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Why Peak Oil Demand Doesn’t Matter


In the previous article, I discussed the natural gas projections from the recent report Rivalry: The IHS Markit View of the Energy Future (2018-50). IHS Markit is a provider of global market data for a number of sectors, including energy.

Although natural gas is projected to be the fastest-growing fossil fuel, the report also makes several important projections about the global oil market.

Notably, it expects global oil consumption to continue growing by an annual average of 1.1 million barrels per day (BPD) through 2030. However, natural gas is projected to grow at an even faster rate, so the report projects that oil’s global energy market share will decline from 32 percent in 2017 (#1 among all energy sources) to 26.6 percent in 2050. This would put it in second place in 2050, slightly behind natural gas with a 27.3 percent share.

In the 2030s, oil demand is finally forecast to begin slowing as a result of fuel economy gains and competition from electric vehicles. Oil demand is projected to peak in the early 2030s at about 113 million BPD, which is 15 million BPD higher than 2017 demand. The report then projects essentially constant oil demand to 2050.

About 70 percent of new global oil supplies over the next decade are projected to come from the U.S., Canada, and Brazil. These new supplies are projected to be profitable at below $100/barrel (2017 dollars), and this helps keep prices below that level until 2035. Related: Iran: We Won’t Let OPEC Boost Production

The report notes that because new oil supplies will have to be continually added to account for both new demand and declines in existing fields, that the “upstream oil industry remains a large, viable industry throughout this time—as does the global refining business.”

The viability of the oil industry will remain even when oil demand plateaus in the 2030s, due to the large sums of investment and activity to maintain oil production levels as existing fields deplete. Oil will no longer be a growth industry in the 2040s, but the industry will remain a vital part of the global energy system.

Oil’s staying power is a result of its “competitive characteristics of high energy density, flexibility, availability, and infrastructure support”, and this helps it maintain a price premium over competing fuels.

But this price premium is also oil’s downfall, as it speeds the adoption of alternatives to oil such as electric vehicles.

By Robert Rapier

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Leave a comment
  • Frank on September 22 2018 said:
    Is there a soul left on Earth who thinks oil demand won't have peaked well before 2030? Is this delusional or misinformation?
  • David Jones on September 23 2018 said:
    I have often been critical of the oil industry and their supporting economic community and this kind of report is precisely why. This kind of blindness, assuming the industry is acting on such assumptions, has a good chance of resulting in a major global economic disaster beyond the 2030s.

    Does the industry seriously expect to be selling oil at close to 100 dollars (I'm assuming this is the equivalent of 100 of todays dollars) in the 2030s? By then, renewables and EVs/batteries will be quite mature technologies/industries.

    Are these expectations of flat demand based on the needs of populations in developing nations that are also quite vulnerable to anthropogenic climate change? Does the oil industry seriously think that these regions will continue betting their livelihood on this product/infrastructure during the 2050s by which time alternative technologies will be dirt cheap?

    I would kindly ask these economics based reports to try to understand technology a little better than has been the case up to now because their rosy reports are creating the perfect economic storm for the future.
  • john tucker on September 23 2018 said:
    any prediction more than ten years in advance is really just a wild guess. Fun to do, I guess, but certainly highly unlikely to actually happen.
  • Mike on September 23 2018 said:
    "Oil will no longer be a growth industry in the 2040s, but the industry will remain a vital part of the global energy system."

    I think this is an optimist view of oils future 20 years from now.

    No one has a crystal ball but here's some predictions.

    1) The decline of OPEC . As demand drops imports drop as well.

    2) Quality and stability over price. Countries that are stable will gain market share. I think Canadian oil sands will do well in this type of market due to the stability of reserves and infrastructure. The pipeline issues need to get sorted out though.

    3) Russia will remain an economic basket case. I think even post Putin Russia won't do well. Sure natural gas might cushion oil export demands a bit but the future doesn't look bright.

    4) Oil majors will be more like utility stocks. Little to no growth but with high dividend yields to keep investors interested.
  • jhm on September 24 2018 said:
    Ok if peak oil demand doesn't matter, then it doesn't matter when it will happen either. So go ahead and assume it happens by 2023. Then try to convince the world it does not matter.

    Rapier argues that it does not matter because massive investment is still required to keep oil flowing. What I find incredibly naïve here is that a high level of investment would continue even as investors recognize that demand is steadily shrinking. Without robust demand growth, investors would be right to demand a higher return to compensate for greater risk.

    For example, the risk of an extended glut goes up considerably when demand is shrinking. The last glut took about 2-3 years to resolve even with strong demand growth. Imagine how long such a glut could persist had demand actually been in decline.

    Let's not forget how quickly coal companies lost over 95% of their market cap when coal demand peaked just 4 years ago. When oil demand peak, investors should expect that capital will take flight long before there is a material reduction in actual consumption. The decline in market cap is not because coal consumption is nearing an end, but because holding long-lived assets in the face of declining and uncertain demand is very risky. As the risk goes up, investors will expect a much higher reward; equity and bond values will slip very quickly to compensate.

    So go ahead a say demand growth just doesn't matter, 2023 be here more quickly than you expect.
  • Myles Bennett Dyson on September 26 2018 said:
    JHM, your antics are hilarious. You are off your meds if you think demand will peak in 4 years. Demand has gone up nearly 6% in just the last 3.5 years. The economy is solid.
  • Troy Auger on September 28 2018 said:
    EROEI is the number one concern in evaluating any energy source. Secondary to that is portability/transfer of energy. The EROEI of oil has been decreasing since it's initial use/discovery but the energy density and portability possibly may never be duplicated by another energy source. PV and electric cars are limited by availability of required rare earth elements and are low EROEI. Hydro and Nuclear have obvious limitations. Oil has been and remains the bridge to an as yet undiscovered high EROEI energy source and therefore will remain critically important until such time that science/technology discovers a new high EROEI energy source. If this does not happen and oil declines.... depopulation, war etc. as happened to the Roman Empire when it's EROEI declined.

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