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Economics Economics – Markets – Strategy Cutting the fat If oil demand is going up from here and prices have already quintupled since 2002, it’s a good thing that countries are growing more efficient with their oil use. Developed countries like the US, Japan and Germany have cut their oil consumption, per unit of real GDP, nearly in half since 1980. Some of these gains are technological (more efficient factories, for example) while some of the gains are structural (fewer factories and more services). China has made Asia’s greatest strides in raising oil efficiency Global petroleum efficiency bbls consumed per unit of real GDP, 1980=100 100 95 90 85 80 75 70 65 60 55 50 80 82 84 86 88 90 92 94 96 98 00 02 04 06 Asia10: 70 JP: 60 US: 55 GE: 52 In spite of Asia taking on the role as factory for the world, significant efficiency gains have been experienced here too. On average, Asian countries have cut oil consumption (per unit of real GDP) by about 30% since 2001. As one would expect, experience has varied widely. Asian countries have cut oil consumption per unit of real GDP by about 30% since 2001 Global petroleum efficiency bbls consumed per unit of real GDP, 1994=100 110 105 100 95 Japan 90 India 85 80 US 75 China Germany 70 93 94 95 96 97 98 99 00 01 02 03 04 05 06 16
Economics – Markets – Strategy Economics China has cut its oil consumption by two-thirds since 1980. That’s Asia’s greatest efficiency gain but it surely says as much (or more) about how inefficient China was in 1980 as it does about how efficient China may be today. Still, gains are gains and a 65% improvement is a big move in the right direction. If anything, India highlights the point about China. It was no more developed than China in 1980 and has made relatively fewer gains. India has picked up the pace more recently, however, and since 1994, average gains in China, India, the US, Japan and Germany have all been similar and sizable (chart immediately above). Elsewhere in Asia experience has been mixed. Korea, Malaysia and the Philippines have made great strides in cutting oil consumption. Korea in particular stands out over the past 15 years (chart below). Most are aware that it has imported huge amounts of technology from Japan and the US over the past three decades and it certainly shows up in its efficiency gains since 1994. But the Philippines and Malaysia – far down the technological ladder – have made strides nearly as great as Korea’s. This may show that the bang for the buck is higher further down the ladder where the ‘easier’ gains are often said to lie. Still, Indonesia and Thailand show there is nothing automatic or easy about productivity growth and efficiency gains. Gains there have been negative, on average, since 1994. Singapore’s gains have been modest and could reinforce the idea that the closer one is to the top, the harder it is to take the next step. Thailand and Indonesia have their work cut out for them. They are among the world’s largest consumers and importers of oil and stand to lose the most from higher oil prices (or gain the least from the growth in global demand that appears to be driving those prices) in the future. The dearth of efficiency gains there since 1994 surely helps explains why GDP growth in both countries remains sub-par even ten years after the Asian financial crisis. But efficiency gains remain as important to the rest of Asia as they do to Thailand and Indonesia. They have helped most Asian economies lower the price of oil in real terms and get the most out the growth in global demand since 2001. Plainly such gains are no less beneficial or important going forward. Petroleum efficiency improvements since 1994 bbls consumed per unit of real GDP, 1994=100 110 100 90 80 70 best gains 77 77 78 78 71 73 67 67 solid gains 81 81 83 83 86 100 negative gains 102 105 60 50 40 Korea Phil UK Malay Italy China Ger Japan US France India Twan Spore HK Thai Indon 17
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