Every year the oil company BP presents a twenty-year outlook (Link) for global energy markets. The latest report released last week points to the persistently rising importance of emerging markets in the global market for imported oil. China has had the most impact on oil markets over the past two decades, increasing its imports from a little over one million barrels per day (b/d) at the turn of the century to over nine million today. China largely replaced the market presence of the United States, which has seen its oil imports fall from 12 million b/d in 2007 to nearly zero today. But China’s growth in demand for oil is now slowing ,and India is now rising as the primary source of marginal demand for imported oil. Unlike China, which has had a large and growing domestic production of oil, India’s high demand growth is expected to be met almost exclusively by imports. The rise of India as a major actor in the oil markets comes at a time when the U.S. has become self-sufficient in oil and Europe’s demand for imported oil is declining. The result of this is that India is set to become the major buyer of Persian Gulf oil. The following chart from the BP report illustrates India’s growing role in the market. While combined demand from China and OECD countries is slated to remain flat, India and emerging Asia and other emerging markets will experience high demand growth. India’s oil demand is expected to rise by 3.1% per year through 2040, from 5 million barrels/day to 9 million b/d. BP expects India’s oil production to decline slightly from the current 1 million b/d of production, so that demand growth will have to be supplied by imports, which will rise from 4 million b/d to about 8.2 million b/d. BP expects total global demand for oil to fall from 96 million b/d to 82 million b/d between 2017 and 2040, which means that India’s share of global oil demand will double from 5% to 10%. China’s oil demand is expected to rise from 13 million b/d to 15 million b/d, while production stays around 4 million b/d. This means Chinese imports would rise by 2 million b/d, from 9 million b/d to 11 million b/d, half as much in volumes compared to India. As India and China come to dominate the market for imported oil, both the U.S. and Europe will become less significant. The U.S. is expected to export 5 million b/d in 2040. Over this period, according to BP’s estimates, Europe’s import would fall from 11 million b/d to 7 million b/d. Where will India and China source their oil? In the chart below, the BP data points to the same primary sources that have met demand for oil imports in the past decades: Russia and the Middle East. China is already cementing its energy ties with Russia, building a series of pipelines to Siberia and importing Russian Artic liquid natural gas (LNG). India, on the other hand, has as its traditional supplier the Persian Gulf, which makes sense from a logistical point of view. Certainly, as they always have in the past, the geopolitics of oil will require that both India and China become much more involved in international politics. With the U.S. no longer importing oil from the Middle East and, perhaps, entering a period of lesser foreign-policy engagement, China and India will increasingly have to actively defend their strategic commercial interests. We have already seen this clearly wth regards to Indian imports of Iranian oil. India has increased its imports of Iranian oil sharply in recent years, and China and India are today Iran’s two biggest clients. Interestingly, both received waivers from the U.S. Iran sanctions and continue to buy Iranian oil. India’s dependence on oil imports with their highly volatile prices also will create greater macro-economic challenges. Growing oil imports may pressure the trade and current accounts. Unlike China, which experienced huge trade surpluses during its decades of dependence on the importation of oil and other commodities, India runs chronic current account deficits. These are likely to become more difficult to manage, leading to increased currency volatility. Trade Wars
- Why a U.S. China trade deal is not enough (Project Syndicate, Minxin Pei)
- Trade truce will not end China-U.S. tension (SCMP)
- A look at the future of Sino-U.S. relations (Li Lu Himalaya Capital)
- The internet has become a battleground between the U.S. and China (WSJ)
- Senator Rubio’s report on the China threat (U.S. Senate)
- Is China or Russia are new rival (The Atlantic)
India Watch
- India turns its back on Silicon Valey (Venture beat)
- India is right to resist cancerous U.S. tech monopolies (venture beat)
- 5 more years of Modi? (Lowy)
- China is leading FDI in India (SCMP)
- India curbs create chaos for Amazon and Walmart (Bloomberg)
- India’s big upcoming election (Lowy)
- India’s vote-buying budget (Project Syndicate)
China Watch:
- China’s property market slowdown (WSJ)
- Cracking China’s asset management business (Institutional Investor)
- Haier’s turnaround of GE Appliances (Bloomberg)
- China’s consumer is losing confidence (WSJ)
- China real estate bubble (Nikkei)
- Will China fail without political reform? (Project Syndicate)
China Technology
- China will corner the 5G market (Wired)
- CTrip’s strategy (Mckinsey)
- DJI’s rise (SCMP)
- China’s decade-long Bullet-train revolution (WIC)
- China’s lead in EVs and EV infrastructure (Columbia)
- China’s high-flying car market (McKinsey )
- China’s place in the autonomous vehicle revolution (McKinsey)
- Can China become a scientific superpower? (The Economist)
Brazil Watch
- Brazil’s crucial pension reform (Washington Post)
- Brazil’s finance guru (FT)
- The rise of evangelicals in Latin America (AQ)
EM Investor Watch
- Make hay while the sun shines in emerging markets (FT)
- Globalization in Transition (mckinsey)
- World Bank Report, Global Economic Prospects (World Bank)
- Indonesia’s economic populism (The Economist)
- EM’s Corporate debt bomb (FT)
Tech Watch
- Robots and farming (Realclear markets)
- American energy independence is here (AL Advisors)
- Solving the productivity puzzle (Mckinsey)
- Autonomous trucks are coming fast (Mckinsey)
Investing
- Who is on the other side? (Mauboussin)
- 50 reasons not to invest for the long-term (Abnormal returns
- Not one Ivy League endowment outperformed past 10 years (Institutional Investor)
- Stock market charts you never see (Papers)