Hey Peak Oil! Meet Global Peak Demand

Peak oil doom is finding it more and more difficult to get any respect among informed persons. The most recent blow to the boogey man of global peak oil collapse is an increase in evidence for an impending "peak demand" for oil globally. Ricardo Strategic Consulting has released a recent report predicting that global demand for oil will peak before 2020, and drop below 2010 levels by the year 2035.

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.

...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. _GCC

Al Fin energy analysts see much to agree with in the Ricardo report. Betting on an exponential increase in demand for oil -- despite all the countervailing factors -- has always been a sucker's bet, suited for the echo choirs and circled jerkles of the doomer set.

We do feel that the influence of advanced biofuels -- particularly after the year 2020 -- is being understated by the Ricardo group. It is also likely that sometime between now and 2020, the "energy starvation mentality" of governments in the US and Europe will be overthrown by popular sentiment, as the folly of the green dieoff.orgy agenda becomes more apparent. With the demise of the green energy starvation agenda, greater supplies of energy from all sources -- including nuclear, CTL, GTL, BTL, bitumens, kerogens, gas clathrates, shale gas & oil, and more -- will be forthcoming.

Combining increased supplies of energy and fuels with a gradually decreasing demand will result in reduced retail and wholesale pricing, with likely catastrophic results for the governments of Russia, Iran, Venezuela, Bolivia, and other energy dictatorships.

More from the Telegraph