How sustainable is China’s future energy demand?

A new report by S&P Global's China Senior Analyst Group*, entitled "China's Sustainable Energy Future Depends on Efficiency, Economic Transition, And Renewables -- Not Slower GDP Growth" finds that China will need to take a radically different path of energy consumption from what developed nations currently follow in order to avoid a spiking oil import bill.

Eight years ago China overtook the US to become the world’s largest market for new vehicle sales, and by the end of this year is set to once again overtake the US to become the world’s largest importer of oil. However, what is not immediately  apparent  from these headlines is how modest China’s oil demand actually is on a per capita basis, as the chart below demonstrates, with Chinese per capita GDP on the X axis (in real 2010 US dollars) and per capita oil demand on the Y axis.

Historically per capita oil demand rises as countries develop (as represented in the chart by per capita GDP) until around $20,000 – 30,000 per capita oil demand, when it peaks and then declines.

Chinese per capita demand is currently around half that of Malaysia and Korea at similar stages of economic development.

If China was to follow the path taken by countries like Portugal and Spain then by 2040, when Chinese per capita GDP is around $20,000, its oil demand would be between 33 million and 44 million b/d, up from just over 12 million b/d in 2016.

South Korea has a small population relative to the size of its significant petrochemical and industrial sector, which accounts for around half of total Korean oil demand. This helps to explain its high per capita oil demand compared with other developed countries. If China follows the path of Korea, by 2040 it would be consuming an astonishing 62 million b/d of crude.

South Korea is an outlier but it is quite evident that China cannot follow the same path of oil demand as other developed countries with more modest per capita oil consumption. Thankfully this is also very unlikely. Not only have vehicles and engines becomes a lot more energy efficient since Spain and Portugal, in the late 1980s and late 1990s, respectively, were at the same level of development as China will be in 2040, but China is also implementing policies to promote adoption of electric vehicles including supporting R&D in battery and electric vehicle technology as well as investing in and subsidizing the build out of electric vehicle charging facilities.

The China Senior Analyst Group’s report makes estimates as to the path of future China oil demand; needless to say, when it comes to China’s future oil demand, the past is certainly no guide to the future.

Download the report here.

* The S&P Global China Senior Analyst Group is a cross-divisional initiative sponsored by the S&P Global APAC Leadership Council