Energy 2030

Organizing Committee

Final Program

Poster Exhibition Venue 2006 Proceedings


Proceedings of the Second International Energy 2030 Conference,
November 4-5, 2008, Abu Dhabi, U.A.E.

“Where’s my Surplus?” New Consumer-driven Realities in Oil Markets

Dr. Dalton Garis

The Petroleum Institute, UAE

This presentation (and paper) argues that crude oil prices are reflecting a structural shift in world supply-demand relationships, and that the current elevated prices are not the result of just another oil price boom-bust cycle, similar to what occurred during the 1970s-1980s period. A misreading of this reality has caused a deliberately slow response to elevated crude prices on the part of the oil majors and the national oil companies, thus, exacerbating price increases from perceived and real inadequate capacity increases upstream, midstream and downstream. Coincident to this is an increase in world crude demand, especially from India, and from China, which has become the second largest oil consumer after the United States, displacing Japan to third place in 2005.

The combination of a slowed capacity increase from producers and accelerated world demand increases will lead to elevated crude price levels for the rest of the decade. There is just too much delivery infrastructure that has not been maintained for too many years, due to the long period just ended in 2003 of oil prices too low to attract needed capital. With the increased demand growth, 60% of which is coming from transitional economies in the Asia sphere, there is the long-anticipated emergence of the sub-Saharan economies with a population of 1.5 billion, which will plug in to the world energy grid in the next decade. From where will the energy for there persons be supplied?

Energy consumption is estimated to be income-elastic in transitional and developing economies such as China’s, and perhaps unitary- or even inelastic in mature economies, such as Germany’s or Japan’s. This means that for a 10% increase in Chinese GDP there is an expected greater than 10% increase in energy consumption and use. But China’s GDP growth has been over 14% annualized for 2006, consistently greater than the best estimates. This portends even greater oil demand from China. Today, China imports 6.8 mbd of the world’s crude. But at an annualized growth rate of even 9%--far less than actual—China will double its oil consumption in just 7 years. Meanwhile, as the accompanying graphs and figures show, the world oil balance has gone away, from over 6 mbd. of excess oil production capacity, to less than 1 mbd.

Thus, the danger to the industry is not the typical scenario of over-investment, leading to a general price collapse and subsequent financial stress for investors, and national and international oil companies; but rather, under-investment, which could accelerate price rises and economic dislocations.


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