Chinese Demand and Oil prices over the next Decade

Any discussion about oil prices 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:

- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year

- Transition takes 30 years

- No peak in global production

In next 10 years we must find 44 million BOPD:

- 26 million BOPD to maintain supply - 30% of current production, almost 3 times Saudi Arabia???s output

- 18 million BOPD to keep up with demand - 22% of current production, almost 2 times Saudi Arabia???s output

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 I downloaded it from a firm call Petrocapita Income Trust. The original version can be found at: www.petrocapita.com




If you want to try the model for yourself using your own assumptions I downloaded it from a firm call Petrocapita Income Trust. The original version can be found at: www.petrocapita.com