In September, China surpassed the U.S. as the largest buyer of oil in international markets. According to U.S. government reports, China's net oil imports reached 6.3 million barrels a day, passing the U.S. at 6.2 million barrels per day. According to data complied by World Bank consultant Mamdouh Salameh, total demand for oil this year could reach about 10 million barrels per day and rise to a staggering 18 million barrels per day by 2035.
The increase in demand is attributed to China's rapid growth in household incomes and greater consumer demand for cars. As the country's need for oil rapidly increases, China may find itself needing to outbid other market participants for oil supplies. OPEC is not planning to raise its production capacity anytime soon, a sign that oil prices are sure to rise. China must also contend with limited oil supplies produced at home. The country is able to produce about 4.4 million barrels of oil per day, only a fraction of current and expected demand.
While global oil supplies are not in short supply, Salameh told the South China Morning Post that an investment in excess of $13 trillion will be needed between now and 2020 to ensure supplies will meet oil demand, especially the demand expected out of China. So, are oil producers ready for this increasing demand?
Chevron's acreage in China fluctuates
Chevron (NYSE: CVX ) is well aware of the rising demand for oil in China, which the company predicts will increase by 75% by 2035. In 2012, the company added 1.4 million acres of exploration acreage in the South China Sea and averaged a net daily production of 20,000 barrels of crude oil in China. For 2013, the company's capital and exploratory expense was budgeted at $36.7 billion. About $25.5 billion is for major development projects located outside the U.S. in countries like China.
During the period of 2008 to 2012, the oil-equivalent production in China was fairly stable and ranged from a low of 19,000 to a high of 22,000 barrels per day. Net liquids production during this period showed similar results. Chevron's oil and gas acreage has seesawed since 2008, reaching a peak of 4.8 million in 2010 and taking a dive to 2012's gross acreage amount of 1.7 million. The continued search for acreage will be critical for the company to remain competitive.
ExxonMobil works on maintaining leadership position
ExxonMobil (NYSE: XOM ) is expanding its Singapore plant to prepare the company for the increase in demand expected in the Asia Pacific region, which includes China. Production from its Singapore refinery is expected to be available in 2015. This refinery, along with one located in Baytown, Texas, will increase capacity by 30%. The company is confident this increase in capacity will maintain its position as a leading global oil supplier.
In 2012, the company also added nearly 1.8 million net acres to its exploration portfolio. Between 2013 and 2017, Exxon plans to bring 28 major new projects online, which are expected to deliver about 1 million in net oil-equivalent barrels per day by 2017. Like Chevron, Exxon also confirms the growing oil demand in China, which the company states had an annual growth rate of 15% between 1990 and 2010. Exxon predicts that demand will double during the current decade.
PetroChina deals with current soft demand
China's own energy company, PetroChina (NYSE: PTR ) was also affected by soft demand in the international oil market in 2012. The company achieved notable results in the development of oilfields, and its crude output remained stable. PetroChina continues to pursue growth in exploration and production and is moving forward with the implementation of a 'Peak Growth in Oil and Gas Reserves' Program. Overseas oil and natural gas equivalent output reached 136.9 million barrels, an increase of 13.3% over 2011. Total crude oil output reached 916.5 million barrels, up 3.4% compared to 2011 and the highest growth reported in recent years. Despite the growth in output, overall profit for the 2012 was down by 10.5%.
In the first quarter of 2013, results were affected by a weak global economic recovery and a slowdown in the Chinese economy, which also decreased energy demand. The company's crude oil output rose 1.8%. Profit for the period dropped by 8% in the first three months of 2013 compared to last year. First quarter earnings per share also decreased by 4.8% compared to last year's results.
My Foolish conclusion
Oil producers can expect to benefit from the increase in the demand for oil coming out of China and India. As the trend of lower oil consumption unfolds in the U.S., oil producers will turn their focus to these emerging markets. Energy companies with the most productive assets should see higher earnings over the long term, especially if supplies become limited and prices rise. While it's important to keep an eye on the wave of investments in new alternative sources of energy, investing in oil should still produce strong returns over the long term.
A pick-and-shovel play on energy
Imagine a company that rents a very specific and valuable piece of machinery for $41,000… per hour (that’s almost as much as the average American makes in a year!). And Warren Buffett is so confident in this company’s can’t-live-without-it business model, he just loaded up on 8.8 million shares. An exclusive, brand-new Motley Fool report reveals the company we’re calling OPEC’s Worst Nightmare. Just click HERE to uncover the name of this industry-leading stock… and join Buffett in his quest for a veritable LANDSLIDE of profits!