WASHINGTON, D.C. (July 22, 2010) – Both China and India are likely to continue increasing their oil usage by hundreds of thousands of barrels a day in coming years as their economic growth drives up energy needs, East-West Center Senior Fellow Fereidun Fesharaki said during a recent talk at the Center for Strategic and International Studies, where he also serves as a senior associate. But Fesharaki said he sees China's growth in demand peaking around the year 2020.
Click here to view a video of Fesharaki's presentation.
Fesharaki forecasted China's oil use to rise by around 400,000 barrels a day for each of the next eight to 10 years, after which he predicted it will slow down significantly. India's annual growth will be 100,000 to 150,000 barrels a day, he said.
"In China and India it is very much the industry, the economy and the way the system is organized which is leading to growth," said Fesharaki, who also is chairman of FACTS Global Energy, a consultancy firm with offices in Singapore, London and Hawaii.
But the world's two most populous countries diverge when it comes to policy, Fesharaki said. While both have large multinational energy companies, China's big oil and natural gas companies influence government policy, he said, while in India, the government drives oil company policy.
The arrangement is such that Chinese companies can influence government actions and have a free hand in certain matters such as some large acquisitions, Fesharaki said. An Indian company, however, would face obtaining government approval for a similar purchase.
Fesharaki added that Chinese policymakers do keep an eye on trying to keep use from rising too high, while India hasn't gotten to the point of saying it wants to limit consumption. His projections show China's domestic oil production remaining flat in coming years, so more imported oil would be needed to satisfy rising demand ‑ and thus pose a national security issue.
"They realize if they keep growing, their own actions guarantee the price of oil will go up and then their security will be in trouble," Fesharaki said. "Because of that they've taken deliberate measures to try and get demand under control."
His forecasts show China's peak oil demand occurring around 2020. In the meantime, he said, the Chinese government has enacted a three-phase strategic petroleum reserves program, which, when completed in 2016, will have tanks capable of holding 500 million barrels of oil.
Chinese companies also have taken steps to acquire their own sources of oil. Fesharaki said that in 2009 they had assets around the world capable of producing 1.2 million barrels a day – more than six times the amount controlled by the Japanese.
Pursuit of overseas production has given China a presence in oil markets in such places as Angola, the Sudan and the Middle East, including Iran. China is one of few major players that remain in Iran, he said, with Chinese companies involved in oil and gas production as well as providing some equipment.
Fesharaki said some European oil companies may have offices in Iran but aren't doing any actual production because of the threat of U.S. Treasury and U.N. sanctions.
Because of the sanctions, along with difficulty in obtaining financing and other issues, Iran has been unable to replace as much oil production as it is losing each year, said Fesharaki, who was born in Iran and once served as the country's chief energy adviser. He said Iran has a natural rate of decline of about 400,000 barrels a day per year and only is able to make up half or three-quarters of this production.
"So you have 100,000 barrels to 200,000 barrels a day of declining capacity, which over a five- or seven-year period of time would put export production under 3 million barrels a day," he said.
He said the sanctions have had at least one positive effect by forcing the Iranian government to lower gasoline consumption, leading to cleaner air and less traffic. But they've made it less competitive with Iraq.
"Iran is losing its position while Iraq is gaining, and of course Iranians are very, very competitive with Iraq in terms of oil production," Fesharaki said. "But now you see one side going down and one side increasing."
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