• 11 hours U.S. On Track To Unseat Saudi Arabia As No.2 Oil Producer In the World
  • 13 hours Senior Interior Dept. Official Says Florida Still On Trump’s Draft Drilling Plan
  • 15 hours Schlumberger Optimistic In 2018 For Oilfield Services Businesses
  • 17 hours Only 1/3 Of Oil Patch Jobs To Return To Canada After Downturn Ends
  • 20 hours Statoil, YPF Finalize Joint Vaca Muerta Development Deal
  • 22 hours TransCanada Boasts Long-Term Commitments For Keystone XL
  • 23 hours Nigeria Files Suit Against JP Morgan Over Oil Field Sale
  • 1 day Chinese Oil Ships Found Violating UN Sanctions On North Korea
  • 1 day Oil Slick From Iranian Tanker Explosion Is Now The Size Of Paris
  • 2 days Nigeria Approves Petroleum Industry Bill After 17 Long Years
  • 2 days Venezuelan Output Drops To 28-Year Low In 2017
  • 2 days OPEC Revises Up Non-OPEC Production Estimates For 2018
  • 2 days Iraq Ready To Sign Deal With BP For Kirkuk Fields
  • 2 days Kinder Morgan Delays Trans Mountain Launch Again
  • 2 days Shell Inks Another Solar Deal
  • 3 days API Reports Seventh Large Crude Draw In Seven Weeks
  • 3 days Maduro’s Advisors Recommend Selling Petro At Steep 60% Discount
  • 3 days EIA: Shale Oil Output To Rise By 1.8 Million Bpd Through Q1 2019
  • 3 days IEA: Don’t Expect Much Oil From Arctic National Wildlife Refuge Before 2030
  • 3 days Minister Says Norway Must Prepare For Arctic Oil Race With Russia
  • 3 days Eight Years Late—UK Hinkley Point C To Be In Service By 2025
  • 3 days Sunk Iranian Oil Tanker Leave Behind Two Slicks
  • 3 days Saudi Arabia Shuns UBS, BofA As Aramco IPO Coordinators
  • 3 days WCS-WTI Spread Narrows As Exports-By-Rail Pick Up
  • 3 days Norway Grants Record 75 New Offshore Exploration Leases
  • 4 days China’s Growing Appetite For Renewables
  • 4 days Chevron To Resume Drilling In Kurdistan
  • 4 days India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 4 days India’s Reliance Boosts Export Refinery Capacity By 30%
  • 4 days Nigeria Among Worst Performers In Electricity Supply
  • 4 days ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 4 days Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 5 days Saudis To Award Nuclear Power Contracts In December
  • 5 days Shell Approves Its First North Sea Oil Project In Six Years
  • 5 days China Unlikely To Maintain Record Oil Product Exports
  • 5 days Australia Solar Power Additions Hit Record In 2017
  • 5 days Morocco Prepares $4.6B Gas Project Tender
  • 5 days Iranian Oil Tanker Sinks After Second Explosion
  • 7 days Russia To Discuss Possible Exit From OPEC Deal
  • 8 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
Gregory Brew

Gregory Brew

Gregory Brew is a researcher and analyst based in Washington D.C. He is currently pursuing a PhD at Georgetown University in oil history and American…

More Info

When Will Oil Demand Begin To Taper Off?

Barrels

It’s possible that 2017 may go down as the year when the concept of peak oil demand went from speculation to potential reality, as companies and energy analysts began estimating when demand growth for oil would begin to taper off.

The debate over whether peak demand is coming has been fierce, but it’s possible that the inordinate focus on the potential plateau in global oil demand ignores more important, immediate concerns that will have a much bigger impact on prices.

While the predictions of when peak demand may come vary quite considerably, they mostly point to levelling demand in the developing world due to slowing growth, stable or declining demand in the industrial world due to the widespread adoption of electric vehicles, and the replacement of oil by natural gas or renewable energy. New demand will come from petrochemicals, driving the need for light end products and diminishing the need for heavier crudes, according to McKinsey & Company.

Electric and self-driving vehicles will be the key disruptors. EVs, which currently account for only 0.2 percent of all cars, will make up one-third of all new car sales by 2040 according to IHS Markit, increasing their overall share to 16 percent.

The IEA revised its demand prediction downwards this week by 100,000 bpd for both 2017 and 2018, to 1.5 million bpd and 1.3 million bpd respectively. The group, which has caught some flak for its incredibly optimistic estimates of U.S. shale production, also cautioned that higher non-OPEC production next year will keep prices from rising above $60. Prices slumped a bit this week on the back of weaker demand forecasts and reports of higher inventories in the U.S.

Peak demand has become an established idea, to the point that BP’s CEO Bob Dudley was able to quote an exact date. Asked when peak oil demand would arrive, he suggested June 2, 2042.

Related: China’s Mysterious Arctic Silk Road

But is the case for peak oil overblown? Should the market be more concerned with short term factors, rather than the still distant prospect of slowing or declining demand?

OPEC doesn’t think peak demand will come before 2040, citing strong current demand and the continued economic growth in the developing world. Daniel Yergin, energy expert and vice president of IHS Markit, thinks it’s “funny to be talking about peak demand” when annual demand growth remains so strong, and when economic activity in the developed world, particularly North American and Western Europe, has recovered.

Jamie Webster of BCG’s Center for Energy Impact noted that oil demand in 2017 was particularly strong, rising 1.6 million bpd. Demand growth will likely continue to be strong for years before peaking, but Webster points to a much bigger short-term problem: the rising decline rate and the reduction in capex committed to new production.

Placing a hard figure on decline rates has been tricky, but the rule of thumb has been 3–6 percent a year. Offshore tends to decline faster than onshore, while shale declines faster than anything else.

The average decline rate has spiked in part due to the growing emphasis on shale production, where decline rates are high. According to one estimate, 2016 had the highest decline rate on record, and BCG assessed the decline rate for 2017 at 9 percent or 8.8 million bpd.

The Eagle Ford Region in Texas, according to the EIA, is adding new production, but its legacy oil production fell so far as to balance out the increase, leaving the field with zero net change between October and November.

Related: Saudi Arabia’s Risky Market Share Sacrifice

This is potentially a much more important consideration than peak demand. Earlier this year the IEA ran alarm bells, warning that the fall in capex on developing new production (a result of the slump in oil prices) would lead to near-term shortages as decline rates accelerated. The group’s five-year forecast saw higher prices as spare production falls to a fourteen-year low in 2022.

Companies spent $450 billion on upstream in 2016—about 25 percent less than what they need to meet demand growth and make up for the decline rate.

A potential silver lining is the fact that new shale production can come online relatively quickly, making up for the higher decline rate. But shale, despite the IEA’s abundant optimism, can’t shoulder the burden on its own. While acknowledging that shale has over-performed and proven quite resilient amidst low prices, Webster points out that its growing importance to the supply balance will increase the risk of supply shortages in the near-term, impacting prices in more immediate ways than the distant, nebulous prospect of peak demand.

By Gregory Brew for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment
  • Bill Simpson on November 18 2017 said:
    There are too many uses for crude oil for the demand for it to peak anytime soon. Globalization will continue. If the US withdraws from the world after Trump is gone, (which I doubt will ever happen) China will pick up the ball, and it will become the global leader.
    People will continue to get richer in the lesser developed countries, and as they do, they will want cars, motorcycles, and to travel on fast jets. Robots will continue to lower the cost of making an internal combustion engine. The cost of batteries will fall, but not very fast. Global population won't stop growing until sometime after 2050, or so.
    I would be surprised if oil demand peaked before 2030. Who knows, it might take until 2050. Everyone who owns land with oil under it will do quite well for at least a few more decades, and maybe for the rest of this century. They can't pave roads with batteries. No battery aircraft will ever come close to the performance of a Boeing 787. Don't wait around for the battery powered container ship, cruise ship, tanker, or tug pushing barges on the Mississippi River. Same with farm, and construction machinery. I wish Musk luck with his electric big rig truck, but I wouldn't buy one, or invest in the company, at least in a country as big as the United States. They might displace diesel trucks, but it will take a couple of decades. Freight railroads in the US won't electrify until the price of diesel at least quadruples.
    And when millions of electric cars do finally get owned, there will need to be major upgrades to the electric grid, if massive blackouts are to be avoided when everybody in the Eastern and Central tine zones get home from work, and plug in millions of high draw electric cars, especially in the fast growing South, where the air conditioners will still be running much of the time, until after 11 P.M. Think how much electricity it will take to replace the energy in the millions of barrels of gasoline burned every day in the United States - a LOT! The grid of today couldn't handle the load.
  • Helen on November 19 2017 said:
    HUmans are coming to a time of transition. The sun can power every single human beings need 100 times over. We will never let oil be done because the "money" and corruption involved in preserving it. Let's just dump the entire monetary system. Go to www.venusproject.com ..the future of human life.
  • the masked avenger on November 21 2017 said:
    Bill, what oil company do you work for? The world's companies have been screwed by oil to many times and are finding alternatives daily. Alternatives with chemicals, power, transportation. Oil has set the stage for its own decline and no one will cry about it but oil guys. Your predictions are wrong.

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News