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Opinion: There Is No Such Thing As Peak Oil Demand

by Dwayne Purvis for Oilprice.com

Notwithstanding that oil demand has increased for over 150 years, it will eventually stop increasing. If oil demand were to reach an actual peak, then the top might be easier to predict. As it stands, the forecast models of demand are likely predicting peak demand far later than it will be.

The so-called balance of supply and demand has always been a moving target, a race to the top in which the two run neck and neck. Imbalances result from out-of-step growth rates and not from movements away from a stationary balance. Perversely, imbalances breed further imbalances as the supply and demand components are provoked in opposite directions but with different timing, magnitudes and inertias. Without sufficient damping, the market has often overcompensated.

Of course, there are also exogenous events like political turmoil, policy shifts, technological innovations and demographic changes which can unexpectedly and significantly alter not just the immediate balance but fundamentally shift the way supply and demand curves respond to price movements. The trends are plagued by inherent and irreducible irregularities.

Such a structural change has recently occurred. High prices persisted long enough for the industry in the U.S. to build a larger fleet of modern rigs and to learn how effectively to hydraulically fracture shale wells. It also persisted long enough for new efficiencies to incubate towards maturity, and the Paris accords promised to further reduce carbon emissions through policy changes. By the time that Saudi Arabia finally acted to protect not only its place among suppliers but also, and more importantly, the role of oil in the world economy. The backbone of shale supply in the U.S. was strong, and the seeds of lesser use were established.

After these fundamental shifts, the rest of the world realized what Saudi Oil Minister Al-Naimi argued long ago and what Shell Oil has more recently asserted, namely that peak demand will occur long before peak supply.

To understand the trajectory of demand growth, we turn to econometric models like those published by the EIA and IEA. The central problem with long term supply and demand models is that they require assumptions about the many and interrelated responses to today’s prices. Though modeled responses may be tuned with low precision to relatively recent events and new realities, the actual response curves are poorly constrained and continue to evolve, in some cases at an accelerating pace. As the aphorism goes, all models are wrong, but some are useful.

The EIA, IEA and other public econometric models call for global oil demand to continue growing through 2040, and the EIA even calls for renewed growth in the U.S. and OECD demand. The forecasts of growth in global demand rely upon increased use by developing countries, most importantly China and India. On the other hand, the United States has already seen demand decline for about 13 years. In fact it was the second to last of the world’s seven major developed countries to enter demand decline, and the entire OECD group of countries has, as a whole, seen shrinking demand since 2007. EIA data shows that 35 countries in all have already reached and descended from maximum oil demand. The experience of projected versus actual peak oil demand in the U.S. and OECD countries provides an empirical test and thus context to evaluate the current forecasts of growth and delayed maximum.

The following chart compares actual oil demand in the U.S. to several relevant demand forecasts of the EIA, all data coming from the EIA itself. U.S. demand reached a plateau for four years ending in 2007. Before, during, and even after the actual maximum demand, the models predicted decades of growth.

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The next chart shows the same kind of comparison for the IEA’s models of OECD oil demand. Actual demand gently achieved its maximum in 2005. Even the alternative policy (lower demand) case in 2006 failed to capture the impending decline, but the reference cases adapted to the reality of declining demand much more quickly than did the EIA. Still the IEA over predicted the actual demand. Though not shown in charts, the EIA’s model of OECD demand growth and the IEA’s model of U.S. demand growth follow the same patterns. In short, these deeply technical and widely used referenced models missed badly the pivot point, the watershed of the object of analysis. For truly exculpatory reasons, the second and third order dynamics of reality were not captured by the models.

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Rather than the theoretical calculation by such models, empirical observation of history is likely more informative when it comes to anticipating the timing of maximum demand. The graph below normalizes annual oil demand from the G7 countries with the U.S. shown in black, each normalized to its own year and volume of maximum demand. The scales show a 15 year window around the maximum annual consumption, and the pattern of the G7 is repeated in the OECD total and in most all of the 28 other countries.

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The same data viewed on the scale of generations may resemble an alpine peak, but from the experience of living through it, demand does not peak. It sputters, surges and stalls as it rolls over from a slow incline into a slow decline. It is less a peak and more a crest of demand.

Sequential global demand forecasts over the last decade have projected slower growth, mostly now forecast at less than 1 percent, and sensitivity cases now allow for the possibility of substantial demand decline by 2040. Unfortunately, experience demonstrates that the crest will likely occur unexpectedly and sooner than predicted. And then our industry enters a whole new world as the moving balance of supply and demand turns into a race to the bottom.

Link to original article: http://oilprice.com/Energy/Oil-Prices/There-Is-No-Such-Thing-As-Peak-Oil-Demand.html

Comments

gorr

It's been 15 years that i say to drive a small used car and look at the actual park, it's full of suvs and it's growing, whahh. And on top of that mpg efficiency haven't been improved since years and years and hybrid and battery increase the cost of ownership instead of decreasing it and goverments are pouring tax money everywhere to crooked promoters that NEVER discover anything good. Since a couple of years we pay our cars on our income tax bills. This mayhem is organized by the bloggers that we find here, they ask for inneficiencies instead of efficiency and they want to raise the tax bill thru the roof.

mahonj

a: With Trump in the white house, there will be less pressure to conserve in the US (although Europe and Japan will keep up the pressure).

b: The extra demand will from countries outside the OECD
See the following list of countries by population size:
1 China 1,382M
2 India 1,326M
3 United States 324M
4 Indonesia 260
5 Brazil 209
6 Pakistan 192
7 Nigeria 186
8 Bangladesh 162
9 Russia 143
10 Mexico 128
11 Japan 126
12 Philippines 102
13 Ethiopia 101
14 Vietnam 94
15 Egypt 93
16 Germany 80
17 Iran 80

As these countries get rich, they will want cars, but won't be able to afford (or charge) EVs, so, IMO, demand for gasoline will continue once these guys get going.
China might have the political will to force people into efficient cars, but many of the rest won't.
The oil that the rich countries conserve will be consumed, at lower prices, by the developing world.

(So avoid low lying property !)

HarveyD

With vehicle producers making more and more large heavy vehicles, worldwide consumption may not drop that much for the next 20+ years.

Also with increasing population and more people buying more larger vehicles will contribute to more fuel consumption and not less.

World fuel consumption may go over 100,000,000 barrels/day shortly unless we have a financial crash.

SJC

I hope peak oil IS peak demand, we could produce more but the demand is not there with boomers driving less and high mileage cars.

Gasbag

@Mahonj

As those countries get wealthier the people will want transportation. They will not be able to afford the grossly inefficient model of personal ownership. Nor will they want the drawbacks that come with that model particularly in regions which high density populations. For these reasons they will opt for the much more efficient, affordable, and convenient. The miles per year for a shared autonomous vehicle will be much higher than in the personal ownership model. this heavily favors EVs due to their lower operational costs, lower maintenance, superior reliability, durability, and safety. You can expect this transition to start around 2020 time frame.

Gasbag

I think it is more apropos to look at the world oil consumption. That has been increasing each year by about 600,000 barrels per day or less than 1%. Plug-in vehicles have been increasing by about 50% per year but their numbers have been so small that they have had little impact. Last year they were less than 1% of new vehicles sold. Currently they are less than 2% of new vehicle sales. In the second half of this year they will likely still be less than 3% of new vehicle sales. At their current pace of growth they will eliminate increase in demand for oil around 2020 with increasing declines in demand each following year.

SJC

ICE and gasoline will be with us for decades, that does not mean we should forget about PHEV and EV, quite the contrary every bit helps.

Gasbag

ICE and gasoline will be with us for decades, that dos not mean they will retain their dominant role in transportation. If you consider the biggest problem with BEVs are the market limitations due to the ESU. Currently those are LiBs. Today their appeal is limited by their expense. Price performance however has been increasing at a rate of 16% per year. At this rate the price performance more than doubles every 4 years which means by 2024 long range BEVs will reach initial price parity with ICE. Mid-range BEVs could be expected to reach that point by 2022. I find it a bit difficult to imagine ICE won't be a niche player in new vehicle sales by the second half of the coming decade.

Arnold

Mahonj
Trumps cunning plan to promote and sell health hazards including from the international arms manufactures while increasing short term demand from military for oil and fossil fuels will have a perversely opposite effect.
You gotta hand the mans a consummate salesman.

Arnold

We saw a drop in consumption over the '08 financial crisis.Since then the widening gap between high and low earners has increased dramatically resulting in large numbers of economically displaced people on a globally.

While some have access to legacy old money and ill gotten or exploitative practice derived money, they can't replace the loss of income (growth) for the majority wage earner consumers.

Slowing economic growth will tighten income options from legitimate sources so fossil fuels,tax avoidance arms and drugs and other forms of slavery (prisons and medical) will become an even larger part of the new economy.

As the consumer market shrinks? the problem could (likely) become a train wreck of oversupply and reducing participation.
A reassessment of priorities would seem a sensible strategy.

JMartin

All posts seem to assume personal auto ownership rates will continue at present levels, and rise in developing countries as incomes go up. That may not be the case. Congestion in the increasingly urbanized world may shift demand to public (mass) transportation modes. Self-driving cars, electric bikes, skateboards, and scooters may serve as last mile transport for many. Online buying with electric truck delivery may suffice for many elderly. Time will tell.

Trees

If we can temper our politics and improve the performance of effective government, meaning a gov't that works for the people and doesn't attempt to control the economy and take away freedom, I do think the U.S. standard of living will continue to increase. We can continue to improve the quality of life if we all like grownups and avoid the extremes such as victim hood desires/popularity. If we take more self responsibility that would be a good start. I do think the politics of such has jumped the shark and more Americans are sick of this political business as usual stuff that does nothing for us and only stirs the pot to offer no solutions other than condemning the opposing party and making the political class wealthy. So, I guess what this means is that we consumers and the manufacturers (suppliers)if left alone will naturally develop solutions. Solutions that we consumers will be willing to purchase where it be a Uber ride, bus, EV car, or what ever mix. You look back 20 years ago and view the change that occurred. I do not credit politicians nor gov't for this change as it's really a force of citizens desires. Gov't can work the fringes to act something like a catalyst, but the true power is the people that make money and wish to purchase a better product. You want change, maximize that force.

SJC

Not only will ICE cars be with us the next 20 years but more than 80% of the cars sold will be ICE. Work towards the better but don't expect miracles.

Henry Gibson

Nuclear fission of Uranium found on land and in the ocean can supply any amount of energy that humans will use in the billions of years remaining for life on earth before it is fried in the expanding sun; this does not include any need for Thorium which may be three times or more more abundant. Even Lead, Mercury or Gold are fissionable with the production of 25 percent energy less than Uranium per atom, but we will never need to put such a process into use. If the US had the known reactors for this use in operation all of the unused uranium in storage, with no newly mined uranium could supply all US electricity for a hundred years or more.

The human race now can get 3,000,000 kilos worth of coal energy from one kilogram of uranium with less than one kilogram of fission "waste". It is only "waste" because US president Carter declared it so many years ago, and it has killed fewer people (0.00) than wind-turbines in the last ten years.

Nuclear energy can extract more hydrogen from water which means that any any amount of automotive fuels can be made. Ammonia is the most well know substance that could be made from air and hydrogen and used as a fuel. It can be burned in specially made turbines of all sizes, but If CO2 is available Methanol or DME can be made in all quantities. Methanol can be used as food for human edible organisms and the animals that humans eat. Besides methanol any other liquid fuel or food can be made using hydrogen as an energy and chemical source.

Hydrogen has only one third the energy of the same gas volume of natural gas methane, but it flows faster than methane to partially compensate, but towns should have long installed bigger pipes made of plastic not metals so that hydrogen alone is the form of all pipeline gas. It can be made from natural gas and water or many other organic substances with the CO2 being captured and used. No pilot lights are needed as a small bit of specially formed platinum will light the flame. Perhaps an animal will be created that will breathe in small percentages of hydrogen and air to feed it some of its energy. Or it could be injected into the blood and the animal body has some process for using it already, or the organisms in the cows digestive system can use it. In the form of Urea it is already used to treat cattle feed. All food and food energy can come from fission energy. ..HG..

SJC

Their own graph shows a peak around 2005, at that time the U.S. used 20 million barrels of oil per day. That amount has gone down since, it could go back up a bit but may not exceed the amount in 2005.

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