"No Hurry to Recycle," Feature Article, May 2006

POWER WINDOW:
two paths

by Jeffrey Winters

It really seems that we have entered a new paradigm for world energy supplies. The spot price for oil at press time has again reached more than $69 per barrel, and this without the intervention of a series of category 5 storms. The short-term oil supply situation is unsettled at best. We might not have witnessed the peak production of petroleum, but it has been more or less flat over the past year. And for all the interest in developing unconventional alternatives to light crude, such as Canadian tar, Arabian gas, or Montana coal, nothing will be as valuable in the near and medium term as access to good old-fashioned oil.

And thus many observers look to the rising economies of China and India as potential sources of competition for what may be dwindling supplies of petroleum. Indeed, recent deals between Chinese companies and interests in central Asia and Africa have led some to believe that the next decades will see a series of escalating resource wars between a United States trying to sustain a gas-guzzling lifestyle and a China trying to attain one.

On the face of it, it's obvious that China and India are going to demand more oil as they move forward. The relationship between the size of an economy and its oil consumption is pretty tight. Roughly, every order of magnitude of increase in a nation's gross domestic product requires an order of magnitude increase in oil consumption. It's actually quite astonishing that the numbers plot so well, encompassing rich nations from continental Australia to boutique Luxembourg and poor nations ranging from Benin to Egypt. The correlation is even sharper when plotting total energy consumption against GDP.

This suggests that as China's economy grows to equal that of the United States, its oil and total energy use will rise to the U.S. level as well. The Energy Information Administration suggests that just to meet China's projected increase in demand between now and 2025, the world will need to develop more than 7.5 million barrels a day of oil production capacity in the next two decades. That's 9 percent of current capacity, or the equivalent of all current production of Canada, Nigeria, and Venezuela.

But there may be some hope. First, while nations line up fairly neatly in terms of energy use across their entire economy, there is more of a spread when plotting per capita energy use against per capita GDP. Although China and India have huge economies, their output is still modest in relation to their enormous populations. Both countries have a long way to go to reach the per capita economic output of most European nations, let alone that of the United States or other G-8 countries.

As they grow, then, China, India, and other nations have a choice: They can develop along the lines of the U.S. and Canada, which draw the energy equivalent of some 55 barrels of oil per capita each year, or more like France and Germany, which are nearly as rich on a per capita basis, but are nearly twice as efficient. For a country the size of China, that difference amounts to the equivalent of 100 million barrels of oil a day.

Potentially more important is a trend toward less energy intensity per dollar of economic output over time. Between 1990 and 2001 (the most recent date for comparative data), G-8 nations have seen energy intensity drop by as much as 15 percent. China itself cut the energy investment per dollar output by more than half. As this trend continues—and it should—we'll be able to do more with less energy. And that ought to give us the time we need to prepare for the day when the oil spigot really does begin to run dry.