Peak Oil is You
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Page added on January 21, 2017
When will oil demand peak?
The two-year oversupply of oil appears to have passed following an agreement by Opec and non-Opec countries to reduce production by 1.8m barrels a day (mb/d). But in the future will we need all the oil which is produced?
Slowly, technology is impacting energy consumption patterns and fast growth in renewable energy could disrupt oil demand. Already, technological change has devastated the coal industry where hydraulic fracking produces gas much cheaper than coal.
Recently, in the US, Michigan State has passed a law allowing driverless cars to be trialled on its roads and Uber is trialling self-drive cars in Pittsburgh.
The Paris agreement on climate change is designed to limit global warming to below 2 degrees and it came into force in November 2016. With rising carbon dioxide emissions and fears about global warming, will the rapid adoption of electric powered cars be another factor to displace the demand for oil?
Over the last two years the oil and gas market has been dominated by an imbalance in supply and demand. Excess supply was driven not only by earlier strong growth in US production but also by other global producing nations. This drove the oil price down to $28 per barrel in January 2016 compared to over $100 per barrel in 2014 and low prices have placed enormous strain on the industry and oil producing countries.
In order to bring the oil market back into balance and provide more confidence for future investment, Opec recently agreed to reduce production by 1.2mb/d to 32.5mb/d. Also, in December, some non-OPEC countries such as Russia, Kazakhstan, Oman and Bahrain agreed to reduce output by almost 0.6mb/d.
In 2016, oil demand averaged 96.3mb/d, 1.2 mb/d higher than in 2015 or a 1.3 per cent increase. A similar increase in consumption is expected in 2017 driven by developing countries, though if US economic growth improves oil demand could exceed expectations.
Currently, Middle East oil producers’ market share has reached the highest level for 40 years and if production cutbacks are successfully implemented the oil market could move from surplus to deficit in the first quarter of 2017. This could help oil prices to recover though we do not anticipate a return to 2014 levels because of high inventories and continuing efficiencies in US onshore production.
Longer-term, the demand for oil could continue to grow. Even in 2017, there are 1.2bn world citizens who have no access to electricity and over the next 20 years it is estimated that population and income growth will drive a requirement for 33 per cent more energy. This is based on the assumption that world GDP will double over the next 20 years but growth in energy will be slower due to gains in energy efficiency.
Today, fossil fuels (oil, gas and coal) account for 80 per cent of global primary energy demand. If the Paris agreements are implemented there could still be growth in fossil fuels but their market share may be reduced to 71 per cent by 2040 and within this there are significant shifts in the energy mix.
Current projections suggest oil demand could grow between 0.5 per cent p.a. to 1 per cent p.a. out to 2040. This growth comes from freight, aviation and petrochemical sectors and all of that growth is driven be Asian countries such as India and China whereas demand may decline in some developed countries.
Under the Paris agreements long-term demand for oil is likely to decline for use in buildings and power plants and there could even be a decline for use in passenger cars despite a potential doubling of the global car fleet to about 2.5bn. Over the next 20 years, improvements in engine technology and more energy efficient cars will displace a considerable amount of oil demand growth. In addition, there is rising demand for electric cars. The International Energy Agency (IEA) has modelled the impact of the electric vehicle fleet rising from 1.3m vehicles today to 30 million in 2025 and to over 150m by 2035. The IEA estimates that this will displace oil demand of around 1.3mb/d which is relatively small compared with the impact of engine efficiency gains.
However, in order to fight climate change effectively there needs to be a more rapid move to a low carbon world. Inevitably, a lead has to come from Government action which could entail further or extended incentives. If electric car demand was stimulated by more favourable taxes it could result in electric vehicles taking a much higher market share than suggested above.
Nonetheless, there is a trade-off between pursuing low carbon energy policies and increased fiscal spending. The US president-elect, Mr Trump has talked about abandoning its Paris commitments on climate change and we anticipate that the new administration will be less proactive on climate change. Although developments in energy policies have to be watched we feel that a more pressing problem for the oil & gas industry is the medium-term outlook because investment in new conventional projects is now at the lowest since the 1950’s.
Opec forecasts that oil demand will reach 109mb/d by 2040 though to meet this level of demand some $10 trillion needs to be invested in production capacity. In 2014, global oil industry capital expenditure was around $700bn and this has fallen to around $400bn in 2016. In 2017, investment could fall again for the third consecutive year and if investment does not recover quickly this could lead to a supply shock in the 2020s. With lower investment, short-term demand growth of >1 per cent per annum and natural field decline of 5 per cent there could be a 5-10m barrel shortfall of oil supply in 2020.
Potentially, US tight oil could partly fill this gap but globally, the decline in oil production from existing fields is equivalent to losing the size of Iraq’s output every two years. In summary, some industry experts believe that oil demand will continue to grow for the next 20 years though peak demand could be in the 2020s if there is a more rapid adoption of cleaner technologies. More importantly, current demand is strong and before we face peak demand we may see another boom and bust cycle for the oil & gas industry.
Tony Shepard is senior analyst at Charles Stanley.
12 Comments on "When will oil demand peak?"
penury on Sat, 21st Jan 2017 5:04 pm
In answer to the question, my opinion, uneducated, and not knowing more than how to fill a gas tank on a car is that peak demand happened in 2008, The majority of oil use is manufacturing,include shipping and hauling to final destination and you can begin to see why demand is down, Economies are stressed worldwide. Global trade is contracting rapidly. Even without renewables contraction in the oil industry will continue.
Apneaman on Sat, 21st Jan 2017 5:20 pm
Pen, don’t be so hard on yourself. Obviously you can work a keyboard and mouse too. I was just reading a fella commenting about 2008 and the wonderful human system.
Davos 2017: Self-Interest Self-Destructing
When the sheeple are free-basing junk food and junk culture with a desperation that would make a hardened junkie appear healthy, the robber barons can get away with literally everything. Voila…
FULL DISCLOSURE: were it not for Wall Street bailouts, intra-generational theft, money printing, serial asset bubbles, and ponzi borrowing, this shit show would have ended in 2008. But instead we get to endure generation Madoff making ever more feeble excuses for why the status quo is working perfectly fine. For them. Fuck everyone else.
This week, Oxfam announced that a mere eight men now own more wealth than half of the entire world. No surprise, the rejoinder from the apologists for ponzi schemes, aka. The Economist was swift and damning, concluding that the Oxfam study is flawed, because a mere seven men own more wealth than half the world.
https://ponziworld.blogspot.ca/2017/01/self-interest-self-destructing.html
dave thompson on Sat, 21st Jan 2017 6:03 pm
Worse still is the ones with real wealth. http://www.wakingtimes.com/2017/01/20/rothschild-family-wealth-five-times-worlds-top-8-billionaires-combined/
shortonoil on Sat, 21st Jan 2017 6:23 pm
“Even without renewables contraction in the oil industry will continue.
That is self evident. The world is past the energy half way point, and no one is replacing their reserves. If demand wasn’t contracting oil would not have been less than $50/ barrel for the last 2½ years; down from $100. If anyone thinks that is demand growth I have a bridge!
Go Speed Racer on Sat, 21st Jan 2017 6:32 pm
Well, it is rather inevitable,
because poor people are broke
so they have no money.
At least half the world is poor,
So 8 guys have more money
than all of those broke poor people.
And when they are poor and broke,
they also breed like rats, causing
that statistical result.
Go Speed Racer on Sat, 21st Jan 2017 6:34 pm
LOL so funny, ‘peak demand’ and nobody
wants oil anymore. Couldn’t be possible
we running out of it, no just nobody want
it anymore.
The public all run their cars now by winding
up a rubber-band, in the trunk.
rockman on Sat, 21st Jan 2017 7:30 pm
OK, let’s use their numbers. So 150 million EV’s in just 18 years…sounds overly optimistic but we’ll go with it. And they project an increase of 1.2 billion vehicles. So it follows they project an ADDITIONAL 1.05 billion ICE’s. Given the world added 80 million ICE’s last year that seems reasonable. So that’s in addition to the 1.2 billion on the road.
So: we increase the ICE count from 1.2 billion to about 2.3. And let’s assume the additional ICE’s get 70 mpg. Rather high but what the f*ck let’s go with that. Also, what the f*ck again, let’s assume that not only will those 150 million EV’s will be powered 100% by non-fossil fuel sourced electricity but they, and all those 1.2 billion new ICE’s, are built in factories powered by 100% by alt energy.
So let’s summarize: the number of ICE’s on the planet increases from 1.2 billion ICE’s to 2.3+ billion ICE’s and that represents an increase in demand for oil.
So what they are saying: despite they title they don’t predict peak demand…ever. In fact they speculate that PO will likely prevent PD from ever occurring.
Which seems to beg the question: if their conclusion is that peak demand won’t likely happen why not “Why we won’t see oil demand peak” instead of “When will oil demand peak?” They seem to make a pretty good argument for PD not happening. LOL.
JR on Sat, 21st Jan 2017 9:50 pm
“When will oil demand peak?”
Never.
As long as endless growth is the dominant paradigm throughout the world, oil demand will not peak, period.
And as long as oil is being produced – it will be connedsumed. Yes, you read that right. It’s a hint.
Cloggie on Sun, 22nd Jan 2017 3:47 am
Charles Stanley is a bit like the Hill Group, who all seem to think that the world began and will end with oil. A short glance on the exponential growth figures of installed wind and solar capacity, as well as the spectacular decline of the cost per installed MW, show that they are all fighting a rear guard fight. It is like attempting to keep calculating on an abacus where there are “portable Japs” around (as the used to be called when I was at secondary school).
Peak oil supply, peak oil demand, yawn.
https://cleantechnica.com/2017/01/21/global-pv-demand-grows-tenth-straight-year-ihs-report/
In many places, renewable energy has the largest share of new installed capacity. You can’t have too fast implementation of renewable energy as you don’t want to write of old fossil capacity too quickly AND you need to solve storage problems first. Germany for instance can get rid of excess renewable energy by flooding its neighbors with it at peak times, who are forced to temporarily shutdown their brand new natural gas power stations.
shortonoil on Sun, 22nd Jan 2017 8:05 am
“Charles Stanley is a bit like the Hill Group, who all seem to think that the world began and will end with oil. A short glance on the exponential growth figures of installed wind and solar capacity, as well as the spectacular decline of the cost per installed MW, show that they are all fighting a rear guard fight.”
According to the EIA in 2016 the US was expected to install additional capacity of 24 Gigawatt of renewable energy. At a 50% utilization 24 Gigawatt is equal to 61 million barrels per year. The US uses 6.75 billion barrels per year.
At that rate in 111 years the US will have replaced its oil usage with renewable energy sources. With world GDP now falling at 5.7% per year there is zero chance of a full system replacement.
http://data.worldbank.org/indicator/NY.GDP.MKTP.CD
It was the type of ridiculous Pie in the Sky, Pollyanna justification that is exhibited above that put the world in its present situation. Continuing to do the same thing that put us in this condition to begin with is not going to get us out of it. Continuing it will only make matters worse.
Our modern world did begin with oil – and will end with it.
http://www.eia.gov/todayinenergy/detail.php?id=29492
http://www.thehillsgroup.org/
penury on Sun, 22nd Jan 2017 4:28 pm
Not to stress the obvious, but does anyone really that the current and projected populations can be supported by wind and solar? Lets start with a small country say Netherlands and pass a law that after 2020 no fossil fuel or fossil fueled energy can be utilized in the country. This will kick-start the movement to proceed on to the next. How long before the world is free of fossil energy production? Oh and you are not allowed to use fossil fuels to accomplish anything,
makati1 on Sun, 22nd Jan 2017 5:52 pm
Penury, lets take it one step farther. The Netherlands is not allowed to import anything from another country. They must be 100% self sufficient. Few countries in the Western world would last long, including the “exceptional” one. The others might manage if they regressed to earlier methods and means. An interesting experiment.