By Bradley Olson and Brian Spegele
A bedrock belief among oil forecasters has been that China's
voracious appetite for fossil fuels would stoke global energy
demand for decades to come. That assumption now appears
increasingly shaky.
A highly anticipated new energy-demand projection from Exxon
Mobil Corp. released Monday cuts the company's expectations for
China. And a slew of data is emerging that points to the toll a
weakened economy has taken on Chinese energy demand, which is among
the most important factors in determining the price of crude
oil.
Exxon cut its forecast for annual energy-demand growth in China
by almost a 10th to 2.2% a year through 2025. Over a decade, the
revision amounts to more than Brazil's current annual oil
consumption. Exxon also predicts that China's thirst for energy
will peak by 2030.
The company played down the change to its figures based on its
previously held view that China's working population is reaching
its apex, said Bill Colton, vice president of corporate strategic
planning.
"Countries sometimes have to go through transitions," he said.
"One thing about economics, it's never a straight line."
Oil prices fell 7.4% to $29.80 a barrel after Chinese data
released Monday showed that diesel fuel use fell in 2015 from a
year earlier.
A study issued last week by consultancy ESAI Energy said China's
oil-demand growth rate between now and 2030 would be less than half
that of the previous 15-year period.
"If demand won't come from China, who will step in to fill
China's shoes?" said Erica Downs, a senior analyst for the Eurasia
Group who focuses on the country's energy sector.
Some energy companies have already taken concrete steps to pivot
from oil because China's economic transformation and global efforts
to reduce carbon emissions make its future less certain.
Royal Dutch Shell PLC, Chevron Corp. and others have pursued
multibillion-dollar projects that hinge on natural gas, which emits
less carbon than oil and is cheaper or more lucrative to use in
power generation. Some analysts believe gas will eventually
overtake oil as the world's most dominant source of fuel.
Shell is in the finishing stages of acquiring global gas
powerhouse BG Group PLC for $50 billion, while Chevron and partners
are spending more than $80 billion to build two massive plants in
Australia that will liquefy natural gas so it can be shipped
overseas to Asia and beyond.
But those steps may prove problematic if energy demand doesn't
pick up in emerging economies.
Chinese energy consumption rose just 0.9% last year, according
to government estimates, as gross domestic product increased 6.9%,
the weakest annual rate in a quarter century. The unexpected
short-term drop casts a shadow over the prospect of an oil-price
rally this year. U.S. and global benchmark crude prices fell below
$27 a barrel last week for the first time since 2003.
The current oil glut was initially spurred by technology
breakthroughs that unlocked more fuel reserves from the ground. But
the oversupply is being prolonged and deepened by
weaker-than-expected demand.
That confluence of factors has made this oil downturn
particularly difficult to resolve. If tepid Chinese energy
consumption continues, it could raise profound questions about the
stability of oil and gas producers around the world, analysts
say.
Expectations of robust energy demand have always been about more
than just China. India, Asian tiger countries and other emerging
economies with vast populations eager to move into the middle class
were supposed to follow China's lead economically and on the
energy-demand front. Once-prominent fears that the world would soon
run out of oil have been upended by plentiful supplies unleashed in
recent years. Now emerging concerns about peak demand are starting
to percolate.
From 2000 to 2010, China's rapid industrialization created
soaring demand for oil to power an economy tied to manufacturing
and exports. Over that decade, China accounted for more than 40% of
the growth in global demand for crude oil.
The seemingly insatiable need caught the market by surprise,
helping push oil prices to a record $147 a barrel in 2008. But
since 2010, China's energy demand growth has slowed faster than its
GDP. In 2012, for instance, China's GDP rose at nearly double the
rate of energy-consumption growth. Last year, China's GDP grew six
times faster than energy-demand growth, according to figures from
China and the World Bank.
Some analysts believe the numbers reflect uncertainty around the
accuracy of data coming out of China. Yet even accounting for the
possibility that GDP data is inflated, the decoupling of economic
and energy growth suggests that China's transformation simply may
not require as much fossil fuels as many have predicted.
Just as energy companies underestimated Chinese demand in the
first decade of this century, they may be overestimating it now,
said Anthony Barone, senior vice president for deals and
restructuring at Argo, a Chicago-based consulting firm.
"Their growth has slowed, and the belief that they are going to
be the top country providing stable long-term demand for energy is
looking optimistic," he said.
BP PLC's 2015 energy outlook forecast 3.9% energy demand growth
for China through 2020, more than four times higher than last
year's actual increase in the country's consumption.
The International Energy Agency's 2015 energy-growth forecast
was nearly double the actual demand figure.
Predictions of a tremendous wave of energy growth from China,
India and other fast-expanding countries are based on a very real
trend. As those economies mature, hundreds of millions of people
will enter the middle class and use more energy, driving cars or
using air conditioning. That is why Exxon still believes that from
2014 to 2040, global energy demand will grow by 25%, according to
the company's Energy Outlook, released Monday.
No doubt middle-class Chinese are using more gasoline and
electricity to power their homes and cars, but so far it isn't
enough to make up for stagnating industrial activity.
All forecasts that seek to predict the supply and demand of oil
or other commodities decades into the future make use of history
and emerging trends, as well as informed "guesswork," said
Citigroup commodities analyst Eric Lee.
"China isn't going to keep sucking up oil voraciously," he said.
"No matter what, China will have its own unique development."
Write to Brian Spegele at brian.spegele@wsj.com
(END) Dow Jones Newswires
January 25, 2016 19:43 ET (00:43 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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