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Ricardo study suggests global oil demand may peak before 2020, falling to below 2010 levels by 2035

Global demand for oil may well peak before 2020, falling back to levels significantly below 2010 demand by 2035, according to a multi-client research study conducted by Ricardo Strategic Consulting launched in June 2011 in association with Kevin J. Lindemer LLC.

The study, which involved the participation of some of the world’s leading energy and technology companies and organizations,found significant changes in future demand patterns strongly influenced by global energy security policies, the technology change that they promote, and demographics.

The study predicted that evolutionary change in automotive technology will bring a revolutionary change in fuel demand, including an increasing disparity of demand between fuel types: diesel volumes will be buoyed by heavy duty transportation use while gasoline will decline due to increasing powertrain efficiencies and higher pump blends of bio-ethanol. Further, improved supply prospects for natural gas are likely to lead to decoupling of oil and gas markets, according to the study.

The world is nearing a paradigm shift in oil demand. The predominant role of oil in the global energy mix is facing an ever greater challenge from a number of emerging trends. Over the past few years a near “perfect storm” for oil demand has been forming and gathering strength, created by a preoccupation in many quarters about the availability of future supplies.

As a result, the drivers working against oil demand growth are increasing in number and intensity, with the world’s consuming nations increasingly focussed on their need to reduce their dependency on oil, supported by an ever stronger legislative framework.

—Peter Hughes, managing director of the Energy Practice of Ricardo Strategic Consulting

Summary of key findings of the research project:

  • The approaching peak in oil demand. The study findings suggest that there is a strong chance of oil demand reaching its peak before 2020, at no more than about 4% above 2010 levels, before falling into a long-term decline trend, with demand in 2035 back down to some 3% below 2010 levels. This would also involve significant changes in the geographic distribution of demand and the mix of refined products required by the market. After incorporating a greater take-up of first-generation biofuels, demand for hydrocarbon oil by 2035 may actually be more than 10% below its 2010 level, and its share of global energy demand fallen below 25% (from circa 33% today).

  • Regional differences and legislation. Oil demand growth will have its limits in every country. Ricardo believes that there has been a general underestimation of the future impact of government policies to improve fuel efficiency and promote alternatives to oil. This will be the case everywhere, including, very importantly, in China, where although demand is projected to grow by nearly 60% in the meantime, the study assesses that a peak could be reached as early as 2027, before starting to fall back thereafter.

  • The effect of fuel-efficient technology. Evolutionary change in the automotive sector will bring about a revolutionary change in fuel demand. The transportation sector will continue to see significant growth in the vehicle fleet, increasing by over 80% from 2010 to 2035. However, the results of a detailed modeling exercise suggest that efficiency improvements in the internal combustion engine will more than offset the rise in fuel demand deriving from the increase in the number of vehicles.

    Although new technologies, such as the battery electric vehicle, will be introduced and will have an increasing impact over time, the projected reduction in road transport oil demand does not derive primarily from the rapid penetration of such technologies.

  • The impact of biofuels. When considering the outlook for biofuels, the study concludes that the food vs. fuel argument may be poorly supported; for much of the last three decades, the agricultural sector has been constrained more by under-investment than by supply. If crop yields increase at historic rates, there will be enough surplus conventional fuel crops to displace a significant amount of fossil fuels. More than likely, the higher current selling prices will drive investment in production and research to further increase yields, making more sugar, starch and biomass available for conventional biofuels production.

    As a result, the study projects that the production of first-generation biofuels may increase by 5-6 times over today’s levels, without allowing for any additional contribution from advanced biofuels, whose prospects remain uncertain.

  • Improved gas supply outlook decouples the oil and gas markets. Ricardo believes the improving supply outlook for natural gas, with the potential for the surge in shale gas production in North America to be replicated elsewhere over time, and a gradual introduction of a more competitive market pricing dynamic in world gas trade, is likely to drive an increasing disconnect of the gas price from the oil price, encouraging substitution of oil in both stationary and on-road transportation (i.e. natural gas vehicles) sectors.

  • Diesel and gasoline demand disparity. As regards the downward pressure on transportation fuels, the study assesses the impact as being far more pronounced in terms of gasoline demand than diesel, which will provide a supply side challenge to the world’s refining business. The industry may need to make significant investments to match production with demand, particularly to balance gasoline and distillate production.

Following completion of the research, the full report of the study has been provided to the original participants and is now available to new organizations wishing to subscribe to the study.

Comments

HarveyD

Peak oil (liquid fuel) demand will become a reality as vehicles, airplanes, ships and machinery are equipped with more efficient drive motors and/or electrified.

Peak fuel demand has already happened in our area where most large V-8 have already been replaced with lighter, more efficient 4-cyl units, many hybrids and suburban e-trains. Over 90% of the home heating oil furnaces have been replaced with electric heating. Four of the five local refineries and more than 60% of the gas stations have already been closed.

If the current trend continues, we will reach the level suggested in the Ricardo's study many years sooner.

nordic

"many years sooner" is correct Harvey; in fact you will see US oil demand decrease year over year very shortly, I would say within 5 yrs. Not to be taken lightly, the US is the world's largest economy by GDP; currently aprox. twice number two, China.
This Ricardo study closely tracks with the recent one by BP. As I've said all along, oil is not scarce, it could not possibly be given today's production levels.
The invevitable outcome of these market forces will be a collapse in the price of crude oil.

Reel$$

Harvey, try to keep a semblance of plausibility. "60% of the gas stations have already been closed?" Replaced by what fuel source? 98% of the auto fleet is still running on petrol last I looked.

While we enjoy playing catalyst in the "new energy paradigm" - discretion need also apply. The introduction of extremely low cost heat will more immediately affect utilities and grid establishments. The portent of residential CHP appliances removing an increasing number of customers from utility grids - spells trouble for utilities even before oil companies.

But not if utilities see the amazing OPPORTUNITY they're being handed. To manufacture, install and maintain LENR CHP appliances. The 21st century "water heater." Sears, Whirlpool, GE, Honda, GM, Panasonic, etc. can all license LENR technology to make multi-tiered heating, cooling and electric generating appliances. Utilities can partner with appliance makers to provide installation and service (CHP service contracts replace lost grid revenue.)

The predominant role of oil in the global energy mix is facing an ever greater challenge from a number of emerging trends.

True. But the greatest consumer of oil, light duty transport, is still a decade from converting even 50% to PHEV. So, Alberta can rest easy for a moment. As can the major oilcos who will need to become new energy companies as their commodity devalues. In the aggregate there is MORE opportunity than less. Afterall, as the global middle class expands - they'll all want, cars, CHP, TVs, iPhones and other material stuff that makes life amusing.

HarveyD

Reel$$...three decades ago we were all driving huge V-8 and used over 1200 gal/year per house for heating. Schools, hospitals, commercial buildings, factories etc all used oil for heating. Today, almost nobody is using oil for that purpose. By replacing huge V-8 with much smaller 4-cyl cars and electricity instead of oil for heating, each household reduced oil consumption by about 2/3 and even more. (** see below) That is why 4 out of 5 local refineries shut down and often, where you had 4 gas stations only one or two remain.

Fossil fuel used per year per household thirty years ago.

1. For 2 large v-8 cars = 2 x 15 gals x 52 = 1560 gal/year
2. For heating ..............................= 1200 gal/year

Total 1 + 2 = 2760 gal/year.

Fossil fuel used per household in 2010.

1. For 2 smaller 4 cyl cars = 2 x 7 gals x 52 = 728 gals/year
2. For heating ...............................= nil

Total 1 + 2 = 728 gals/year OR 73.7% less than 30 years ago.

Surprising what can happen when electricity is very cheap. The 27.3% (fuel consumption) remaining could drop to almost zero with electrified vehicles (Cars, trucks, buses, tractors, trains, fun vehicles etc). Double-bubble planes could reduce their fuel consumption by 70%. (ref: NASA-MIT study)

So, a 60% to 73% liquid fuel consumption reduction is very possible.

mahonj

I can certainly see demand falling in the (currently) wealthy developed economies for the reasons given above.
However, there is huge demand in the developing countries, such as China, India, the rest of SE Asia, etc.
These nations, especially the poorer ones may not be able to afford the latest hybrids or turbo-supercharged engines and will use cheaper models that consume a lot of fuel.
In my opinion, the only thing that will reduce fuel consumption would be a massive worldwide recession.
(I hope I am not right!)

JMartin

@nordic,

Don't count on the price of oil collapsing. It may become a more expensive specialty chemical. Any oil production will still cost big $, and particularly new finds.

The entities that depend on large volume production and high price may collapse, however -- Russia, Iran, other Middle East countries, oil companies and oil service companies?

Treehugger

I see many flaws in their reasoning, sure the oil demand has already peaked in Europe and might soon in US but the demand will go up in emerging countries so that the global oil demand will not go down any time soon. Let's face it even with an economy in neutral the barrel of oil is at 95US$ and that certainly not goes to the direction that they describe. Sure natural gas might offset oil demand but so far little has been done to displace oil by natural gas. Only one model of car is available in US that work with CNG, so again how can it be a game changer? Before we really move to alternative solutions the price of oil need to go up a lot.

HarveyD

mahonj...you may be right on both counts. The current recession may last until ways are found to correct the growing imbalance between the have and have not, in most (currently) wealthy developed economies.

Yes, the current structural inequalities, ineffective regulations and wild speculation have created deeper economic chaos, frequent bubbles and recessions that may very well reduce liquid fuel consumption in many countries in the next few years.

Reel$$

Harvey, your numbers are pure fantasy wish fulfillment - nothing wrong with that - it's a virtual world. But according to the US Census Bureau, the number of gas stations in 2002 was 117,000. In 2009, Commerce Dept. reports 118,756 gas stations. So, the number of gas stations has INCREASED by nearly 2,000 in the last ten years.

"Schools, hospitals, commercial buildings, factories etc all used oil for heating. Today, almost nobody is using oil for that purpose."

Happy you're interested in these topics Harvey but to demonstrate how woefully WRONG your information is - according to the Oilheat Research Alliance there are currently 10 Million oil heated homes in the USA. About 35,000 new oil heated homes are built annually.

Transportation and residential/business heating are the two major consumers of oil. While that will continue to decrease in the USA. EU and Canada - there is an upward trend in emerging nations.

Imagine replacing those 10M oil heaters with ultra clean (ZERO pollution) LENR CHP units. Let's say the manufacturer of these units makes a $100 profit on each. That's a $1 Billion opportunity selling to just 10% of single family residences.

Real economics are this: after capital cost of an E-Cat type CHP system, home owners will no longer have huge monthly energy bills. THAT money stays with those who have EARNED it. So, $50-500 dollars a month goes back into local economies or savings or for education, investments etc. Thus LIFTING quality of life for millions domestically, and billions around the world.

HarveyD

Reel$$...USA is no longer the ideal goal post, specially as far as fossil fuel and per capita pollution is concerned. We have reduced the per capita pollution in our area to less than 50% of the Canada average and less than 33% of the Alberta average.

Yes, transportation and heating were the main contributing fields. The household energy reduction program has contributed too, specially in the last 15 years or so. Subsidies we given to switch from oil to electric heating and the installation of high efficiency heat pumps. Smaller vehicles help but transportation is still using close to 40% of the total energy and will remain high as long as we use (18%) inefficient ICE vehicles. Future transportation vehicles electrification could reduce the energy required in that field by up to 60% and even more. This is a fact not a guess. We have enough Hydro electricity.

With current Hydro grid electricity costing less than $0.025/Kwh in our area, distributed power generating units will not compete for a very long time. Centralized grid electricity is a huge revenue source for our governments. They get about 64% of the total sale value. That is why we pay about $0.06/Kwh instead of $0.025/Kwh, which is still one of the world lowest rate. Running high efficiency BEVs on $0.06/Kwh would be easy on the pocket book.

We all hope that the 1000 Km Toyota Solid State batteries become a reality by 2015.

HarveyD

Reel$$...I forgot to suggest that would may have to widen your eyes and have a look to what is being done outside USA. Many mature economies are reducing liquid fuel consumption NOT increasing it. Oil furnaces for new houses is certainly no longer justified nor the most economical way to maintain the required comfort level. Recent, very high efficiency all-weather heat pumps can do a much better job at 1/3 the operational cost with associated pollution.

HarveyD

correction....the last line should read...without associated pollution.

Reel$$

Don't hide from the fact that Canada has 1/10th the US population and follows doggedly in its footsteps. The Canadian winters are FAR COLDER than those in the USA. You all NEED LENR appliances to heat your homes & hot water, and provide up to 25kW electric power at a monthly service cost of about $10.00.

THINK how the average Canadian will benefit by elimination of monthly energy bills. INDEED, government will have to do what its citizens have done - cut the FAT. Elimination of utility revenues can and will be de-escalated so as not to crash markets or government services. But just as citizens have reduced consumption of energy, so too will government be required to reduce consumption of tax dollars. It is only fair and it is being implemented right now.

HarveyD

ReelSS...Canada's energy sources, fossil fuel consumption and per capital pollution vary a lot from one province to another. One thing that is common is rising government spending. Short of a severe long lasting recession, that acquired routine will not change or be easily reversed.

One positive aspect is that Canada will not run short of energy any time soon, specially is the price is right (i.e. $200+/barrel/equivalent)

HarveyD

Reel$$...oil (like tobacco) is not always a NET revenue item for governments. The multiple tax exemptions (many Oil-cos do not not pay taxes), huge direct and indirect subsidies, huge trade deficits, increased health care cost, direct and indirect cost of 40,000+ road fatalities/year, very costly oil wars, etc etc can more than offset the current low fuel taxes.

A recent study, done by a large accounting firm, concluded that government coffers would benefit by the closing down of oil industries and the switch to electrified vehicles. Low cost electricity is currently taxed at 64% (50% dividend + 14% sale taxes) rate in our area and any increase in e-energy consumption would bring huge revenues in for all levels or government. Electricity, being a local product, is much easier to tax than imported oil.

HarveyD

Reel$$...here are a few meaningful CO2/MWh emissions intensity stats for you. Canada and USA have very different emissions intensity.

a. Canada avg. = 233 tonnes/MWh
(Our mostly hydro power grid area = 5 tonnes/MWh).

b. Russia avg = 351 tonnes/MWh
c. USA avg. = 676 tonnes/MWh
d. China avg. = 839 tonnes/MWh

Here are a few stats on CO2/MWh from different power sources.

a. From coal power plants = 900 tonnes/MWh
b. From NG power plants = 450 tonnes/MWh
c. From Solar power plants = 50 tonnes/MWh
d. From Nuke-Wind-Hydro = 5 to 10 tonnes/KWh.

The current USA problem is compounded by using highly polluting power plants and wasting more e-energy than other countries. The net result is one of the highest world wide per capita pollution level of close to 25 tons or about 22.4 tonnes. The current level has been almost stable for the last few year due to the extended recession.

Stan Peterson

nordic,

You intuition is correct. But what you are prophecy is already happening in the real world. In the US Oil demand peaked and started declining in 2001,gathering steam as time passed. Europe joined in the OIL demand decline by mid-decade. Certainly the Great Recession increased the decline some more, but recovery from the depths of 2008 and 2009 is not a true increase and has not reached the levels of consumption seen in 2007.

In short Oil demand is already declining at a large rate, in all the industrialized world, as new technology is applied. Only the rather temporary growth blip in China and India masks the coming collapse in Oil prices. Massive new production is occurring in North and South America and under the seas, while the Iraqi oil fields are only now beginning to return to prewar levels.

Do you know that America could continue to drive just as many cars as it does today without a drop of Oil simply using synthetic manufactured Ethanol, if every car were a VOLT. no that they will be but they old and would were the World to "run out" as the Peakist idiots assume. Oh the Peakists maybe are right in the long run. They may even have the century correct but it the wrong Millenia. The year 3050 might be the year we "run out" of Oil, if we will even care by then.

I urge all to compare the article posted by the EIA and this one, and contrast their conclusions. Both can't be right, and neither are.

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