China is a huge country. How’s that for an obvious statement? The simple fact is it has long been a country where its huge population is relatively poor, a socio-economic development that led to the country having minimal oil demand. After all, who really needs oil if most of the population is rural and riding bikes?
The truth of the matter these days is China is undergoing a massive revolution. While the government might still be considered communist for political purposes, the country is clearly a massive capitalistic machine. This is leading to the creation of a huge middle class that wants to live a higher level of lifestyle. Frankly, who can blame them? I can’t and nobody really should. In a country that often espouses the values of Mao, there is no reason they shouldn’t be able to live the American Dream!
The new move in China is to have a middle class lifestyle for that that can afford it. Studies show that this means moving roughly 300 to 600 million people into the new more affluent lifestyle. In short, we are talking about adding roughly two times the entire population of America to the middle class. The implications of this are massive and signal a shifting tide in the world that is almost impossible to fathom.
The United States used between 17 million and 20 million barrels of oil a day. China uses about 10 million give or take. The world currently produces about 85 million barrels a day and uses roughly the same. If we add in the figures for the new middle class of China, how do we account for the impact on oil demand and supply? The truth is the numbers don’t work and it isn’t even a close thing. China is looking at oil demand levels of 20 to 30 million barrels a day in the next 10 years. Where will it come from? Nobody knows. It raises what is known as the peak oil question, but in a different twist.
The peak oil theory is based on the idea that we will reach a period in the world where total oil production will peak and then start to decline. This will obviously cause massive economic turmoil and a host of problems. The China situation, however, brings up this issue from a different perspective. There is no doubt that we cannot come up with an extra 30 million barrels of oil production a day in the next 10 years. Heck, we can barely maintain what we produce today. Given this, what happens when demand shoots up?
The answer is pretty ugly. Prices will shoot up, economies will collapse and wars for resources will be inevitable. That is the future of oil with the growth of China.