CGES sees crude demand crisis

Sam Fletcher
Senior Writer

Crude prices recently have been at record nominal levels and higher in real terms than during the 1973-74 energy crisis. But unlike its predecessors, the latest energy crisis is led by demand, not supply, said analysts at the Centre for Global Energy Studies in London.

In an Apr. 27 report, CGES analysts observed, "Oil's role in the world economy was much greater back then (8.3% of global GDP [gross domestic product] in 1973 vs. 5% in 2004) and, understandably, economic growth was hit hard and oil demand with it."

Moreover, they said, "Oil demand today, dominated as it is by the transport sector, is less price-sensitive than before and more susceptible to variations in growth. When economic growth in the Far East nosedived in 1998, it took oil demand down with it and pushed oil prices below $10/bbl, with a little unintended help from [the Organization of Petroleum Exporting Countries]. Last year the burgeoning global economy pulled oil demand the other way, causing oil prices to surge to record levels as spare capacity was squeezed below 2% of world oil demand."

Since the latest oil price spike is demand-led, the analysts said, demand growth must slow before prices will soften. One way for that to happen is for economic growth to slow, partly as a result of the price rise itself.

"However, the negative effect of high oil prices on economic growth is attenuated these days and will take a few years to have an impact anyway," said CGES analysts. "Likewise, the low price sensitivity of oil demand, the weak US dollar, and high taxes on oil in the developed world all help to shield oil demand from the worst effects of high crude oil prices," they said. "The implication is that oil prices will stay high for a while, unless the global economy suddenly grinds to a halt or Saudi Arabia, custodian of 86% of the world's spare capacity, chooses to open up its taps, thereby reducing excess capacity even further."

China outlook
The outlook for future growth in China's demand for oil is of particular significance because of the dramatic impact of surging Chinese demand in 2004, which outran forecasts and required revisions to demand projections throughout the year. Initial projections underestimated Chinese oil demand by 10%, or 600,000 b/d—"half of the world's unexpected incremental oil demand last year," CGES analysts said. "It is now believed that China's actual demand in 2004 amounted to 6.4 million b/d."

CGES estimated that global demand for oil totaled 82.5 million b/d in 2004. "Not since the heady days of the late 1970s has the demand for oil grown as rapidly in the space of a year as it did in 2004."

Demand aberration
However, the dramatic 15.6% increase in China's oil consumption last year "was an aberration, caused largely by an imbalance between China's power generating capacity (most of which is coal-fired) and its demand for electricity," the CGES analysts said. To overcome power problems, China's central government introduced rolling blackouts and forced factories to operate in shifts in order to constrain demand. At the same time, it eased restrictions on the use of small diesel generators by both individuals and small factories.

The resulting jump in diesel consumption changed China from a net exporter of diesel to a net importer, with diesel imports up by 132,000 b/d in December 2004.

It's difficult to understand what drives Chinese demand for oil because it "has been and remains to a considerable degree a centrally planned and controlled economy, burdened with administered prices and possessing—for the time being—an undervalued exchange rate," said CGES analysts. "It is not easy to understand the extent to which energy prices in local currency terms reflect accurately the kind of pressures felt in the international energy markets."

Nevertheless, CGES said, "Continuation of economic growth at a rate slightly lower than the trend rate observed since 1985 yields oil demand increases of around 5% per annum and per capita oil consumption of 3.3 bbl/head in 2020 vs. 1.6 bbl/person in 2003. Exuberant economic growth of 9.6%/year and slow growth in real oil prices lead to a ballooning oil demand in China, boosting consumption by a massive 9.3 million b/d (or around 550,000 b/d/annum) between 2003 and 2020."

(Online Apr. 29, 2005; author's e-mail: samf@ogjonline.com)


Related Articles

PHMSA proposes pipeline accident notification regulations

07/02/2015 The US Pipeline and Hazardous Materials Safety Administration has proposed new federal oil and gas pipeline accident and notification regulations. ...

Quicksilver Canada gets LNG export approval

07/02/2015 Quicksilver Resources Canada Inc. has received approval from the National Energy Board of Canada to export 20 million tonnes/year of LNG from a pos...

Origin lets contract for Otway basin fields

07/02/2015 Origin Energy Ltd., Sydney, has let a $1.3 million (Aus.) contract to Wood Group Kenny for provision of a detailed engineering design for the onsho...

MARKET WATCH: NYMEX oil prices plummet on crude inventory build, Iran deadline extension

07/02/2015 Oil prices plummeted more than $2/bbl July 1 to settle at a 2-month low on the New York market after a weekly government report showed the first ri...

API to issue recommended practice to address pipeline safety

07/01/2015 The American Petroleum Institute expects to issue a new recommended practice in another few weeks that addresses pipeline safety issues, but the tr...

Shell Midstream Partners takes interest in Poseidon oil pipeline

07/01/2015 Shell Midstream Partners LP has completed its acquisition of 36% equity interest in Poseidon Oil Pipeline Co. LLC from Equilon Enterprises LLC, a s...

Shell makes FID on Appomattox deepwater development in Gulf of Mexico

07/01/2015 Royal Dutch Shell PLC has taken a final investment decision (FID) on the Appomattox deepwater development, authorizing construction and installatio...

MARKET WATCH: Oil prices decline as US crude inventories post first gain in 9 weeks

07/01/2015 Oil prices on July 1 surrendered much of their gains from the day before after the release of a government report showing the first rise in US crud...

Woodside-led Browse FLNG venture enters FEED phase

07/01/2015 The Woodside Petroleum Ltd.-led Browse LNG joint venture has entered the front-end engineering and design phase for a floating LNG (FLNG) developme...
White Papers

2015 Global Engineering Information Management Solutions Competitive Strategy Innovation and Leadership Award

The Frost & Sullivan Best Practices Awards recognise companies in a variety of regional and global...
Sponsored by

Three Tips to Improve Safety in the Oil Field

Working oil fields will always be tough work with inherent risks. There’s no getting around that. Ther...
Sponsored by

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by
Available Webcasts


OGJ's Midyear Forecast 2015

When Fri, Jul 10, 2015

This webcast is to be presented by OGJ Editor Bob Tippee and Senior Economic Editor Conglin Xu.  They will summarize the Midyear Forecast projections in key categories, note important changes from January’s forecasts, and examine reasons for the adjustments.

register:WEBCAST


Predictive Analytics in your digital oilfield - Optimize Production Yield and Reduce Operational Costs

When Tue, Jul 7, 2015

Putting predictive analytics to work in your oilfield can help you anticipate failures, plan and schedule work in advance, eliminate emergency work and catastrophic failures, and at the same time you can optimize working capital and improve resource utilization.  When you apply analytic capabilities to critical production assets it is possible to reduce non-productive time and increase your yield.

Learn how IBM's analytics capabilities can be applied to critical production assets with the goal of reducing non-productive time, increasing yield and reducing operations costs.

register:WEBCAST



On Demand

Cognitive Solutions for Upstream Oil and Gas

Fri, Jun 12, 2015

The oil & gas sector is under pressure on all sides. Reserves are limited and it’s becoming increasingly expensive to find and extract new resources. Margins are already being squeezed in an industry where one wrong decision can cost millions. Analyzing data used in energy exploration can save millions of dollars as we develop ways to predict where and how to extract the world’s massive energy reserves.

This session with IBM Subject Matter Experts will discuss how IBM Cognitive Solutions contribute to the oil and gas industry using predictive analytics and cognitive computing, as well as real time streaming for exploration and drilling.

register:WEBCAST


The Alternative Fuel Movement: Four Need-to-Know Excise Tax Complexities

Thu, Jun 4, 2015

Discussion on how to approach, and ultimately embrace, the alternative fuel market by pulling back the veil on excise tax complexities. Taxes may be an aggravating part of daily operations, but their accuracy is crucial in your path towards business success.

register:WEBCAST


Emerson Micro Motion Videos

Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected