IEA: China now the world's largest energy consumer

China Surpasses the U.S.:
As many news outlets are now reporting, according to the International Energy Agency, China surpassed the United States as the world’s largest energy consumer in 2009. China consumed 2,252 million metric tons of oil equivalent in 2009, while the U.S. used 2,170 million tons. This estimate is in line with BP Plc’s Statistical Review of World Energy, which was released in June. Surprisingly, China rejected the IEA report, claiming that the IEA’s data is unreliable.

Amazingly, China’s total energy consumption was just half the size of the U.S. 10 years ago. The latest numbers are an indication of China’s robust growth and how the global recession hit the U.S. more severely than China. On a per capita basis, however, the US still uses far more energy than China and remains less efficient than Europe.

IEA Chief Economist Fatih Birol stated, “As China overtakes the U.S. as the world’s largest energy consumer, it is not only a domestic issue for China, but has repercussions for the rest of the world not only in supply terms, but also in how the energy is consumed…If China uses electric cars, hybrids and so on, they will impose the manufacturing line on most of the rest of the world.”

Global oil supplies will become “tighter” after 2015 as a result of declining production outside the Organization of Petroleum Exporting Countries, and growing control of reserves by state-run producers, Birol said.

Investment Idea:
Investors who are interested in China’s energy sector should consider the Global X China ETF (CHIE). This ETF, which was introduced on December 15, 2009, has the following breakdown:

Oil & Gas, 43.56%
Alternative Energy, 22.42%
Electric, 14.11%
Coal, 13.7%
Energy Equipment & Services, 6.13%

At $13.11 per share, now may be the time to buy. This is supported by additional news that “China is likely to consume about 11 percent more electricity this year than in 2009” (Reuters) and that the country “may spend about 5 trillion yuan ($738 billion) in the next decade developing cleaner sources of energy” (Businessweek).

Conclusion:
With China and other developing nations on the rise, the question right now is not “if” global energy prices will rise, it is “when.” With economic recovery lagging in the U.S. and Europe, I believe that prices will rise at a slow pace at best for at least the next six months. If we see greater certainty in economic conditions in 2011, I predict that we will see a boom in energy prices by 2012.

Daniel A.
Summer Analyst
Analyze Capital LLC
analyzecapital@gmail.com