My World of “Ought to Be”
by Timothy Wilken, MD

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Friday, April 02, 2004

Oil Price Trends 2004-2010

Andrew McKillop writes: Growth rates of world oil consumption (e.g. 3-year averages) started moving up since the 1994-96 period, and have received new impetus through a combination of higher oil and gas prices, and the very fast economic growth of China, India and other large population, fast industrialising countries. Current ‘trend rates of growth’ are likely about 2.25%-per-year, that is well above world population growth, indicating that per capita average demand is increasing. Oil price rises since 1998-1999, it should be stressed, have not reduced this trend, but in fact have bolstered and reinforced it. Through a mix of factors, oil demand by the US economy – consuming about 27% of world oil production for 4.5% of world population – is showing sustained growth. In early 2003 this ran at about 2.9% annual; year-on-year trends will likely remain well above 1.75%. Only self-imposed recession through high interest rates would or will change this. While initially unrelated, fast rising US gas prices underlain by slow growth or fall in domestic gas production capacities, will likely exert a ‘ratchet effect’ on oil prices in US markets. In turn, this will affect oil prices outside the US. In Europe, traditionally high gas prices will set a floor to any short-term falls in oil prices due to increasingly erratic oil supply increments, which themselves are due to the world moving rapidly towards Peak Oil (maximum production rate the world can achieve). China, India and certain other fast industrializing, large population economies may triple or quadruple per capita oil demand within 10 to 15 years, on a ‘trends continued’ base. In the case of the Asian Tigers and taking their period of fastest oil consumption growth (generally 1965-85), we find that South Korea and Taiwan, for example, achieved a growth of 1604% and 703% respectively, in their national oil consumptiom through 1965-78, using data from BP Statistical Review. In the case of China and India, today, their oil import demand growth will be considerably higher than their consumption growth due to falling domestic oil production. Annual growth rates of imported oil are typically at double-digit rates (for China about 27% in 2002-03). Consumption growth trends for natural gas in these markets is even stronger than for oil – Indian gas demand is likely to increase about 20% for 2003-04, with China’s demand up by about 13.5%. Very large investments are needed if both OPEC and nonOPEC suppliers are to blunt the arrival of structural undersupply on world oil markets, which is likely imminent without much higher prices. These (higher prices) will both limit demand growth in the energy-saturated OECD countries, and enable financing of increasingly risky, higher cost exploration-development. Based on statements by Lee Raymond, and by John Thompson (notably in articles published by ExxonMobil in its journal ‘The Lamp’) spending in the oil sector, on a worldwide basis, may need to exceed 2500 Billion US dollars, at early 2003 purchasing power levels (or about 3000 Bn dollars at early 2004 parities), in the next 12 years. Enabling this quantum leap in exploration and development is likely impossible without much higher, and sustained prices, well above USD 45 or Euro 36 per barrel, and about USD 7.50 or Euro 6/MBTU for natural gas.  (04/02/04)


6:50:04 AM    

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