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Dwayne Purvis

Dwayne Purvis

Dwayne Purvis, P.E. is a reservoir engineering and management consultant based in Texas.  Find commentary and free resources at www.dpurvisPE.com. Besides writing and speaking on…

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The Rapid Acceleration Towards Peak Oil Demand

The drumbeat towards peak oil demand is accelerating, but since much of the acceleration is happening outside of the United States, its cadence is muted.

To be clear, the developed world passed peak oil demand a decade ago and has for years been forecast to continue reducing its demand. Increasing demand in industrializing countries, particularly China and India, each with a population tantamount to that of the OECD, slightly overpowers declines in the developed world, and as a result, global demand continues to increase. In its 2015 World Energy Outlook, the IEA forecast 1.5% y/y increase outside the OECD, -1.2% y/y in the OECD, and an overall growth of 0.5%. Global peak demand will likely occur while developing world demand is still growing. Increased decline in the first world could crest demand, but merely slowing the growth in the rest of the world is the more likely to tip the global balance to plateau then decline.

Demand for oil is dominated by transportation (cars, trucks/trains, planes and boats) and industry (plastics, fertilizers, steam/heat). Passenger vehicles comprise about 25% of global oil demand and thus are the number one target for major emissions reductions. When the IEA released its 2015 World Energy Outlook mentioned above, not a country on the planet had stated plans to ban new sales of oil-fueled cars. Only Japan and Portugal had even created incentives for electric vehicles. In 2016, three European countries outlined plans to end sales of new gasoline and diesel engines. Before the year was over, IEA revised its OECD forecast downward to -1.3% per year.

In 2017 a rash of targets to constrain fossil fuels for cars led Forbes to declare it to be “The Year Europe Got Serious about Killing the Internal Combustion Engine.” In 2018, even more European countries have joined the list, stating their intent to end the sale of new petroleum vehicles at some point between 2030 to 2040. Also this year, the trend has expanded out of Europe to Israel, Costa Rica, and Taiwan, with targets as early as 2021. Over the same three years, 2016 to present, 20 metropolitan areas from these and other countries announced their own plans to end the use (not just sale) of gasoline and/or diesel vehicles, and mostly before or by 2030. Related: Why Are Middle Eastern LNG Imports Soaring?

What is more remarkable, China and India, the titans of demand growth, both declared similar intentions in 2017. China announced its study of a plan to end sales and production of oil-burning cars by 2040, and India asserted it wants to end new sales by 2030. The plans are not enforceable as law (yet), either in Asia or in Europe, and electric vehicles currently constitute only a trivial portion (1 to 1.5%) of vehicles in China and India. The discrepancy between target and current reality, though, points less to the improbability of perfection as it does to the political will for progress. And progress alone, not perfection, is sufficient to trigger peak demand and the tectonic shifts that go with it.

Those who wonder if these forecasts are accurate can look to the history of the greening of electricity generation in Europe and China and particularly in India where targets for are being raised as momentum gathers based on technological progress. Similarly, the rash of new entrants and accelerated development of electric cars demonstrates the depth of near-term changes now expected in passenger transportation.

Last month—only a year after China declared its intentions to reduce oil-burning vehicles—the research arm of China National Petroleum Corp issued its own research report on long-term use. It concluded that China’s demand for diesel fuel has already peaked, that its gasoline demand will peak in 2025, and that the country’s oil demand will peak in 2030, far sooner than forecast from a distance by American and European analysts.

Reflecting these trends, though only implicitly, the IEA recently released a major report describing how demand growth to 2030 and 2050 would be driven primarily by demand for petrochemicals, especially plastics, instead of transportation. Petrochemicals make up only 14% of use today but account for 3.2 mb/d of projected demand growth, rising nearly two and half times as fast as transportation, which makes up 56% of current demand. The familiar argument by IEA asserts that China, India, and others will approach the same levels of plastic use as western countries which, they note, use up to 10 times as much per capita. They expect that packaging will account for over a third of plastics consumed.

The dynamics of demand for plastics, too, though, seem to be changing rapidly, especially for “single use” plastics such as packaging. Data in the same IEA report shows that western countries have already begun to curtail their per capita use of plastics, and one could expect that the developing world will pursue the same kinds of policies in the same way as they have with transportation fuels. In fact, the developing world is leading the charge. Related: There’s No Strong Fundamental Reason For Oil’s Decline

While the US has sometimes targeted plastic bags and recently fiddled with banning straws, the EU has proposed (not passed) a ban on a spectrum of single-use plastics. On the other hand, Rwanda was a pioneer in banning plastic bags, and China has now begun enforcing a similar ban. When Europe began talking about a ban, 25 of the 29 states of India had already passed some kind of restriction on single-use plastics. Then last summer, India’s national government announced its intent to ban all single-use plastics by 2022. China and India don’t want plastic pollution in the water any more than they do combustion pollution in the air, and for those countries, reforms are a matter of public health. While the US has historically collected and interred or exported to China much of its plastic trash, littered plastics in developing countries often breed disease and affect water supplies.

Last month two independent studies predicted peak oil demand in the 2020s—as early as 2023--in the base case. The rapid evolution and s-curve adoption these analysts see as obvious has gotten hardly a nod in the mainstream. Last spring BP’s long-term Statistical Review of World Energy became the first major forecaster to acknowledge explicitly that the increased cadence of evolution in the demand for oil makes predictions difficult. Since the IEA completely missed the timing of peak oil demand in the developed world, it will be interesting to see whether its annual long-term outlook to be released next month reflects recent developments. It will be even more interesting to see whether anyone takes notice if it does. Meanwhile, news like last month’s UN climate change report continues to build the sense of urgency to protect mankind from climate change.

By Dwayne Purvis for Oilprice.com

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  • Mamdouh G Salameh on November 05 2018 said:
    There will neither be a post-oil era or a peak oil demand throughout the 21st century and probably far beyond. The global demand for oil will continue to grow in absolute terms well into the future. However, a wider penetration of electric vehicles (EVs) into the global transport system may decelerate the rate of growth of demand. I will explain to you my reasoning.

    A few experts have been projecting that widespread use of EVs could spell the end of oil. The tipping point, they reckon, is 50 million electric cars on the roads. This they believe could be reached by 2040. Shell and Aurora Energy Research were projecting 230 million EVs and 540 million EVs respectively by 2040.

    Currently, electric and hybrid cars combined number under 2 million cars out of 1.477 billion internal combustion engines (ICEs) on the roads worldwide, or a negligible 0.14%. This is despite support by significant government subsidies. The total number of ICEs is projected to reach 2.0 bn by 2025 rising to 2.79 bn by 2040 according to US Research.

    Global oil consumption has hit 100 million barrels a day (mbd) this year and is projected to reach 120 mbd by 2040 accounting for 33% of global primary energy consumption in 2040.

    By 2040 the world will be using 43.8 billion barrels a year (bb) of which 75% or 32.85 bb will be used to power 2.790 billion ICEs around the world. Bringing 50 million EVs on the roads will reduce the global oil demand by only 0.59 bb (1.6 mbd) or 1.3% by 2040. Even if 540 million EVs were on the roads by 2040, this will reduce the global demand for oil by 6.36 bb (17.25 mbd) or 14.37%.

    A tipping point could only be reached once 1.395 bn EVs (50% of the current global number of ICEs in 2040) are on the roads worldwide within the next fifty years. This is impossible to achieve within that time frame. The current manufacturing capacity of EVs amount to only 500,000 annually. So it will take many decades to manufacture even 50 million EVs.

    Moreover, there will be a need for trillions of dollars of investment to expand the global electricity generation capacity in order to accommodate the extra electricity needed to recharge 50 million electric cars.

    And while it is easy for governments to burnish their environmental credentials by announcing a ban on new sales of ICEs, it is a totally different story whether customers’ demand and the market will oblige.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Josh Gregner on November 08 2018 said:
    I find it funny how the idea of peak oil demand is still controversial. OECD oil demand is on the decline. China is very clear they don't want the oil dependency long-term and will do everything "reasonable & sensible" (i.e. no hippy greeny stuff - but things supported by sound (protectionist) economic policy) in their power to get off oil and gas as soon as they can.

    No sane country wants to be dependent on energy imports. And technology is now putting energy independence in reach for many countries.

    So about demand: demand growth is projected to be about 1% per year. In absolute terms that's a lot of oil but relative that demand growth will be killed by even small scale economic issues. If looking at what cuts demand, don't just look at EVs - look at regular vehicles being more fuel efficient. Fuel efficiency advances far faster than many thought and will be a sustained thread to demand growth.

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