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Energy and Strategy
Forget Peak Oil, How About Peak Demand?

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.

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  • LarryD

    Eh, EV moves the fuel consumption from the vehicle to the power plant. The real problem is battery technology, batteries don’t have the power density of a tank of gas, even if the gas is diluted with alcohol. Hybrid vehicles, on the other hand, are practical replacements for pure gas powered cars. People are not going to buy two kinds of cars, one for day-to-day city driving, one for longer trips. For people who live outside of cities, EVs aren’t even an option.

    • Jim__L

      Subsidiarity is really the answer to the political issues of today. Laws that make sense for cities just don’t make sense for anyone else. Policy wanks whose philosophy is city-centric to the point of tunnel vision, shouldn’t be making decisions for anyone outside of walking distance.

    • f1b0nacc1

      Yes and no. While you are absolutely correct about EVs moving the consumption from the vehicle to the power plant, you can only (effectively) fuel vehicles with hydrocarbons at this time, while a powerplant can be nuclear, even solar/wind/unicorn farts. My point is that you aren’t simply doing a 1:1 replacement when moving from an ICE to an EV, so the greenies do have a glimmer of a point.
      People might not buy two kinds of cards, but household very well might. My wife, for instance, might only require a short-ranged runabout for her needs, while I require a longer-ranged hybrid. We have plenty of multi-vehicle households that have heterogenous vehicle requirements already. Let’s not repeat the mistakes of the Left and assume that one size fits all….

      • Andrew Allison

        I can’t wait for the first UPPP (Unicorn Powered Power Plant) [grin]. But to your point, why wouldn’t (in the not too distant future) your wife’s needs be met by Uber et al?

        • f1b0nacc1

          Actually right now her needs ARE met by Uber. What is really funny about this is that since we are both (former) academics, I drive a Prius, and our income and a few other factors all fall into the right pigeonholes, we are constantly mistaken for liberals.

          • Andrew Allison

            That must be very embarrassing [grin] But that’s exactly the problem, isn’t it: if you (superficially) fit a liberal or conservative stereotype, you are perceived to be one regardless of your overall world-view.

          • f1b0nacc1

            The funniest part is that I only bought the Prius because it was on a huge sale (always shop Toyota at the end of the year) and I am a sucker for gadget-laden cars. If they had a decent Bluetooth implementation, I wouldn’t care if it ran on oil-soaked baby seals!
            You are right though, if you fit the right stereotype, you are pigeonholed pretty much immediately.

  • Jim__L

    What will China do? (Aside from, “what’s best for China”…)

    While I was growing up, I remember how pictures of Beijing were pictures of a vast ocean of bicycles on wide city streets, hardly a car in sight.

    How is car ownership changing there?

  • CaliforniaStark

    “as EV infrastructure is built out and the types of EV car options multiply, demand for gasoline—and therefore oil—should take a hit.”

    Not to ruin a good fantasy with facts, but in 2015 over 17,400,000 vehicles were sold in the U.S., of which 115,000 were electric vehicles. In California, which is heavily promoting electric vehicles, there are about 31,000,000 motor vehicles, of which 120,000 are electric powered. More gasoline was consumed in the last year than any previous year.

    But hark! All we need is just more EV infrastructure; and there will be lines of tens of millions of people waiting to buy electric cars. The fact that in much of the Los Angeles area, anyone who charges an electric car at night is essentially driving a coal-mobile should not discourage the green faithful – it is less polluting than the private jets their leaders utilize to travel to eco-events.

    Obama predicted there would be one million electric cars on the road by 2015; we are not now even at half that number, and the electric car market soon is going to be challenged by Japanese hydrogen fuel cell vehicles that can obtain their hydrogen from ethanol fuel.

    • LarryD

      “… Japanese hydrogen fuel cell vehicles that can obtain their hydrogen from ethanol fuel.”

      I think it was GM who had that idea a couple of decades ago. Except the GM reformer was going to crack unleaded gasoline. Ethanol has not turned out to be very green, as TAI has noted, and ethanol has a lower energy density than gasoline even when you’re burning it all. When you’re just throwing away the energy in the carbon… I want to see the test results, it doesn’t strike me as practical.

      • CaliforniaStark

        Agree, will be interesting to see if it works. See link below.

        Also, agree with TAI on corn ethanol not being a very “green” fuel source; sugar cane ethanol, such as that used in Brazil, makes more sense. There are better uses for corn, and it produces too low of an amount of energy compared to the energy used to make it into ethanol. Sugar cane or soybeans, or non-consumable cellulose would make more sense.

        • LarryD

          Sounds like they’re aiming for Brazil, with an ethanol infrastructure already in place. The carbon is being “burned”, but the article doesn’t say that it’s contributing to the power. If it were, then it probably would be competitive with ethanol burning IC engines. Otherwise the power-density issue that ethanol has is made even worse.

          • f1b0nacc1

            Not just power-density, but the damage to the engine parts that is endemic to ethanol. You not only get lousy mileage, your engine wears out more quickly.

          • Jim__L

            Isn’t the major trade-off for biofuels, the fact that they take up water — another resource prone to shortage? Growing biofuel in California, for example, would make no sense at all, and I hear that in many parts of the Midwest they’re actually drawing down aquifers like the Oglala — mining water faster than it can be recharged.

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