August 07, 2008
Oil Consumption Drops In Developed Countries
Oil prices have declined on demand destruction. The CEO of BP observes a big decline in oil demand in developed countries.
Tony Hayward, chief executive of BP, said last week that the oil company had detected a drop in demand of up to 10 per cent in countries that are members of the Organisation of Economic Cooperation and Development (OECD).
US demand is down 2.4% from a year ago same 4 week period.
US fuel demand averaged 20.2 million barrels a day during the past four weeks, down 2.4% from a year earlier, the Energy Department said July 30.
On Taiwan oil demand has dropped 4.1%.
Consumption of petroleum products, which account for about half of the island's energy supply, fell 4.1 percent from a year earlier to the equivalent of 4.5 million kiloliters of oil, the bureau said. Demand for diesel declined 21 percent, while that for gasoline dropped 8.7 percent. Power consumption climbed 8.2 percent to 20.9 billion kilowatt-hours in June, with demand by industrial and energy companies 12 percent higher than a year earlier.
But demand is still growing in China and India.
Oil consumption in the United States and OECD nations is weakening but China and India have yet to show signs of falling demand, making it unclear if the price fall below $120 is a turning point, the IEA's chief said.
"We don't know if this is a turning point. We'd like to know but we don't have an answer yet," Nobuo Tanaka, executive director of the International Energy Agency (IEA), the adviser to 27 industrialised countries, told Reuters on Tuesday.
India is getting more oil from the Middle East.
NEW DELHI : India’s oil imports from the Middle East increased to 89.73 million tones in 2007-08, up by 11 percent, compared to 80.81 million tones in 2006-07, according to Petroleum Ministry.
The Western countries will continue to cut back while Asian demand continues to grow. Eventually Western demand destruction won't be able to balance Asian demand growth. Then things will get ugly.
then the price of oil doubles - then everybody cuts back, Asia included.... and the price stabilizes, right?
No, Rick. Demand for oil has proven far more price inelastic than most analysts anticipated. That means that price increases alone won't curtail demand by the amount that Global Warmists insist upon "to save the planet". What they insist upon, literally, is that the still gigantic reserves of crude oil, and massive reserves of other fossil fuels (e.g., shale oil), must stay in the ground forever, their carbon never released as CO2 into the atmosphere. Indeed, I don't know how we are supposed to react if Asia continues to gorge upon petroleum products with abandon.
Are "all options on the table"?
Most of the sympathizers to environmental causes thought that curtailing U.S. exploration and development until gas rose to $2/gallon would be enough to curtail demand and spur alternative energies. That would not have meant a significant increment to the monies transfered out of our economies to the Middle East. It hasn't turned out that way. Gas had to go over $4/gallon, outflows of funds to OPEC countries have ballooned alarmingly, and Democrats have locked down any significant moves to speed up nuclear plant development that might solve the problem (the way, for example, France has).
Hard core environmentalists have meanwhile become rabid, talking about the end of the Earth, and yet they're still spouting fantasies about biofuels (which emit carbon!), solar power (which produces heavy chemical contamination in their production), wind power (!), and placement of dangerous toxins in our homes near our children (CFLs). Democrats are even passing bans on incandescent bulbs.
I think the American people are awakening, and the November elections will turn this around.
There are a conservatively estimated 800 BILLION Barrels of recoverable Shale Oil in the Green River Oil Shale Deposit. Actual figures of over 2-TRILLION barrels are out there. Since oil was discovered in Pennsylvania in 1859, THE WORLD has used 1-Trillion Barrels. Right there, from that one deposit, America could easily become petroleum self-sufficient. In fact, we could become the worlds leading oil exporting Nation. COAl: There are more BTU's of energy beneath the ground in West Virginia than lies beneath the sands of Saudi Arabia. There are at least 5 States with more coal reserves than WV. Over 70-years ago, the Germans liquified coal into syn-fuel. (Germany was under a blockade in WWII. Germany has few oil reserves, that's one reason they went into Soviet Areas) Something fueled the Panzers and Lufftwaffe, and liquified coal played a small but interesting part. And I havent even touched on electrifying passenger cars, soal farms in the desert, winmills in the 'wind belt', increasing nuclear power, or drilling offshore or in ANWAR. Only the politicians are standing in the way, kissing the butts of 'Big Oil'. We need a National Energy Police that rivals or exceeds our determination to win the Cold War or Put Men on the Moon. JUST DO IT!
Let's see if China continues to subsidize their gasoline and diesel to $2.40 a gallon after the Olympics ends. Right now that particular economic market signal is not being sent to 1.3 billion people.
The one thing that has puzzled me during this whole run up in energy prices is why other sugar producing countries are not installing Brazilian style sugar cane to ethanol plants as fast as they can. Jamaica or the Dominican Republic, for example. They wouldn't have to export to us. They could use the stuff in their own cars and improve their balance of payments situation.
Can you say "global recession"?
High oil prices cut OECD demand. Then prices fall some. Then continuing growth of Asian demand takes the oil that otherwise would have gone to the US, Europe, Japan, etc. Then the prices go back up again. Then the process repeats.
We are going to see waves of price rises, Western demand destruction, and then growth in Asian demand driving prices up again.
The Chinese economy is not in recession. Neither are the economies of India, the Persian Gulf countries, Russia, or Brazil.
The current high oil prices and the relatively small amount of demand destruction they've caused show that the proponents of carbon taxes have grossly underestimated how much carbon taxes it would take to lower CO2 emissions.
Back in September 2005 Shell was claiming that in about 10 years they were going to be able to produce oil from shale for about $30 per barrel. You can find all sorts of optimistic analyses about the future of oil shale on the web. But watch carefully as I do and you come across things like this June 2008 announcement from Shell saying they are slowing down their oil shale project due to escalating costs:
The front-runner energy company in the effort to unlock oil shale in northwest Colorado has slowed down its research by withdrawing an application for a state mining permit.
Shell spokeswoman Jill Davis said the withdrawal of a permit on one of its three oil-shale research and demonstration leases was done for economic reasons: Costs for building an underground wall of frozen water to contain melted shale have "significantly escalated."
Well, costs would have had to have escalated hugely in order to make oil shale uncompetitive now when oil is well north of $100 per barrel. But this is the story of oil shale. It is always over the horizon. Shell has shifted its tune from going into production at a low level in 2015 to instead deciding around then whether oil shale is economically feasible. They haven't even convinced themselves and do not expect to convince themselves for several years if ever.
So if you want to believe oil shale has a big future you have to decide to ignore what oil majors are saying.
In June 2008 a Shell representative said that Shell is 10 years away from deciding whether oil shale extraction is economically feasible. This makes oil shale irrelevant for our current energy problems.
To avoid contaminating underground water, areas surrounding the heated rock are frozen to create "freeze walls", theoretically preventing the oil from migrating. "We have demonstrated that our technology works. We have produced oil and gas," says Terry O'Connor, vice president external and regulatory affairs for Shell Exploration and Production Company, Unconventional Oil.
In all, O'Connor says, the company has produced only 1,800 barrels, and, won't commercially produce for another 10 years at least. "Our challenge now is whether we can do it on a larger, commercial basis," adding Shell has yet to prove groundwater can be protected. "If we are not able to do that, I can assure you that we will not proceed to commercialization." When will Shell decide? Says O'Connor: "We hope to have enough knowledge by 2009 or 2010."
The end of consumption distorting subsidies comes when the government has to abandon popular subsidies or go broke. Riots often follow. The subsidy decision is about balancing against the various sources of regime destabilizing unrest. One can simply print more money but that has its own dangers or one can raise petroleum prices and face down the rioters. Or one can simply let the country go dry and buy as much as can be afforded. None of these choices are palatable but they all are going to be faced in Asia.
What the Asian governments have been doing is gradually letting internal prices rise so that the subsidies do not become unaffordable. China is only spending $40 billion per year on subsidies. They can afford to sustain that for many years to come given their massive trade surplus. Indonesia and India feel bigger strains with subsidies as much higher percentages of their GDPs (about 10% for one of them - I forget which).
So I do not buy this regime destabilization threat for China and probably not for India or Indonesia either.
Our problem is that even if the Asian governments lifted these subsidies their demand would still rise. The demand might not rise as fast. But any increase in their consumption lowers our consumption.
"Our problem is that even if the Asian governments lifted these subsidies their demand would still rise. "
It would have growth rates higher than OECD, or decline rates lower than OECD, but I think if oil stayed over $100 that growth rates would be much lower than now, enough to continue the current plateau of overall consumption. Further, I'd estimate that it wouldn't take a price as high as $200 to cause flatten Chinese consumption, and allow substantial overall world declines.
There are a lot of substitutes for oil, and people will go to them faster with higher prices - they'd go very fast with prices approaching $200. Some of them are slow to ramp up (plugins, rail), but some of them are very fast (electric bikes, carpooling, etc).