Rembrandt, interesting post on a vital issue. A few months back I began looking at Chinese oil consumption, inspired by the work of others, and never finnished the post.

So here's a thought provoking chart. During industrialisation, per capita oil consumption rises. With China, we are still at the very tip of the ice berg. I don't think it will be possible for China's oil consumption to rise to 15 bbls per capita per annum - but I'd be interested in other views on that.

Also, can you add some translation to Figure 3? And I note this darned date of 2012 keeps cropping up time and again.

Thanks, I had been expecting TOD to post an entry on China's increasing oil consumption for a while. The failure of the political class in the US to address such a key issue, yet again, demonstrates what a joke they are. Hope this post gets placed on The Oil Drum to increase discussion.

One of the reasons fuel usage is rising so fast is because the number of automobiles is rising. Cities are being built at a scale that no longer permits commuting by bicycle as in the past. The big cities are also undertaking a huge highway construction effort to counter the traffic jams that are already common.

Rather than learning from the mistakes of the west (say Los Angeles) they seem to be intent on repeating them at an even bigger scale.

Any country that can limit the number of children can find a way to limit automobile ownership and usage. They just haven't made this a national policy. If they have any sense they will change this as quickly as possible.

Remember that consumption is increasing rapidly in most oil exporting countries. From 2004 to 2005, Total Liquids consumption by the top 10 net oil exporters went up by 9%, which would, at that rate, mean a doubling in consumption in 8 years.

The real clincher for 2006 was Russia, which reported rising oil production, but a 2.4% drop in net oil exports, because of rapidly rising consumption.

I had to make a lot of assumptions, but I estimate that net oil exports (C+C) by the top 10 net oil exporters fell by about 7% from 11/05 to 11/06, and the Cantarell crash has only just begun to kick in.

BTW, I believe that someone pointed out that China, based on the HL model, is right at the 50% of Qt mark, and of course their largest field is in terminal decline with a 90% water cut.

Based on the HL model, the US used about 5% of remaining conventional crude oil reserves last year, while our total petroleum imports have been going up at about 5% per year since 1990.

The US and China are the world's two largest importers. What we want to import--the difference between our rising consumption and (probably) falling production in both cases--is going up.

Saudi Arabia and Russia are the world's two largest exporters. IMO, Saudi Arabia is in terminal decline, with Russia probably about to join Saudi Arabia, but in any case both countries are showing rapidly rising consumption and lower oil exports.

The conventional wisdom is that we are going to see an exponential increase in net oil exports. IMO, the reality--today, as I type this--is that we are seeing an exponential decline in net oil exports.

Is China's SPR of any significance in this discussion of Chinese demand?

Have they begun filling the SPR, or is it still conceptual or just beginning construction?

I imagine that china wants to have a substantial reserve, although I do not recall the number of barrels they aim to hold.

Are the barrels imported to fill China's SPR counted with the barrels consumed, or is that counted in addition to barrels consumed?

Thanks Rembrandt, good article.

Having been involved in the Chinese oil industry for 25 years, I'd like to go on record to say that China's peak production year was 2006. This is based mainly on two developments: one is an HL plot of China that points to a URR of 72 GB, China having passed the 50% mark sometime in 2006 or early 2007. Second is CNPC's announcement that their production (nearly 60% of the total) would drop 100,000 b/d in 2007 (http://tinyurl.com/22srve). Part of this is due to the acknowledgment that the slow decline of Daqing can't be maintained, and CNPC is now going to focus on natural gas production there (and tellingly, have started quoted production targets in toe). Neither Sinopec nor CNOOC have projects in the near term that could make up for this drop. Underlying depletion is running at 320,000 b/d, which puts China on par with a producer like Iran, but with only a fraction of Iran's reserves.

I think the potential for CTL by 2015 is quite overstated. Although nearly 100 million tonnes of projects have been announced, and Shenhua itself targets 60 million tonnes of capacity by 2020, the obstacles--even beyond complex engineering and chemistry--is daunting. Water will be a problem. China's coal centers in Inner Mongolia and Shanxi have few available water resources (one reason coal-by-wire hasn't been an option), and CTL production requires 3-6 tonnes of water input for each tonne of output, depending on the method. Cost is an issue as well. Shenhua's own estimate is that it will cost $6.25 billion per 100,000 b/d of CTL capacity (which I think is understated) putting it on par with tar sands, where costs have risen from $3 billion/100,000 b/d cap to over $12 billion). Finally, there is the issue of the coal resource base. CTL results in an enormous increase in primary energy consumption. In the case of 1 mmb/d production in 2015, this would require an increase in production of 180 million tonnes of Chinese raw coal per year--this on top of the 60-80 million per year needed for new coal fired plants constructed each year, and addition amounts of 50-80 million tonnes for iron & steel, cement, and other industry. A growth path of Chinese coal consumption to the IEA estimate of 3.5 billion tonnes in 2025 (which is very moderate and excludes CTL) would result in China's consumption of half of its total remaining recoverable coal reserves by 2019. Since China's coal reserves are only 45% bituminous (the balance being subbituminous and lignite), gross production will have to rise even further to deliver the same amount of energy. Moreover, China recently announced a national fuel standard for methanol from CTL (a result of the coal producers angling for subsidy money that went to the ethanol producers), but since methanol has only 48% of the energy content of gasoline, CTL output has to be discounted by such factors depending on what is produced.

China has sanely put a moratorium on food-chain grains being used in grain ethanol production, having seen prices on its own corn market in Dalian soar to new highs last year. I'm also skeptical of the speed at which jatropha plantings can offset oil as well. China doesn't have large tracts of empty land to plant, so density of planting will be fairly low, and this has a strong impact on the energy return of any biomass-based project.

It's also important to consider how oil is used in China. Adjusting the Soviet-style official energy consumption numbers to account for nature of use, and not sector of use, oil for transport (road, rail, air, water) now accounts for about 39% of the total, compared to 65% in the US. Although the growth of the vehicle industry is high, it is not the discretionary private user that is driving transport oil demand. In large part, the biggest growth is coming from road freight transport. China's rail system, the largest in the world, is completely overwhelmed moving coal, and coal now accounts for 49% of all freight moved on the rail system, but this in turn accounts for only 55% of coal production, down from 80% of production moved by rail in 2001. What this means is that the road system (they now have pretty much the equivalent of a US interstate system in place and still expanding) has had to take up a lot of the slack, and story after story appears of overload coal trucks (30 tonne size) creating severe damage to highways which were not built to this weight specification. Similarly, the rail system has to refuse 60% or more of new freight transport requests, and this means that a manufacturer trying to move his freight to the coast to deliver to just-in-time export markets have had to shift to road transport as well. In China, the shift of one tonne-km of freight from rail to road increases energy use 8 times.

China uses very little oil for power generation, and that is mainly oil-fired plants in Guangdong province. The conditions leading to the jump in consumption to 14% in 2004 when thousands of diesel-powered generators were brought on line to deal with the electricity crisis have pretty much passed. In 2006 alone, China added 102 GW of new power capacity, or the equivalent of the UK and Italy grids in one year (which by the way, will emit 500 MT CO2 each year--the EU Kyoto reduction to 2012 in total was just 300 MT).

Oil is a vital fuel in the agricultural sector, where 60% of irrigation is run by diesel pumps. Another 15% is used in the petrochemical industry, vital to both domestic and export manufacturing. Construction account for another 10%--this is the diesel used to run the machines that have turned China into one huge construction zone over the last 20 years. Finally, industry uses about 20%, and possible savings can be had in this sector.

I often wonder who will be hurt more by liquids shortages...China or the US? The US has a lot of wiggle room in its consumption, given the domination of autonomous personal transport in total oil use. China has much less--oil is already being put to its highest value-added uses, and there is little room for fuel switching in the short term. The easiest efficiency gains have been had, after 25 years of concerted efforts in this regard, so even 1% per year would be difficult from efficiency alone--it may well mean absolute conservation, or going without.

Some simple arithmatic to illustrate the size of the shortfall if China hopes to emulate the economic success and oil consumption of their hated cousins in Taiwan, using 15 barrels of oil per person per year (Euan's graph). 15 barrels x 1.2 billion = 18 billion barrels/year. Compare to current world total liquids of just over 30 billion/year. That's equivalent to about 130 Mb/day. Not even CERA are predicting that in the foreseeable future. It is not on, not going to happen, even with CTL and whatever else. The model of "prosperity" seen in these developed eastern - and western - countries, is simply not open to China, or India, let alone the rest of the "developing" world. Yet no one will tell them that, that is the tragedy.

I still have what may be an odd question. Here it is.

Does China's SPR figure in to the consumption numbers we are talking about?

Or is China's SPR in addition to these numbers?

(Did I miss this above?)

Related:

What if China tries to store more in SPR?

Related:

Does USA's (or other) SPR get figured in to total USA figures, or is that somehow tracked seperately?

Is the military consumption tracked seperately?

Do tracking some of these -- SPRs and military consumption -- affect the total numbers we see very much, or are they relatively insignificant right now?

A few months ago, I posted the following letter on the Financial Times:

LETTERS TO THE EDITOR: What use will China be making of its intellectual capital?

By Alfred Nassim, Financial Times
Published: Dec 06, 2006

From Mr Alfred Nassim.

Sir, John LLoyd and Alex Turkeltaub make the case that Russia will eventually suffer grievously - because of its dependence on oil export revenues and the expected decline in its oil production. However, China and India will continue to shine because of their investment in "intellectual capital". This argument presupposes that Russia and the rest of the world are not sharing the same planet. Russia, and other oil producers, always favour domestic consumers and as a result the share of oil being exported is in decline in Russia, Saudi Arabia, Iran, Kuwait and United Arab Emirates, among others. Once it is generally understood that the volume of conventional oil being internationally traded reached its peak in 2005, oil will cease to be subject to the "commodity cycle".

The question now arises as to what the graduates from China's "100 world-class universities" will be doing. Designing better bicycles?

Here is the response by another reader:

LETTERS TO THE EDITOR: Chinese science citations go beyond bicycles

By Jonathan Fenby, Financial Times
Published: Dec 08, 2006

From Mr Jonathan Fenby.

Sir, Alfred Nassim asks what the growing ranks of Chinese graduates will be doing and wonders if it will be "designing better bicycles" (Letters, December 6).

The 77,395 Chinese scientific papers cited in patent applications in China in the last available figures, and the way the mainland has advanced to anywhere from sixth to second place in the citations rankings, provides an indication of how widely their work is spread. I doubt if many of them were for bicycles.

Jonathan Fenby,

Editor-in-Chef,

Trusted Sources,

London W1T 2NS

As you can see, they really do believe that if you get enough patents, you do not need so much oil.

May I suggest an alternative "First Best Option" for China.

1) Add more subway cars to existing Urban Rail (China is noted for not building enough rolling stock for their new lines; it is an easy line item to economize on)

2) Accelerate and expand existing plans for new Urban Rail. Shanghai went from 15 to 17 planned subway lines and extended a couple as their response to rising oil prices a few years ago. Not nearly enough. Every city of 1 million should have 2 or 3 Urban rail lines and major cities like Shanghai, Canton and Beijing should have 4 track subways (like NYC) that will allow for express service and high capacity instead of only 2 track subways as currently planned.

3) Seriously investigate using new Urban Rail lines (outside peak hours) for trolley freight. Standard 20' & 40' containers can fit in most subway tunnels. Perhaps a new Chinese standard group of containers ?

4) Produce better quality/more comfortable bicycles and reverse the trend to give the roads to the cars & trucks.

Elsewhere in this thread I posted:

The Chinese should devote more of their resources to improving their rail system. Improved signaling, heavier rails, stronger bridges, larger rail cars to increase tonnage/train. Add tracks (single > double, double track > triple, triple > quadruple) and all new lines. Along some routes create dual mode rail; 2 tracks for pax and medium density, high value express freight at higher speeds and 2 or 3 tracks for coal, concrete, grain and other bulk freight. And electrify it all (+20% capacity due to faster acceleration & braking) plus a 60% or so energy savings.

Happy Mardi Gras :-)

Alan

China is screwed. They are already leaning very, very hard on coal, and their oil usage would be much, much higher already were it not for coal. Their coal exports have crashed. And they are driving the price of thermal coal right back up again with their demand. Australia is digging and shipping coal furiously to keep up with Chinese demand.

How will China manage the loss of future coal production, if an increasing amount of it goes to CTL? This is the same daisy chain we see in corn, biofuels, coal, oil, tar sands oil, etc, everywhere else. There is no miracle solution because oil is the miracle. Once you start trying to "solve for less oil" with unconventional, you immediately get bogged down. You immediately relocate the pressure to someplace else. It's like arbitrage, but without the profit.

That said I advise investors to have continuing, overweight exposure to coal, and CTL. I have no doubt China will push ahead on CTL and increase CTL capacity.

AAUK, BTU, SSL, ACI, and many of the smaller Australian Coal companies are good picks.

Gregor

China is fucked, how about that other big oil importer. I think smart cars are cute.

http://www.smartcarofamerica.com/