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Nick Cunningham

Nick Cunningham

Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. 

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Oil’s Biggest Threat: Demand To Peak Within 15 Years

Oil Rig

For more than two years the oil industry has suffered through its worst down cycle since the 1980s, and relief may not come until the middle of 2017 at the earliest. Some argue that oil prices may take even longer before they rebound. But while oil executives are focusing on the next few years, a much bigger threat looms over the long-term: Peak oil demand.

A new report from the World Energy Council predicts that global demand for crude oil could hit a peak in 2030 at 103 million barrels per day. The scenario would require rapid and substantial advancements in electric vehicles, efficiency, renewable energy, and digital technologies – developments that are no longer difficult to imagine. Additionally, the report envisions a scenario in which global primary energy demand – which includes energy demand for everything including transportation and electricity – could also peak before 2030.

These conclusions fly in the face of the prevailing assumptions within the oil and gas industry, which assumes consistent and stable growth in demand for decades to come. The oil market has always gone through cycles, in which demand spikes or flattens out. The cyclical nature has overwhelmingly been due to the changing nature of global or regional economic growth. But while demand has always been a bit volatile in the short-term, oil demand has grown inexorably for more than a century as population and GDP expand. Recessions hit demand, but once economies recover, demand resumes its upward trajectory. This constant, almost a law of nature, makes it difficult for many to picture a structural, rather than just a cyclical, decline in oil demand. But many analysts, including the WEC, say that such a development is underway.

“Historically people have talked about peak oil but now disruptive trends are leading energy experts to consider the implications of peak demand,” Ged Davis, executive chair of scenarios at the World Energy Council, said in a statement.

The findings from the World Energy Council echo those of other oil market and clean energy analysts. Bloomberg New Energy Finance, for example, published a scenario earlier this year that detailed a decline of more than 13 million barrels of oil demand by 2040 due to the advancements of electric vehicles. That would erase roughly 13 percent of oil demand from today’s levels – which would still leave the world consuming a lot of oil 25 years from now, but the demand destruction would be enough to keep oil prices permanently low. BNEF expects the world to hit a peak in oil demand in the mid-2020s, a bit sooner than the World Energy Council report. Related: Is Clean Coal An Option For India?

“The longer-term outlook, beyond 10 years, is certainly less rosy,” Alex Blein, energy portfolio manager at Amundi, told Bloomberg an interview. “Given the advances in battery technology, by 2030 carbon-powered vehicles will be the exception rather than the norm. This will inevitably impact on oil demand.”

A lot will depend on government policy, of course. The WEC report says that in its low carbon scenario, in which governments impose costs on fossil fuels and incentivize EVs and renewable energy, global oil demand will still hit a peak around 2030, but at a much lower level of about 94 mb/d. Alternatively, the business-as-usual trajectory has the world heading for a peak of about 104 mb/d between 2040 and 2050. Obviously, the market dynamics are fluid, and great uncertainties remain.

The prospect of peak demand has huge implications beyond just the price of oil. The concept of “stranded assets” – oil and gas reserves that might not get produced, either because of carbon limits or because prices never rebound – has quickly moved from a far-flung scenario to a very credible one in the span of just a few years. Stranded assets would lead to massive write-downs for oil companies, with today’s overvalued share prices destined for decline. The misallocation of capital could be unspeakably large.

But the WEC report says the problem could be even worse than that, because much of the world’s oil and gas reserves are under state control. Peak demand could destabilize entire countries. “Demand peaks for coal and oil have the potential to take the world from stranded assets predominantly in the private sector to state-owned stranded resources and could cause significant stress to the current global economic equilibrium with unforeseen consequences on geopolitical agendas. Carefully weighed exit strategies spanning several decades need to come to the top of the political agenda, or the destruction of vast amounts of public and private shareholder value is unavoidable,” the report concluded.

By Nick Cunningham of Oilprice.com


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  • Richard McDevitt on October 17 2016 said:
    With developing nations like India and Mexico, and with China constantly devaluing its currency to boost production and exports, there is no end in sight for increased global demand year over year. Yes perhaps demand will slow over the coming decades when referencing past growth, but lithium powered cars are not going to put a dent in demand significant enough to really change the demand curve. What do transport trucks run on? What do jets run on? What do container ships run on? The list goes on and on. Renewable energy is cool, but it will never come remotely close to remedying our life blood that is oil or the shifting of the demand curve to the right as the decades progress. And I wouldn't bet on powers that be to start implementing any serious carbon taxes, as that would canniblize their own economy. Yes long term carbon burning will cause serious consequences but in the short term it's business as usual, and that will always be the status quo.
  • GPDriller on October 18 2016 said:
    The Governments / State control policies to implement potential replacement for oil. It is the same Government/state which has oil and gas as its assets. I am sure any policy by any sensible Government will not shoot themselves on the foot!
    The focus should be on extraction and use of oil and gas in a natural friendly way, which reduces carbon foot print, that allows its co existence.
  • Joe on October 18 2016 said:
    If oil production plateaus at 100 mb/d there will be plenty of work for oil companies to keep busy. The easy-to-get oil will be long gone.
  • Fred O'Toole on October 18 2016 said:
    Yeah right. And I've got a January tee time in Fargo to sell you.
  • Nasdaq7 on October 18 2016 said:
    Oil is a commodity. Have technological advances eliminated the use of gold, silver, copper, uranium, platinum, diamonds, etc? Consumption of those commodities have not fallen. So there might be major global oil industry consolidation, takeovers and acquisitions, but peak demand - I doubt it. There might be stagnant demand, a plateau phase, but a complete trail off and collapse in demand, is not likely. Unless there's a technological replacement that completely replaces oil and all its physical characteristics and uses.
  • Charles Steinman on October 18 2016 said:
    There was one statement in this that caused me to doubt the rest of the article entirely:

    "the report envisions a scenario in which global primary energy demand – which includes energy demand for everything including transportation and electricity – could also peak before 2030."

    To me this is a nonsense scenario. It requires immediate, significant reductions in birth rates around the world and a decision to hold standard of living around the world at a constant.

    While it is possible to have a lower ratio of energy to population, this will be on the margin. It will not surmount the growth in population and the growth in demand for goods and services as people decide that they want washers and dryers and air conditioning and clean water and so on.

    So, if this projection that oil and gas demand will hit a peak is dependent upon overall energy demand hitting a peak as well, then I consider this article to be fluffy bunny clouds.
  • anton on October 20 2016 said:
    You need oil for mining, manufacturing, shipping, and petrochemicals needed for various components of electric cars. The same applies to solar panels and all sorts of consumer products.
  • zorro6204 on October 20 2016 said:
    Possibly 2030, but it could be sooner, and the demand curve could slope down a lot steeper than pundits seem to think. One reason is rapid technological advances in solar, including a recent development of residential solar panels ready for sale at double the efficiency. You can already build a zero energy home as far north as New England, double the output and you could run your electric car from your roof, recharging overnight while you sleep, from energy stored during the day. They are also much closer to efficient direct hydrogen production from solar, and have solved some of the storage problems.

    But those are just the techniques that we already have. The real wildcard is something completely new, particularly compact fission. If Lockheed and others succeed in commercializing those plants by 2025, you can kiss fossil fuels goodbye entirely, except for chemicals. By 2030 you might not be able to buy an internal combustion car, at least not one operating on oil or gas sourced fuels.
  • Bill Simpson on October 22 2016 said:
    The population of the Earth isn't projected to peak out until around 2050. That is the best guess demographic experts can predict today. Most of the growth will occur in Africa, the Middle East, and Asia. People living there have a lot fewer cars than folks in the rich countries do. That is because they can't afford them. As these areas get even a little richer, the residents will want cars, any kind of cars. They won't be expensive electric vehicles. They will be inexpensive gasoline powered small cars, millions and millions of them. So don't think that the demand for oil will peak out for at least another 20 years. Unless some catastrophe like a world war, or a global financial collapse strikes, oil demand will keep increasing.
    As far as electric vehicles, it will take very expensive gasoline for them to really take off. Most cars aren't parked inside an enclosed garage, so it is difficult to charge them at home. And you need a special unit to charge them. That inconvenience, along with a shorter range than a gasoline vehicle, will encourage people to stick with gasoline cars until gasoline gets either very expensive, or is rationed.
    Don't worry about the demand for oil products. Worry about what happens to the global economy when there isn't enough fuel available to keep the economy growing. It takes more energy to do more work. Stopping an economy starved for fuel, from shrinking into a collapse will be virtually impossible. But that is probably a decade or so down the road.
  • Jeffery Surratt on October 24 2016 said:
    Better MPG, More BEV, Hybrid cars, buses and trucks by 2025 may see a large reduction in gallons of fuel sold. The oil industry will adjust to the market like it always does, even if we drop to 90 mb/d or a little less, the oil will still flow.
  • christopher on October 24 2016 said:
    If the governments put a hearty price on carbon and use that tax to help shift energy production away from carbon. With todays manufacturing technology we could see a major transformation in the blink of an eye. We could do a 180 faster then you think.
  • zorro6204 on October 28 2016 said:
    It takes time for the consensus to see the train coming, some are now saying 2030, some the 2020's. By this time next year they'll be saying the early 2020's. Household solar efficiency will double, and that's already here, it just needs to find it's way through the pipeline. When you can run your car off your rooftop, who needs gas? Those cars will also be much lighter, will charge much faster, and drive much longer on a charge, advances that are also already here and working their way down to commercial application. By 2025 you may not be able to buy an internal combustion car.
  • Dan DeLong on October 29 2016 said:
    Most petroleum goes to transportation motor fuels, and a major fraction of that goes to personally owned cars. Battery electric cars are only starting to get reasonable with the Renault Zoe and Chevy Bolt examples (200 mile range at 1/3 the price of a current Tesla). So in theory, cars could switch from petrol power to grid power. But people aren't going to buy them as long as the retail price of gasoline stays at $2.00/gal. That's the catch. At $4.00/gal, demand would drop as people start buying electric cars, but that would lower oil demand and lower the retail price. GM plans to sell 30,000 Bolts in 2017, let's see how that goes.
  • Heinrich Leopold on November 05 2016 said:
    The article is spot on. Norway will not allow fossil fuel cars from 2025, Germany wants to get out in 2030.... On top of that comes the climate change contract just signed this year even by China to get out of fossil fuels. They probably cannot do, because EV remain still the toy of rich people and are just too expensive for ordinary people who can only afford one car, yet the psvchology has changed from:We are running out of oil towards: we have to sell it before it becomes worthless.

    There was just now the announcement not to allow bunker oil for ships anymore from 2020 on. How will heavy oil producers react? They will sell come hell and water over the next three years all what they can sell, because they will probably get nothing after 2020. This alone will drive down oil prices over the next three years.

    So, investors beware. Instead of huge gains, they expect, they could soon sit on some worthless papers very soon.
  • Vaibhav Gupta on November 07 2016 said:
    The threat of electric vehicles and renewable energy to global oil demand is similar to the one faced towards the end of 19th century, when kerosene demand collapsed with the advent of electric bulbs by Edison. Everyone feared that there would be no future of crude oil. This was rebuted by development of internal combustion vehicles, and the demand sky rocketed when WWI started. Those who predicted the rise and demand of crude oil in future, like the British Empire predicted that crude oil will be the strongest weapon during WWI to fuel theie Royal Navy, won the race. To summarise, there always has been threat to crude oil but demand never ceases, in contrast only grows as technology improves.
  • Michael Scott on November 08 2016 said:
    The world is powered by ideas. The idea to "Leave it In the Ground", is growing. Why capture Carbon when it's so much easier not to burn it? Hmmm. As this catches on it will leave the entire extraction industry scrambling for cost reductions, in the face of demand reduction--not to mention current oil price reductions. You can only cut so much. I think this industry will rapidly evolve. Offshore oil production work/construction is a lot like offshore wind, except it doesn't sometimes catch fire and pollute the ocean. Onshore oil drilling is a lot like small scale geothermal. The Saudi's have paid for the best minds in the world to see the tea leaves of the future, and their response seems to be "sell it now, while you can", and "blame it on the Frackers". In the stock market there is a saying "Price is Truth". The cost to build a new oil or coal power plant and fuel it runs about $.06 a kilowatt hour or maybe a little bit more. The Dubai Electricity and Water Authority (DEWA), just received bids for the world's largest solar plant at $.03 a kilowatt hour. Leave it in the ground indeed.

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