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China's Fuel Consumption Hits Record High

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China's Fuel Consumption Hits Record High

For the first quarter of 2008 China's fuel consumption rose by 16.5% over the same period in 2007. This is much stronger than analysts have been predicting at around an 8% rate. That was for gasoline, diesel and kerosene. When you consider they suffered the worst winter in decades and travel was suppressed for weeks the rise in demand is even more surprising.

The top economic planner at the National Development and Reform Commission said China's growth slowed to "only" 10.6% in Q1 from 11.7% in Q1-2007. The decline was reportedly due to the slowdown in exports into the U.S. and due to the very fierce winter storm that shutdown parts of China for weeks.

2007 was the 5th year of double-digit growth and the NDRC projects this will continue at least until 2020. They claim many small and medium sized companies, particularly the exporters of low end products are faced with huge growth problems. Rising raw material costs and rising labor costs are putting the squeeze on profits but there is still more business than they can handle. Analysts claim growth will continue to be robust, especially in regions such as the west and the Beibu Bay Economic Zone in Guangxi. The economy is currently dependent on exports but the rapid urbanization process is going to be a strong driver behind economic growth.

In 2006 only 24 out of 1000 Chinese people had a car. That is expected to increase by 67% to 40 by 2010. That is an increase of nearly 21 million cars. For comparison the U.S. has 785 per 1000. A recent survey claimed 260 out of 1000 had plans to eventually buy a car by 2020. I am sure many of those will never achieve their dream due to the rising cost of ownership and operating expenses. That would be an increase of 306 million vehicles and China is already moving to restrict purchases.

J.D. Powers calculates that four-fifths of all new cars in China are bought by people who have never bought or even used a car before. Car sales in China have increased by 800% since 2000. 

Add the new car demand in India which is only slightly less and you can easily see why there will not be enough oil to go around well before 2020. That threshold is expected to arrive in 2010 if not before.

Get used to $4 gasoline. We will wish for it to be that cheap in the coming years.

Jim Brown

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