Peak Oil is You
Donate Bitcoins ;-) or Paypal :-)
Page added on September 14, 2016
The New Geopolitics of Declining Oil Demand
Jason Bordoff (@JasonBordoff), a former energy adviser to President Obama, is a professor of professional practice in international and public affairs and founding director of the Center on Global Energy Policy at Columbia University.
For decades, the prospect of peak oil—that supply was running out—loomed as a doomsday scenario over the global economy, until the shale revolution ushered in a new era of plenty. The idea of peak oil is still alive and well, however, but these days it means something completely different: the idea that demand for oil may peak far sooner than expected, driven by policy after the Paris climate agreement, technological innovations like electric vehicles, and structural economic shifts as seen in China.
Although declining global oil consumption could be welcome news for the environment, it also has great potential to upend existing geopolitical relationships, foster instability in key regions, and present new geopolitical risks that are critical for policy makers to consider.
Even if peak oil demand does not mean the world is getting off oil any time soon, expectations that oil demand would gradually decline over time would have seismic impacts on the market. Prices are set on the margin, so slight changes in demand can cause big shifts in price. Seeing the looming end of the Oil Age, petrostates would ramp up output to sell what they could while they could, further depressing prices. Any possibility that OPEC might reassert itself would be put to rest. The collapse of expectations of future oil prices could lead companies to sell off inventories as well. At the same time, new investment would dry up, even though new supply is needed just to offset current decline rates of around 5 million barrels a day, which could cause increased price volatility.
With the end of the Oil Age in sight, declining oil demand would severely undermine the economies of major oil producing countries. Today’s oil price collapse is a harbinger of the instability that might result. Venezuela is teetering on the brink of economic collapse, with shortages of basic goods and medicine, hyperinflation, and a vicious cycle of declining production. In Nigeria, the economy has careened into recession. The cash-strapped government of Muhammadu Buhari has cut back payments to militants, worsening the security situation in the Niger Delta, and struggled to pay the military, undermining the effort to battle Boko Haram in the north. Libya, Iraq, Algeria and others are facing similarly increased instability and risks.
A future of declining oil demand would significantly exacerbate risks to states that have relied on oil revenue to maintain a social contract based on generous benefits and patronage. Domestic political instability in states with deep ethnic and sectarian divisions can cause geopolitical ripple effects far and wide. Those risks would be especially pronounced in a region like the Middle East already struggling with security issues like the Syrian civil war, the battle against Islamic State, the political turmoil in Yemen, and the fracturing of Iraq. Closer to home, the end of the oil era would pose hardships for neighbors and allies pursuing reform agendas like Mexico, Brazil and Colombia.
A long-term outlook of declining oil demand would give greater urgency to efforts to diversify petrostate economies. Several Persian Gulf countries have such plans in the works already, such as Saudi Arabia’s ambitious Vision 2030 and National Transformation Plan to reduce dependence on oil revenue, grow the private sector, and attract foreign investment. Even though Saudi Arabia is a very low cost producer at less than $10 per barrel, it requires a price many times higher to balance its budget.
An outlook for declining oil use would also change longstanding geopolitical relationships. What would underpin the already-strained U.S.-Saudi relationship if one element of the historic “oil-for-security” bargain might soon be obsolete? Reduced oil needs may also free up foreign policy options, like sanctions against oil-rich countries. Consider how the U.S. and Europe limited sanctions against Russia to restricting future growth in oil supply without curtailing its current supply. And less need for oil might also reduce geopolitical tensions in frontier areas for oil exploration, like the Arctic and South China Seas.
The geopolitical implications of falling oil demand will also depend on the substitutes. If vehicles were electrified, for example, demand would rise for other fuels that may carry their own risks, as Europe knows all too well from its reliance on Russian gas. Reliance on electricity in the transport sector would create new cybersecurity risks and exacerbate the effects of a blackout, especially since electricity cannot be stored as oil, gasoline and diesel can. A shift to electrification may also increase dependence on the small group of nations in the Andes that currently dominate the global supply of lithium. Other options to decrease oil use, whether biofuels, hydrogen or something else, also carry new and different geopolitical risks and benefits.
Since the Oil Age began, oil has been intimately tied to global geopolitics, power and foreign policies. And for nearly every one of those years, global oil use has gone up, and governments have built up experience to deal with the ensuing risks. If we are indeed on the verge of a new energy era, foreign policymakers will need to pay heed to the new geopolitical risks and realignment that will result.
16 Comments on "The New Geopolitics of Declining Oil Demand"
Boat on Wed, 14th Sep 2016 6:39 pm
If you build these electric cars in Texas you have wind, solar and nat gas. Parts of Kansas, Colorado and New Mexico look good. Developing electricity for cars schould not be a problem. EV’s have away to go before they reach the scale to affect oil producers. In 10 years it’s possible
rockman on Wed, 14th Sep 2016 7:17 pm
“…the idea that demand for oil may peak far sooner than expected, driven by policy after the Paris climate agreement, technological innovations like electric vehicles, and structural economic shifts as seen in China.” Oil prices fell significantly and the world responded by buying every bbl available. Based upon that I seriously doubt “demand for oil may peak far sooner than expected,”
penury on Wed, 14th Sep 2016 8:08 pm
The costs will increase, people will lose the ability to afford all the product that they used to buy. Industry will slow and the need for oil will decrease. but the joker in the pack (and there is always at least one) is that most economies are built on the use of oil. War becomes the first option considered when the elites are in danger of losing their exalted status.
Texas Engineer on Wed, 14th Sep 2016 8:36 pm
Every time one of these policy wonks say that “peak oil – that we are running out of oil” I stop reading. I think I attended every ASPO USA annual meeting from 2004 on – before they stopped having annual meetings. I can never recall anyone at those meetings saying that we were about to run out of oil. Ever.
What I did hear was that conventional oil (that cheaper stuff) would peak sometime in the next decade – and I believe it has. Then the average cost of energy coming into the economy would start to rise, and the gears would start to run slower, and economic growth would get slower and slower. It sure seems like we are living in peak oil.
bahamased on Wed, 14th Sep 2016 8:44 pm
Rockman, the world responded by buying every bbl available.
Yes, so there is no Glut,
This reminds me of a friend that self published his own book, he sold every copy he had printed.
But 90% of them are still sitting in his basement.
dissident on Wed, 14th Sep 2016 8:46 pm
Electric vehicles have not made any noticeable impact on global oil demand. This “expert” is clearly an ignoramus and an idiot.
makati1 on Wed, 14th Sep 2016 9:12 pm
baba, the Chinese have been buying up the cheap oil and storing it for future use. Subtract that extra consumption and you will see that there is a glut. And it is growing, for now. When the big oil companies can no longer borrow to keep afloat, the “glut” will rapidly become a drought. Are YOU prepared?
makati1 on Wed, 14th Sep 2016 9:13 pm
dissident, consider the source…
The Wall Street Urinal.
Plantagenet on Wed, 14th Sep 2016 10:13 pm
1. Oil production and oil consumption are both still growing.
2. There is still about a 1 million bbl surplus each day
3. The oil glut continues.
Cheers!
Lucifer on Wed, 14th Sep 2016 10:28 pm
I just love the way the media keeps coming out with articles like this and most people lap it up. That is until it all comes crashing down around them.
brough on Thu, 15th Sep 2016 4:53 am
I stopped reading WSJ some years ago when I realised the people who write articles for it live on different plant than me. If oil demand is in decline (which I very much doubt)its probably due to affordability problems somewhere in the system. The banks that extend credit to the companies that produce oil also need to extend the same amount credit to the people who consume the oil, there by completing the circle.
shortonoil on Thu, 15th Sep 2016 9:05 am
As we have reported here and else where, the Etp Model indicates that past the 2012 energy half way point, that the world would never again be able to consume all the oil that it produces. The consequence will be a long term decline in the price that will within a few years make oil production unprofitable. We demonstrated that phenomena on this page which was put up in September 2014:
http://www.thehillsgroup.org/depletion2_022.htm
As oil producers can no longer replace the oil that they are extracting:
https://assets.bwbx.io/images/users/iqjWHBFdfxIU/icbkDFACM4iA/v2/-1x-1.png
production will soon follow by going into terminal decline. With ERoEI declining rapidly (as the result of no new oil coming on line to compensate for older fields declining ERoEI) world GDP will also begin to descend. We expect 2016, or 2017 to show a steep decline in world GDP.
The geopolitical implications of this event will be tremendous. Nations which depend on petroleum production for a significant portion of their GDP will be hit first. What is occurring in Venezuela is just the beginning of the catastrophe that will soon be taking place around the globe.
The pit fall of ultimate petroleum depletion will be war! Nations that can avoid getting involved in confrontations over a resource that will soon have no value, as opposed to those that will squander their last remaining resources on bloody exercises in destruction, will prevail.
“The meek shall inherit the earth”.
http://www.thehillsgroup.org/
brough on Thu, 15th Sep 2016 9:31 am
Many thanks for links shortonoil. I’ve had a look and the maths look good. Has it ever been published in the WSJ ?
I’m hoping for different end-game than bloody conflict. I’ve bought some land and hope to end my days growing potatoes and keeping chickens.
Lucifer on Thu, 15th Sep 2016 10:33 am
Keep hoping Brough, because in the end, when the streets are red, filled with blood of conflict. Hope is the only thing the people that survive will have to cling on to.
Kenz300 on Sat, 17th Sep 2016 8:55 am
Electric vehicles are the future….
Climate Change will be the defining issue of our lives.
Batteries, range and charging points get better every year…………… 90% or more charging is done at home…
Soon all new vehicles will come with bigger batteries and a minimum 200 mile range.
Kenz300 on Sat, 17th Sep 2016 8:56 am
Electric cars, trucks, bicycles and mass transit are the future…..fossil fuel ICE cars are the past…………..
Think teen agers vs your grand father…………………. cell phones vs land lines…….
NO EMISSIONS……..climate change is real………
Save money……no stopping at gas stations…..no oil changes……..less overall maintenance……
Climate change: Netherlands on brink of banning sale of petrol-fuelled cars
http://www.independent.co.uk/environment/climate-change/netherlands-petrol-car-ban-law-bill-to-be-passed-reduce-climate-change-emissions-a7197136.html
Scotland blows away the competition – 106% of electricity needs from wind – joins select club
https://electrek.co/2016/08/14/scotland-electricity-needs-from-wind/