; Like 2000 With a Twist -Gary_Tanashian
10.1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - Nadeem_Walayat
Last 7 days
“Great Rotation” Ahead; Will it Be Inflationary or Deflationary? - 21st Oct 17
The Trigger for Volatility, Rates and the Next Crisis - 21st Oct 17
Perks to Consider an Agent for Auto Insurance - 21st Oct 17
Emerging Megatrends Hurting Consumers - 21st Oct 17
A Catalyst of the Stock Market Bubble Bust - 21st Oct 17
Silver Stocks Comatose - 21st Oct 17
Stock Investors Ignore What May Be The Biggest Policy Error In History - 20th Oct 17
Gold Up 74% Since Last Stock Market Peak 10 Years Ago - 20th Oct 17
Labour Sheffield City Council Employs Army of Spy's to Track Down Tree Campaigners / Felling's Watchers - 20th Oct 17
Stock Market Calm Before The Storm - 20th Oct 17
GOLD Price Creates Bullish Higher Low - 20th Oct 17
Here’s the US’s Biggest Vulnerability in NAFTA Negotiations - 20th Oct 17
The Greatest Investing Lesson Learned from the 1987 Stock Market Crash - 20th Oct 17
Stock Market Time to Go All-in. Short, That Is - 19th Oct 17
How Gold Bullion Protects From Conflict And War - 19th Oct 17
Stock Market Super Cycle Wave C May Have Started - 19th Oct 17
Negative Expectations, Will the Stock Market Correct? - 19th Oct 17
Knowing the Factors Affect your Car Insurance Premium - 19th Oct 17
Getting Your Feet Wet In Crypto Currencies - 19th Oct 17
10 Years Ago Today a Stocks Bear Market Started - 19th Oct 17
1987 Stock Market Crash 30th Anniversary Greatest Investing Lesson Learned - 19th Oct 17
Virgin Media Broadband Down, Catastrophic UK Wide Failure! - 19th Oct 17
The Passive Investing Bubble May Trigger A Massive Exodus from Stocks - 18th Oct 17
Gold Is In A Dangerous Spot - 18th Oct 17
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Energy Sector: Crude Oil Demand from China , India , Rockets Upward

Commodities / Energy Resources May 19, 2008 - 06:53 AM GMT

By: Joseph_Dancy

Commodities Best Financial Markets Analysis ArticleLong term supply and demand trends continue to keep energy prices elevated. The easiest to locate and cheapest oil to produce on the global scale has been for the most part found. Many of the major older fields are in decline. New production tends to be more expensive to develop, and access to potential fields is increasingly restricted by nationalistic concerns as governments try to control resources to benefit their own citizens. In many areas a shortfall of drilling and production equipment exists.


Demand for crude oil and liquefied natural gas (LNG) continues to rocket ahead, especially in dynamic economies that are continuing to grow even in the face of the slowing U.S. economy. Last month we saw the following developments in the energy sector:

•  China 's consumption of crude oil and refined oil products both hit record highs in the first quarter of the year according to statistics released by the China Petroleum and Chemical Industry Association. China 's consumption of oil products - composed of gasoline, diesel and kerosene - rose by 16.5 percent year on year in the first three months. Crude oil consumption rose by eight percent. (Xinhua)

  • Chart 3: Chinese crude oil importsData released recently by Chinese customs authorities show a surge in the emerging giant's oil imports in March. On a year-over-year basis, China 's crude oil imports rose 25 percent in March. Although there have been reports of diesel fuel shortages in China, the gains in China's oil imports may owe to inventory accumulation in anticipation of the Olympics rather than a dramatic acceleration in its oil consumption. ( Dallas Federal Reserve)
  • According to well known academic energy economists in China , the 14 largest oil fields in the world, which together account for a fifth of global output, are all showing declining production. These old fields, where the cost of producing each extra barrel of oil is just a few dollars, are having to be replaced by new more expensive fields. (MSN Money)
  • With China 's crude demand expanding at 11 per cent a year the country will soon replace the US as the world's biggest oil importer. The growth of India 's oil demand isn't far behind. These two nations account for a third of humanity. And as economic development continues, the energy needs of their factories - along with those in Brazil , Mexico and other populous emerging markets – will escalate. As these countries get richer the number of cars in the world, now around 625 million, is set to double in less than 20 years. The impact of that on global oil demand will be immense - around 70 per cent of current crude output is used to fuel autos. (Telegraph)

•  In 2008 China , India , Russia and the Middle East for the first time will consume more crude oil than the U.S. , burning 20.67 million barrels a day this year, an increase of 4.4 percent over year earlier levels, according to the International Energy Agency. U.S. demand will contract 2 percent to 20.38 million barrels daily, the IEA forecast. (Bloomberg)

  • China , the world's second-biggest energy user, will consume 7.89 million barrels of oil a day in 2008. China 's passenger car sales jumped 22 percent to 6.3 million last year and may rise 16 percent to about 7.3 million this year. India will use 2.9 million barrels of oil a day in 2008, more than is pumped by OPEC member Venezuela . (Bloomberg)
  • The average person in China consumed less than 20 percent as much energy as the average American in 2005, the latest year data is available, according to U.S. Energy Department. In India , energy use is less than 10 percent of America 's on a per capita basis. The 2.45 billion people in China and India combined used only half as much crude as 300 million Americans last year. (Bloomberg)
  • Chart 1: Real Oil Price above post-WWII highRussia 's economy is expected to grow 7.1 percent this year and Middle Eastern economic growth will probably accelerate to 6.1 percent this year from 5.8 percent in 2007, according to the International Monetary Fund. Oil demand and economic growth are strongly correlated. Oil demand in the Middle Eastern region will surge 5.8 percent to 6.97 million barrels a day this year, according to the IEA.
  • World oil production has stagnated at about 85-million barrels per day over the last two years, with growing demand met by increases in natural gas liquids. Growing demand in China , India , Russia and the Middle East will more than offset declines in the industrialized world. “Millions of new households will suddenly have straws to start sucking at the world's rapidly shrinking oil reserves,” according to an energy analyst. (Globe & Mail)
  • The future supply of Russian oil is threatened by a likely decline in production levels one of the country's top oil executives warned last month. Lukoil's Leonid Fedun said $1 trillion would have to be spent on developing new reserves if current output levels were to be maintained. Recent figures show Russian output fell 1% in the first quarter of 2008, and several experts expect the production decline to accelerate. (BBC News)
  • Crude oil prices continued rising last month, with the benchmark West Texas Intermediate (WTI) crude oil setting new records last month. Real oil prices also hit all time highs. (Dallas Federal Reserve Bank)
  • U.S. natural gas prices are poised to head higher over the long term as commercial demand increases according to a report issued by the Federal Reserve Bank of Dallas last month . The report noted that domestic natural gas prices are depressed compared with the fast-rising prices commanded on the international market for liquefied natural gas, selling for between $18 and $19 per million cubic feet, about twice the domestic price.

"Much higher natural gas prices seem likely even though U.S. producers are thought to be sitting on sizable supplies of undeveloped resources," the bank said. "A recovery in U.S. manufacturing should sharply boost natural gas demand. Once LNG imports become the marginal source of U.S. supply, much higher international natural gas prices should prevail."

•  The growth in global oil demand over the last five years has dwarfed the increases in global oil supplies from non-OPEC nations (see chart at right). As demand continues to rocket upward the incremental excess global productive capacity continues to shrink, which helps support higher prices. (Financial Times)

•  Production associated with the damaged Independence Hub in the offshore Gulf of Mexico remains shut-in at month end. The facility has been shut-in for three weeks while repairs are completed, a process expected to be finished in the first half of May. Until that time about 900 million cubic feet (MMcf) per day of supplies will not be available to the market. (Cattle Network)

•  Liquefied natural gas (LNG) imports to the U.S. continue at a level well below last year's volumes. An average of 0.9 billion cubic feet (Bcf) per day was imported during April, less than one-third of the 3.2 Bcf per day imported during April 2007. Although deliveries are expected to increase in the month of May, there has been a sharp reduction in import levels so far in 2008. LNG deliveries totaled about 116 Bcf through April 2008, while volumes reached about 283 Bcf during the comparable period last year. LNG cargoes are heading to Europe and Asia, where buyers continue to purchase LNG at much higher prices than those that have prevailed in U.S. markets. (Cattle Network)

  • Hurricane forecasters from Colorado State University last month raised the number of storms they expect this year to 15, including eight hurricanes, half of them major. The Gulf Coast , home to dozens of oil and gas fields and a large share of the U.S. refining capacity, has about a 45 percent chance of being hit by at least one major hurricane. That compares with a historical average of about 30 percent. (Bloomberg)

AccuWeather.com Hurricane Center meteorologists also released a preliminary hurricane season forecast for 2008 last month. They believe the waning La Niña conditions and a continued warm water cycle in the Atlantic Basin will be the two defining factors influencing the 2008 hurricane season, causing the number of storms to be slightly above average. More importantly, these factors will increase the chance for landfalling storms in the United States

The third forecast released last month comes from the British group Tropical Storm Risk. They forecast percentages of storms, but come up with something similar: 14.8 named storms, 7.8 hurricanes, and 3.5 intense ones. They also see an enhanced U.S. landfall risk.

Regardless of how accurate or inaccurate these forecasts prove to be the fact is we have seen eight Category 5 Atlantic hurricanes in the past 5 years. And last year, two Category 5 hurricanes -- the most intense on a five-tier scale -- made landfall in the Atlantic Basin for the first time ever. The frequency of intense storms is off the charts statistically when compared to historical records.

An anomaly perhaps, but should a Category 5 storm strike in an area populated with a high density of oil refineries, oil and gas fields, or for that matter people, the outcome could be catastrophic.

By Joseph Dancy,
Adjunct Professor: Oil & Gas Law, SMU School of Law
Advisor, LSGI Market Letter

http://www.lsgifund.com

Email: jdancy@REMOVEsmu.edu

Copyright © 2008 Joseph Dancy - All Rights Reserved

Joseph R. Dancy, is manager of the LSGI Technology Venture Fund LP, a private mutual fund for SEC accredited investors formed to focus on the most inefficient part of the equity market. The goal of the LSGI Fund is to utilize applied financial theory to substantially outperform all the major market indexes over time.

He is a Trustee on the Michigan Tech Foundation, and is on the Finance Committee which oversees the management of that institutions endowment funds. He is also employed as an Adjunct Professor of Law by Southern Methodist University School of Law in Dallas, Texas, teaching Oil & Gas Law, Oil & Gas Environmental Law, and Environmental Law, and coaches ice hockey in the Junior Dallas Stars organization.

He has a B.S. in Metallurgical Engineering from Michigan Technological University, a MBA from the University of Michigan, and a J.D. from Oklahoma City University School of Law. Oklahoma City University named him and his wife as Distinguished Alumni.

Joseph Dancy Archive

© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

posvex
08 Jul 10, 23:07
China at the Margin

Any discussion about oil prices/demand 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 to generate some rough “back of the envelope” forecasts:

- 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

Result: In next 10 years we must find 44 million BOPD - 26 million BOPD to maintain supply and 18 million BOPD to keep up with demand increases.

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 in the “Research” section: www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife