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High Oil Prices? You Ain’t Seen Nothing Yet!

Have we already seen the worst of the oil crisis?

October 2, 2000

Have we already seen the worst of the oil crisis?

So far, the real problem with oil has been shortages of supply, whether the running-down of stocks in the industrialized world, or OPEC manipulations, or even Saddam Hussein’s cat-and-mouse games. In sharp contrast, the future problem with oil could well be one of increased demand. Currently, China’s oil consumption is just over six barrels per capita per year, far below the 16 barrels per capita in Taiwan, 32 in Germany and 53 in the United States.

But here’s the twist. Six barrels per capita, multiplied by 1.2 billion people, means that China is already consuming a quarter of the world’s annual demand of 28 billion barrels. At its current rate of growth, China should be consuming half of the world’s current output within twelve years. And once it reaches Taiwan’s current consumption levels, it will consume two-thirds of the current world output.

Cambridge Energy Research Associates, a leading consulting firm in the field, is projecting a global demand of 35 billion barrels in the year 2010, largely because of China’s assumed growth.

The problem was that the 1990s, a decade in which oil prices were generally low, were an unusually disappointing period for new oil discoveries.

Higher prices should help ease that in the future, as the incentives become more tempting to find and exploit new reserves. But for the foreseeable future, China’s growth is going to put upward pressure on the price of oil.

The implications of China’s dynamic growth rates are potentially enormous. Never before has the biosphere had to face the challenge of 1.2 billion consumers simultaneously climbing up the food chain from a subsistence diet of rice and grains to sweet and sour pork, Big Macs and takeaway spare ribs.

The economic research service of the U.S. Department of Agriculture notes that, as recently as 1993, China was a net exporter of grain. In that year, it exported an impressive 7.5 million tons. The same survey notes that China shifted sharply to a net importer of 15 million tons in 1996, and is projected to be a net importer of 32 millions tons by 2005.

Remember, it takes two kilos of grain to produce one kilo of farmed fish or chickens, four kilos to produce a kilo of pork, and up to ten kilos of grain to produce a kilo of beef. As mainland Chinese start increasingly to eat like Taiwanese, or even like Americans, the pressure on grain supplies is going to grow.

China’s own food supplies face a problem. Last year, the water table under Beijing fell by eight feet. Since 1965, according to a report by the Washington-based Worldwatch Institute, the water table under the city has fallen by nearly 200 feet.

The Yellow River, the main water supply for China’s industrial north, has been steadily drying up, intermittently failing to reach the sea every year since 1985. In the drought year of 1997, the Yellow River failed to reach the sea for 226 days.

Look on the bright side. It is a wondrous human achievement that 1.2 billion Chinese, and 800 million Indians, and 200 million Pakistanis and 120 million Bangladeshis all want to start eating protein every day — and have a decent chance of doing so. Understandably, they also want flush toilets and air-conditioning and a car in the driveway, and generally to live like the 700 million rich folk of North America, Europe and Japan.

Maybe the biosphere can take it, and with luck, the new global economy will provide the technology. The good news is that the magic of the price mechanism will find a way to distribute the new demands on energy and water resources that will be required. The bad news is that the price mechanism tends to work by ensuring that we all pay more.