Thursday, April 9, 2009 05:00 PM
Scary tales: Oil hunger!
David Berman
You can argue that the surging price of crude oil is a bubble that will one day pop. Or, you can look at China's growing energy consumption and conclude that if the world's tight supply of oil is worrisome right now, the future looks downright frightening.
James Hamilton, professor of economics at the University of California, San Diego, and a blogger at Econbrowser, took the latter approach. He begins by noting that China's oil consumption has risen at a 7.2 per cent annual compound rate between 1990 and 2006. He then projected this growth rate into the future. He found that if the growth rate were consistent, then China would be consuming about as much oil in 2020 as the United States is today. And by 2030, China would be consuming twice as much oil as the U.S. is today.
“Are such projections plausible from the point of view of potential demand? During 2006, China used about 2 barrels of oil per person,” Mr. Hamilton said. “For comparison, Mexico used 6.6 – Chinese oil consumption could triple and they'd still be using less per person than Mexico is today.”
In other words, yes, they are plausible. But can the world's oil supplies, even with new projects under way, keep up with Mr. Hamilton's projections? No way.
“I think we will see some net production gains this year, and expect this to bring some relief for oil prices,” he said. “But I cannot imagine that the projected path for China above will ever become a reality. Oil prices have to rise to whatever value it takes to prevent that from happening.”
