The Case Against An Energy Comeback

Demand needs more than recovery to surge.

The accelerating rise in commodities prices may leave energy behind. Even if the economy recovers next year as expected, energy consumption in the industrialized world fell so far, so fast, that it will struggle just to meet 2007 levels.

Barclays Capital estimates that oil demand in the Organization of Economic Cooperation and Development nations will actually be down 8,000 barrels a day in 2010 compared with 2007, while U.S. demand will be down by 754,000 barrels a day. The sudden price rise last year to $140 a barrel followed by economic collapse had a dramatic effect on energy consumption, from automotive fuel to electricity.

“That is a lot of demand that has been lost, that definitely will not come back in 2010,” said Barclays analyst Constanza Jacazio. “Even assuming a global economic growth forecast of 4.2%.”

While gold prices surge to a record high and commodity metals like copper and nickel rise daily, oil has seemingly stalled out at around $77 a barrel. Natural gas prices have done worse, falling 39% in the U.S. as industrial demand has declined while rich new supplies from once-useless shale rock come to the surface.

The U.S. tells the story of how the economic crisis knocked a hole in energy consumption. According to the Energy Information Administration, total energy consumption fell 6.4% in the first seven months of this year below 2007 levels, to 56 quadrillion Btus. Petroleum is down 9.4% to 18.8 million barrels a day–the equivalent of nearly a supertanker a day in reduced demand–and the EIA forecasts electricity demand will fall to 10.3 billion kilowatt-hours a day, down 4.6% from 2007 levels.

Forbes