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Oh Canada! China Has You Pegged As The New Saudi Arabia

|Includes: Sinopec Shanghai Petrochemical Company Limited (SHI)
That giant sucking sound you should be hearing is voracious oil demand from Asia and from China in particular.

Last year Asia's overall oil demand rose by an eye-popping 8.3 percent! Emerging economies in the east burned up an additional 1.6 million barrels of oil per day.

The Chinese led the pack. China's demand growth outstripped the whole region, skyrocketing by 15.1 percent year-over-year.

"It is hard to overstate the importance of China in global energy markets." That's the blunt bottom line in the International Energy Agency's most recent report.

Nobody is more aware of this than Canada where China is buying energy assets aggressively. Having been rebuffed in its attempt to buy Unocal in the U.S., China is buying heavily into oil-producing assets in Canada's western provinces.

Last year, Sinopec (NYSE:SHI) bought a 9% stake in Syncrude, Canada's largest oil-sands project, for $4.65 billion. The state investment agency China Investment Corp. (CIC) bought a 45 percent stake in an oil-sands project owned by Penn West Energy Trust for $821 million.

This year China is pushing new investments to deliver oil from Canada's prairies to west-coast shipping terminals. China Petroleum & Chemical, the country biggest refiner, has reportedly joined a group investing more than $100 million in a $5.5 billion pipeline to Canada's west coast. A number of Chinese companies are also in talks about a project to transport oil from Saskatchewan to the west by rail. Canadian media are also buzzing about another major Chinese deal in the works.

China's sudden love affair with Canada is just a microcosm of its worldwide energy appetite. From Russia to Africa the Chinese are buying all the energy they can find as national consumption booms, and imports shoot up to new highs.

China reported a record huge surge of crude oil imports in 2010, up 11.4 percent, to more than 200 million tons of overseas crude. The country's dependence on overseas oil has now surpassed 55 percent of total consumption.

China's 2010 rise in consumption was 47 million tons. For 2011, oil consumption will jump another 6.2 percent.

A Global Phenomenon

Emerging economies will drive oil demand to the limit between now and 2035. China's consumption will shoot up by 75 percent in the period between 2008 – 2035.

China's Increasing Energy Demand, Before and After 2008

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The IEA sees China dominating the rise in demand for oil, gas and coal. China's increased demand for oil imports alone is projected to reach 84 percent of the world's total increase.

As other countries emerge from the global economic crisis, oil demand and oil prices are certain to rise. The IEA predicts we will be paying $100 per barrel for oil through 2011.

Many OPEC sources say that oil priced at $100 a barrel is a sensible target for the year. Production will likely be adjusted to keep prices stable at that point. But what about the future?

Will There be a Peak Oil Crisis?

The boom in demand from emerging markets won't be letting up anytime soon. But the ability of OPEC nations to meet demand is reaching a peak.

Saudi Arabia's oil minister says his nation has the ability to increase production by four million barrels per day. All of OPEC's ability to increase production amounts to a maximum of roughly six million barrels per day. That's not nearly enough to meet future demand.

When will the crunch come? A new report from BP estimates that emerging nations in Asia will increase their oil demand by a staggering thirteen million barrels per day in the years leading up to 2030. The rest of the world will increase demand by another four million barrels per day.

The result? Demand will increase more than triple OPEC's ability to increase supply.

Crunch time is almost at hand.

IEA Sees Sharp Decline in Production from Existing Oil Sources

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This may be the most revealing chart you see this year. Many market trends are unpredictable, but not the oil market.

New trends will emerge as demand increases while traditional reserves dwindle.

Oil exploration will stretch into increasingly extreme and expensive environments in search of new supplies. That will be a bonus for the stocks of oil drilling, exploration and shipping firms.

Natural gas has been in a surplus as new supplies have come on stream during the financial meltdown. But gas prices should recover as demand for oil substitutes increases.

Finally, there is the increasing demand for unconventional oil. That includes the Canadian oil sands and Venezuela's very heavy oil deposits. Although they are difficult to extract and refine, with oil rising well above $100 a barrel, it will be worth the effort.

The biggest remaining oil reserve on earth, after Saudi Arabia, is the Canadian oil sands.

The Chinese have recognized that this is a critical part of their future. They are moving in quickly to secure energy in a world which is quickly using up its conventional oil reserves.

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How to Score Big on the World's Second Largest Economy...

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Committed to your Global Profits,

Jim Trippon

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