Wednesday, November 23, 2011

Trends in Chinese Petroleum Production, Consumption and Imports

In this post, I summarize my export land model analysis of China using the published petroleum production and consumption data from the BP Statistical Review for 2011. 

China’s enormous economic expansion over the past 15 to 20 years has been fueled by a large increase in petroleum consumption, making China increasingly dependent upon the global export pool.   This trend is likely to increase in the future as China becomes more and more dependent on petroleum imports until the global export pool declines.

Data Analysis Method
My approach to data analysis is the same as what I have done in the past in my multi-part global regional survey.  In that survey, China was part of, and dominated the numbers and trends, for the Asia-Pacific region, accounting for roughly half of both production and consumption.  (In retrospect, I regret not having separated out China from the rest of the Asia-Pacific in that analysis—but may be next time next time.)

All production, consumption and import/export rates (dQ/dt) are reported in units of billions of barrels per year (bbs/yr).  I used the production and consumption data to derive a “reported” net exports (or imports), as production minus domestic consumption.

I fit a logistic models (aka, the Hubbert Equation) to the petroleum consumption and production data using non-linear least squares (NLLS) analysis to obtain the best fit.  Further details of the modeling are presented in the series: Refining the peak oil rosy scenario.  Predicted future import/export trends are derived from the predicted production rate minus the predicted consumption rate.

Production, Consumption and Export/Import Trends
Figure 1 presents the reported production, consumption, and my derived net export/import, rates (blue, red and green open circles respectively) and the corresponding NLLS best curves (solid lines with the same respective colors) to these data. 

 
Both of the reported production rates and consumption rates for the have two distinct stages corresponding to 1965-82 and 1983-2010.  Accordingly, I modeled production and consumption using two separate Logistic equations for these periods.  The residual-sums-of-squares (rss) of the best fit from the six-parameter two logistic models were significantly better than the rss from the three parameter single logistic model (F-test for the significance of extra parameters, p << 0.001).

The scale used to show extrapolated future consumption is so large that the reported past production and consumption numbers are some what obscured, so I show the same data in an expanded scale, in Figure 1a.

From about 1973 to 1993, China was actually a slight net exporter of petroleum; although the peak in the net exports in 1985-86, about 0.25 bbs/yr, is only 1% of global production, about 21 bbs/yr, in those years. 

Since 1983, China’s rate of petroleum consumption took off and by 1993, sustaining this trend required net imports.  As illustrated in Figure 1a, since 2006, net imports have exceeded global domestic production, and in 2010, net imports (1.8 bbs/yr) accounts for 55% of domestic consumption (3.3.bbb/yr).

The NLLS best fit parameters Qo, Q∞ and the rate constant, "a," corresponding to the solid lines in Figure 1 are summarized in Table 1 below:

Table 1 summary of NLLS best fit parameter for production and consumption


Qo (bbs)
Q∞ (bbs)
a (yr-1)
Production 1965-82
0.24
12
0.26
Production 1983-2010
30
196
0.033
Consumption 1965-82
0.22
10
0.26
Consumption 1983-2010
7.3
485
0.074

After a rapid phase of increasing petroleum production at 26%/yr in the 1960s and 70s, resulting in a local peak of 0.78 bbs/yr in 1980, production has continued to increase since 1982, but at a much slower rate of 3.3%/yr.  

The rate of increase in consumption followed the domestic production trend until 1982, when the rate of increase in consumption slowed.  However, since then, the consumption rate increase is still more than double (7.4%/yr) the rate of domestic production increase (3.3%/yr), with the resulting imbalance being made up by increasing imports. 

According to the EIA, China in 2010, is now the world’s second largest importer of petroleum, second only the USA (Country Analysis Brief China).

China’s prospects for future petroleum sources
Figure 2 shows the locations of the major on-shore and off-shore oil basins in China.
I think that it is no coincidence that the signs of peaking domestic production in the late70s coincided with the timing of China’s economic reforms.  China’s leadership probably saw that their domestic production was peaking, reflecting the aging of the Daqing field in far northeast China discovered in 1959, and other older eastern onshore fields.  They probably also realized that they were going to have to develop trading partners to import petroleum from, and, to generate foreign capital to develop its domestic production, in the Tarim Basin and off-shore fields in the Yellow Sea, and East and South China Seas. 

Future development of oil production from the East and South China Seas is, and will continue to be controversial, as several other countries in the Asia Pacific region (Japan, Philippines, Malaysia, Taiwan, and Vietnam) have made overlapping territorial claims (Country Analysis Brief China).  Frankly, I don’t see how any of these countries could enforce their territorial claim against China, and so, the bulk of these offshore fields essentially are “in” China.

As discussed above, domestic production from the more newly developed oil basins has caused overall production to steadily increase since 1982.  But consumption has increased much faster over this period, causing China to increasingly look abroad, first in other parts of the Asia Pacific  (AP) region, but increasingly to the Middle East (ME), Africa (AF), the former Soviet Union (FS) countries and South America (SA): 

In 1990, just three countries merited breakout in the data as key suppliers of crude oil: Indonesia, Oman and Iran. By 1997, the list included ten, far more widely spread around the world: Oman (which had displaced Indonesia as principal supplier, shipping three times as much crude as China’s total imports in 1990), Yemen, Iran and Saudi Arabia in the Middle East; Indonesia in Asia; Angola and Congo in Africa; and Argentina, the United States and Russia among the “others”.

Since the time of this year 2000 IEA report, petroleum net exports for a number of these supplier countries declined, or stopped altogether.   For instance, a former key supplier, Indonesia, has become a net petroleum importer, and, both Oman and Yemen are headed towards the same fate, due to a combination of increasing domestic consumption and declining production. Based on the data reported in the BP Statistical Review for 2011, Argentina in 2010 is just barely still a net exporter, producing 0.24 bbs/yr, but, consuming 0.20 bbs/yr, so Argentina is no longer a significant import source.  

The EIA presented the 2010 break down of China’s import sources, in its Country Analysis Brief for China, reproduced below, in Figure 3

Over half of China’s imports came from Saudi Arabia, Angola, Iran and Oman in 2010.  The prospects for an increase in petroleum exports from Angola look reasonably good for the next few years, but I am expecting a decline in the late 2010s, and, no net exports by 2025 (see Trends in Angolan Petroleum Production and Consumption).   Iran and Saudi Arabia’s net exports have been flat, and will probably decline due to increasing domestic consumption (see Survey of Oil Exports from the Middle East).   The continuing trend for sanctions against Iran may push more Iranian oil to China in the short term.  China is looking to Venezula for future imports, and is willing to pay for future expansion and development, however, the general trend is for production to decline, and, the USA and Brazil are also potential importers of Venezula's oil (see e.g., Trends in Venezuelan Petroleum Production and Consumption).

Figure 4 shows the percentage of China’s imports of the global export pool from 1993 to 2009.   

The estimate of the global export pool comes from my previous study examining the production, consumption and net interregional exports for seven world regions (Figure 8 from Estimating the End of Global Petroleum Exports: Part 4 future global net export trends).  That earlier study showed that the ME, SA, AF and FS regions are net petroleum exporters and that the NA, EU and AP regions are net importers.  I predicted that inter-regional net exports would steadily decline and then end sometime between 2030 and 2035, depending on whether remaining exporters share or don’t the remaining export pool with ex-exporters.

Figure 4, illustrates that, despite signs of diminishing export sources, China has been taking an increasing portion of the available export pool.  China’s share of the sum of net exports from ME, SA, AF and FS have increased linearly from less than 1 percent in 1994 to 11.5 percent in 2009.  The slope of the linear regression analysis of these data is almost 3/4 of a percent per year. 

Just how long can this import trend continue?  

Some speculative futures trends
If the present trends continued unabated, as suggested by the blue and red lines in Figure 1, then by 2030, China would be producing 1.6 bbs/yr and consuming 8 bbs/yr.  That would likely make China the top petroleum consumer in the world.  But, this would also likely mean net imports of 6.4 bbs/yr.  In other words, about 80% of China’s petroleum consumption would have to come from imports. 

To put this into some perspective, this level of consumption and import dependence would much higher than the USA’s 2009 onsumption of 6.8 bbs/yr, and 61% dependence on imports to support that consumption (derived from Figure 11 of Trends in USA Petroleum Production and Consumption).  Indeed, the USA’s peak consumption from 2004-07 never exceeded 7.6 bbs/yr.

However, this is not what I am expecting to happen to China.

If the trends predicted in my previous multi-part global regional survey are correct, and inter-regional net exports end sometime between 2030 and 2035, then China’s consumption would have to fall back to its own domestic production. 

Figure 5 presents three speculative scenarios of what China’s consumption trend might look like between now and 2030-2035, assuming that my prediction regarding the end of exports is correct. 
The first two scenarios assume that the percentage of China’s proportion of the inter-regional net export pool stays frozen at its 2009 amount of 11.5 percent. 

In scenario I, the diminishing pool of exports is assumed to be proportionally shared with the former exporters regions, as they become the net importers.  In this case, as shown by the solid red line, the predicted outcome for Chinese consumption: a steady decline back down to its domestic production level by 2030. 

In scenario II, it is assumed that there is no sharing with the ex-exporters.  In this case, the decline down to its domestic production level is extended by 5 years to 2035 (long dashed line).

In scenario III (short red dashes), I more optimistically assume that China is able to maintain its present linear expanding rate of importation of the inter-regional net export pool, as shown in Figure 4, right up to the end of exports in 2035 (assuming a no sharing scenario).  

In 2034, China would be importing 30 percent of the export pool, but, the pool by then is so small as to add negligibly to China’s consumption.  Scenario III predicts that after peaking out a slightly over 3 bbs/yr in 2013-2014, China’s consumption starts to fall again back to its domestic production level by 2035.  This scenario would only be slightly modified by adding to it the sharing scenario; it just steepens the decline rate back down to domestic production in 2030, after peaking at about 3 bbs/yr in 2013.

The most recent consumption figures for 2010 suggests that all three of these scenarios are too pessimistic.  China’s reported consumption for 2010 (from the BP statistical review) was 3.3 bbs/yr, which is substantially higher than the 2.95 bb/yr predicted by the more optimistic third scenario. 

Since China’s production in 2010 is close to my prediction line (blue solid line in Figure 1, an dotted line in Figure 5), this relative spike in consumption signifies a spike in imports.  To have this kind spike in imports means that either the inter-regional export pool spiked, or, China’s proportion of the inter-regional export pool spiked above the trend line shown in Figure 4, or, perhaps a combination of both occurring.

Figure 6 presents China’s reported consumption and these speculative future trends in terms of per capita consumption in units of barrels per person per year (b/py), and, China’s reported and predicted population change out to 2050 (from the US Census Bureau International Database). 

The census bureau predicts that China’s population will top out at about 1.4 billion in 2026 and slowly decline thereafter.  If China’s consumption of petroleum were to continue unabated as predicted from the NLLS best fit shown in Figure 1, then per capita consumption would peak at about 6.6 b/py in about 2040.  That per capita consumption would still be still far less that the North America’s per capita consumption of about 24 b/py, and less than Europe’s or the Middle East’s consumption of 9.4 and 12.2 b/py, respectively, for 2009 (based on data presented in Figure 18, Part 5 Predicting regional petroleum consumption in a post-export world). 

On the other hand, if any of scenarios I, II, or III occur, or at least are close to reality, then China's per capita consumption will remain in the low 2s b/py and drop down to a plateau of 1.2 b/py by 2030-35.  The plateau exists because the predicted downward trend in population ("x" Figure 6) is roughly matched by the predicted downward trend in domestic petroluem production (blue doted line, Figure 5).

Conclusions
Although an export land model study of China is interesting in it own right, I did this study now as a prelude to a subsequent export land model analysis of food energy production, consumption and exports/imports.

I wanted to have an idea of what China’s petroleum consumption situation might look like when analyzing China’s food energy production and conception food situation, which will be forth-coming in December. 

Based on the scenarios explored in Figure 6, it looks like China would remain slightly above the 1 b/py per capita petroleum consumption levels that I found to be related to various indexes of increased hunger and signs of starvation (see e.g. parts 1-4 of The relationship between hunger and petroleum consumption).  I consider 1.2 b/py to be right at the edge of what the modern petroleum-driven food production system probably needs in order to function. 

That means by 2030-35, there will be not much petroleum left over for anything else, which in turn, means no economic growth.  In fact, I expect that China’s economic indicators will start to contract as soon as it is unable to import increasing amount of petroleum at the same rate as in the past.  That could happen very soon, although China’s official reporting statistics may obscure this. 

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Next time, I will report on my export land model analysis of food energy production for China; see you then.

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