Adam Smith's demand and supply theory in The Wealth of Nations could not have been clearer with the current scenario in the O&G industry. In recent release; The Economic Times states that over 10 million new cars were added to the roads in China in 2010 alone. Add to that the -"Bursting at its infrastructure seams'- Indian economy and you will see demand for energy like never before. Barack Obama says it without mincing words-"Increased use of energy resources by fast growing economies like India, China and Brazil is driving the global oil and gas demand".
The demand for O&G will surge and India and China alone will account for half of all growth by 2035. Increasing industrialization in emerging economies, escalation of energy efficiency implementations in Developed economies and emergence of new sources of supply are leading to a situation where the entire global demand equation would change. Energy generation, petrochemicals, automobiles and industries are all major consumption drivers for Oil & Gas. The demands for these are nearing a maturity cycle in the OEOD economies and they will gradually shift to alternates and the unconventional. Contrast that with the need of emerging markets to grow at a frantic pace and develop better infrastructure and stronger economies. A large percentage of these economies are still classified as rural and the governments will look to support the bourgeoning populous with energy security.
I cite an IEA report that states that for the first time oil demand in the developing world is expected to overtake that of developed countries in 2013. This trend is expected have a significant impact on the energy markets across the world. Demand in non-OEOD countries is expected to reach 45 million barrels a day (b/d) next year which is 600,000 b/d more than the OEOD countries. The shift is noticeable for cleaner - burning fuels. For e.g. China, the world's largest energy consumer is increasingly favoring natural gas as a fuel resource. The Voracious demand growing at over 20 percent annually has become a major driver of global M&A and hostile takeover. Going forward, with new refining facilities coming up in China, Middle East and South East Asia, refining companies are expected to look at exploring opportunities to secure oil assets for supply assurance and sustenance. The majority of additions to global refining capacity also continue to be in the Asian region as governments keep exploring options to be energy secure.
My view is that the demand equation of the drivers has changed considerably in the recent past, and is expected to maintain this shift in the future this shift in the future. I'll be interested in knowing your views on this. Do leave a comment.