Oil Demand is Spiking--Are you Prepared? (article)
A little something to pass along to the BWD longs, to remind us of the larger context...
from pinnacledigest.com
Dear member,
The domestic oil and gas sector has been under intense pressure to discover new resources and increase supply. A renewed emphasis on domestic, on-shore drilling has revitalized the industry from coast to coast in North America. To add to the pressure, demand from developing nations will soon exceed even the wildest predictions of only a few years ago. China, India and Brazil will be three of the largest emerging economies set to impact the global supply of oil.
China has overtaken the United States as the largest automaker in the world. There are millions of Chinese buying their first car every year and this trend will only increase. China has emerged as the world's third largest net importer of oil. Just 15 years ago it was a net exporter. It is currently the second largest consumer of oil behind the United States.
In August, China consumed an estimated 35.54 million metric tons of oil, or an average of 8.40 million barrels per day. This pales in comparison to the United States which consumes over 20 million barrels per day, but a dangerous trend is emerging. See the chart below which documents a net increase of 3,328% of oil consumption in China over the past 40 years. With China's middle class emerging at a faster rate than ever before, the next decade could be unforgettable for the oil markets. Are you positioned?
Although renewable energy sources have been making up some ground recently, there are thousands of applications oil is used for and many of them have no substitute. We are many years away from renewable energies taking hold of even a small percentage of the market share (from primary sources of fossil fuel demand).
Below is a map of the world's global consumption of oil. The numbers are not exact, but very close.
The World Bank has predicted that China will overtake the United States as the largest economy in the world by 2020. If this happens, China will be the largest consumer of oil in the world.
Where is that extra 10 million barrels of oil per day going to come from?
This would be the equivalent of adding another Europe to the global oil consumption chart. And in only 10 years!
China is already tightening its relationship with Kazakhstan and Russia as massive oil pipelines are currently being built from these two countries in a quest to secure oil reserves.
State-owned Chinese companies have emerged as major resource investors. Over the past few years they have poured billions of dollars into mines and oil fields from Latin America to Africa and Iraq - and will continue to do so. In fact, Chinese companies spent a record $32 billion last year buying energy and resource assets abroad.
The writing is on the wall. The United States and its dependence on foreign oil is coming to a swift end due to increased competition, energy safety and dramatic price hikes.
The United States is going to have to begin tapping its own, land based reserves more readily. Our team is not waiting for this shift to occur without us. Instead, we are researching various domestic markets now and will have follow-up reports available soon.
Global Demand
The International Energy Agency (IEA) released its Oil Market Report on September 10th 2010. This report is very useful and something we monitor regularly at Pinnacle. Global oil demand is projected to average 86.6 mb/d in 2010 and 87.9 mb/d in 2011. 2010 readings are revised marginally higher based on stronger data from OECD (Organisation for Economic Co-operation and Development) countries. This increase has greatly factored in a slow economic recovery. If the recovery picks up, obviously oil demand will reflect this and surge.
The IEA has also reported in its World Energy Outlook report that it projects oil demand will grow by more than 25% in the coming 20 years. It is expected to grow from roughly 85 million barrels per day in 2008 (this number has already increased, despite the worst recession in 70 years, as documented above) to 105 million barrels per day in 2030.
A recent New York University study found that official energy agency projections are far too conservative, and reported, "Total oil demand will be 138 mbd in 2030-about 30 mb/d greater than what is projected by DOE, IEA, and OPEC." They went on to note that, "Our projections...are higher than projections by those three institutions...because we project rest-of-world growth that is consistent with historical patterns, in contrast to the dramatic slowdowns which they project."
Our team favours this outcome, simply because government run studies always 'under predict' or attempt to make the growth look more gradual and organic. That is not the oil and gas sector and just as the GDP increase of China and other emerging countries was badly underestimated, so are the global demand projections for oil.
Current Rising World Oil Demand
Our team at Pinnacle is preparing for this continued rise in demand for our short and long-term portfolios and we are becoming increasingly bullish on North America's domestic energy sector.
One in five barrels of US oil is derived from a country that the State Department views to be "dangerous or unstable." The cost of this oil is volatile and can be cut off at any time. Simply put, it's not secure.
The United States is running thin on oil rich allies and those close to home have complications. Canada and Mexico are the two largest exporters of oil to the United States and have a few flaws nobody likes to talk about (read
Vol. 182 - Fortune 500 Companies Tar Alberta's Oil Sands ).
The majority of Canadian oil comes from the tar sands, which is a very dirty form of crude oil that can cause up to 5 times more greenhouse gas pollution than conventional oil. Recent studies have also illuminated Mexico's fading primary oil sources which are expected to be largely depleted by 2019. If China's economy does in fact 'hit its stride' by 2020, and surpasses the United States as the largest economy on earth, we're predicting the US will have some fierce competition abroad to secure oil.
Where will China's extra 10 million barrels of oil per day come from?
Abroad... And from many of the same places the US buys its oil from.
The United States will have to depend on much of its supply for oil to come from within its own borders. Otherwise it will get caught up in bidding wars with China.
Next week we will be doing a special report on shale oil and gas formations as this area will lead the domestic revival of the oil and gas business in North America.
All the best with your investments,
PINNACLEDIGEST.COM