[Novice Investing]

Bloomberg.com: Worldwide

Price of gasoline in China is now $ 3.42/gallon ($ 143.64 per barrel). Assuming gasoline price is $ 10 higher than crude, Chinese government is now subsidizing at around $ 10 per barrels of its gasoline demand. That is 'only' $ 60 Million per day, $ 21.9 Billion per year, which is peanut for the government. Trade surplus is running at > $ 100 Billion annually. Anyway, regarding the Chinese apettite for fuel oil, I don't think they have that much of a disposable income.

Lookie here. $ 3.42/ gallon is what the US was paying for gasoline just last year. And I don't think the salary in China is increasing that much. What is their current income per capita? I am guessing at around USD 5000/year. The US income per capita is around USD 44,000 per year. Now, I know that living cost is lower in China than in the US. But is it 10 times lower? In big cities where the demand of car is, I don't think so. Further, for cars, the Chinese are paying around perhaps 15% less, not much more since steel plastic part etc is a widely traded commodity. How about housing? I think labor cost is much cheaper than in the US, and I am guessing that houses construction is about half as cheap in China. Land in China is more affordable. but then again, in big cities, does land cost 10 times less than in the US? I don't think so. I am guessing 5-6 times but not much more. Food, yes, the Chinese eats less food than in the US. Looking at income distribution, I don't think the Chinese will have more disposable income than us. Thus, if $ 4.00 per gallon of gasoline has started to reduce demand in the US, it will do so too in China, even with current subsidized price of $ 3.42 per gallon. In short, the growth of 6MBPD demand of oil from China will not come from gasoline consumption. Gasoline consumption may in fact decrease from here.

How about industrial demand? Industrial demand from factories etc etc very much dependant on the US demand. If US motorists start to cut back, eventually, they will cut back on their consumptions on goods made in China.

Biggest energy usage after transportation and industry is electricity. Demand is projected to increase 15% to 2.859 trillion kwh. In dollar term, assuming $ 0.05/kwh of cost, that is equal to $ 143 Billion of expense per year.

China Electricity - consumption - Economy

Assuming 80% of this is from crude oil and average oil price of $ 90 per barrels, demand is around 3.48 MBPD. If we assume still a 15% increase each year, that is equivalent to 522 KBPD.

Net net, for 2008-2009, China's energy consumption will rise less than the reduced demand of 800 KBPD in the US due to $ 4.00/gallon gasoline. Others like the European countries and Japan has witnessed similar trend, thus, while India, Russia, Brazil demand may pick up, overall, demand will be lower this year compared to last year.

Of course this calculation is a simplified one but I am guessing it is better than not having it.