What a difference a decade can make. It wasn’t too long ago that we were discussing a potential high water mark in global oil production, but one shale revolution and a global price collapse later, crude supplies are more plentiful than ever. Now, as Bloomberg reports, analysts are seeing an eventual contraction in global demand for oil over the next thirty years:
If rapid improvements continue in renewable energy, electric vehicles and other disruptive technologies, petroleum consumption will peak in 2030 and decline thereafter, according to a report from the World Energy Council. As the globe’s largest producers gather in London this week for the Oil and Money conference, they might want to check their assumption that the market will grow for decades to come. […]…[D]emand estimates from the International Energy Agency…have been revised down over the past 20 years, just as projections for renewable energy increased, said Michael Liebreich, founder of Bloomberg New Energy Finance. He predicts the growth of electric vehicles and improvements in fuel efficiency mean oil demand will peak around 2025 and decline in the 2030s. “The orthodoxy of ‘rampant growth’ has turned into ‘less rampant growth’ and actually now, ‘not very rampant growth’ at all,” Liebreich said in a phone interview. […]Saudi Arabia, the world’s largest oil exporter and de-facto leader of OPEC, is banking on its crude reserves of 266.5 billion barrels lasting another 70 years, according to a bond prospectus.
Bloomberg wants to give some of the credit for this tapering and eventual drop in oil demand to falling costs for some renewable energy sources, but that’s a misleading representation of what is likely to happen. Wind and solar power don’t compete with oil, generally—they may both be energy sources, but wind turbines and solar panels primarily produce electricity, while oil is used almost exclusively for transportation. It’s therefore hard to make a convincing argument that cheaper renewables is going to be responsible for lower demand for oil.However, changes in our driving habits and in the types of cars we drive will affect how much oil we consume. Automakers are making more fuel-efficient cars, and though SUV sales have risen over the past two years as gas prices have fallen, even the most gas guzzling makes and models are seeing their miles-per-gallon numbers go up. Electric vehicles, of course, sidestep gasoline altogether, and as EV infrastructure is built out and the types of EV car options multiply, demand for gasoline—and therefore oil—should take a hit.Oil is an essential input for the global economy and it will continue to be so for the foreseeable future, but changes are afoot that challenge the notion that demand for the hydrocarbon will rise indefinitely. That’s bad news for producers, and especially for petrostates for whom a high price of oil is essential for balancing the federal checkbook. With supply surging around the world, this dimming demand outlook spells long-term structural problems for those hoping for a return to $100+ per barrel crude.