Peak oil may soon be upon us, but if and when that happens, it won’t be supplies that will start to decline, but rather demand for the hydrocarbon. At a time when the world is better supplied with crude than ever before, analysts are concerned that consumers’ appetite for oil is going to start shrinking, and that this contraction could be just five years away. Bloomberg reports:
“We’ve long been of the opinion that demand will peak before supply,” Chief Financial Officer Simon Henry said on a conference call on Tuesday. “And that peak may be somewhere between 5 and 15 years hence, and it will be driven by efficiency and substitution, more than offsetting the new demand for transport.”
Shell’s CEO’s sentiments mark his company as somewhat of an outlier in terms of its expectations for demand’s outlook, but even if his prediction that demand could peak in as soon as five years is a bit, well, premature, there’s a growing consensus that demand is going to start falling sometime relatively soon. Take this, from Shell’s rival oil major BP:
The anticipated increase in oil demand of about 20 million barrels a day over the next two decades will probably be big enough to overwhelm the impact of the electric car, Spencer Dale, chief economist for BP, said Oct. 11. Those vehicles will have a bigger impact in 30 to 50 years, although there’s a chance it could happen sooner, he said.
A recent report from the World Energy Council said that oil demand will peak in 2030, a short 14 years from now, and would taper off thereafter. The logic behind that report, and behind the prognostications of the Shells and BPs of the world, is simple: as efficiencies continues to rise and oil alternatives proliferate, demand for the product is going to flag. This will be most pronounced in the transportation industry, which constitutes the lion’s share of oil consumption in the form of refined petroleum products for fuel. There, higher mileage vehicles will hit demand hard (the auto industry saw fuel economy hit a record high last year), and a switch to electric vehicles powered by coal-, natural gas-, nuclear-, or renewables-derived electricity rather than oil-based gasoline will compound that problem for producers.
And make no mistake, this is going to be a massive headache for anyone in the business of selling oil in the coming decades. It’s going to be especially painful for petrostates like Russia or Saudi Arabia, because while the private industry already has its sights set on adapting to this challenge, countries of OPEC’s ilk will have a more difficult time diversifying away from the commodity upon which they’ve constructed entire regimes.