Peak Oil Demand Is A Slow-Motion Train Wreck

Authored by Nick Cunningham via OilPrice.com,

Will oil demand peak within five years? 15 years? Or not until 2040 or 2050?

https://www.zerohedge.com/sites/default/files/inline-images/20180121_peak.jpg

The precise date at which oil demand hits a high point and then enters into decline has been the subject of much debate, and a topic that has attracted a lot of interest just in the last few years. Consumption levels in some parts of the world have already begun to stagnate, and more and more automakers have begun to ratchet up their plans for electric vehicles.

But the exact date the world will hit peak demand kind of misses the whole point, argues a new report, which is notable since it is coauthored by BP’s chief economist Spencer Dale, along with Bassam Fattouh, the director of The Oxford Institute for Energy Studies.

https://www.zerohedge.com/sites/default/files/inline-images/20180121_peak1.jpg

They argue that the focus shouldn’t be on the date at which oil demand peaks, but rather the fact that the peak is coming at all. “The significance of peak oil is that it signals a shift from an age of perceived scarcity to an age of abundance,” they wrote. In other words, oil won’t be on the only game in town when it comes to fueling the global transportation system, which will have far-reaching consequences for oil producers and consumers alike.

The exact date is unknowable, and in any event, the year in which the world does hit peak consumption won’t result in some abrupt “discontinuity of behavior,” the report argues. Demand growth will slow and then decline, but probably won’t fall off a cliff. So, the exact date of peak oil demand is “not particularly interesting.”

Nevertheless, the implications of a looming peak in oil consumption are massive. Without an economic transformation, or at least serious diversification, oil-producing nations that depend on oil revenues for both economic growth and to finance public spending, face an uncertain future.

And slowing demand growth is occurring at a time when supply is less of a concern than it used to be, in large part because new drilling technologies have led to a wave of supply from shale. “The world isn’t going to run out of oil. Rather, it seems increasingly likely that significant amounts of recoverable oil will never be extracted,” the authors wrote.

One of the more intriguing conclusions from the report is that this new “age of abundance” could alter behavior from oil producers. In the past, some countries (notably OPEC members) restrained output, husbanding resources for the future, betting that scarcity would increase the value of their holdings over time. “A high reserves-to-production ratio — implying a country could continue producing oil at the same rate for 80, 90, 100+ years — was a sign of both strength and intergenerational fairness,” the report said.

However, looking forward, if a peak in demand looms just over the horizon, oil producers could rush to maximize their production in order to get as much value for their reserves while they can. “Better to have money in the bank than oil in the ground.”

To complicate matters further, maximizing production to fight for market share would require hundreds of billions of dollars of investment. For instance, Rystad Energy predicts upstream spending will stand at $510 billion in 2018 (which is sharply lower than in years past). Huge sums will be required even just to maintain current levels of production.

That creates another problem. As the FT notes, extending the life of oil fields, let alone investing in new ones, will require marshalling such large volumes of capital, but that might be met with skepticism from wary investors when demand begins to peak. “When that shift occurs, from a growing industry to one in decline, you change investors’ perception,” Jason Bordoff at Columbia University’s Center on Global Energy Policy, told the FT. It will be difficult to attract investment to a shrinking industry, particularly if margins continued to get squeezed. In In that sense, the timing of peak oil demand does in fact matter.

Either way, peak demand should be an alarming prospect for OPEC, Russia, the oil majors — basically any and all oil producers who will find themselves fighting more aggressively for a shrinking pie. “Faced with the possibility that significant amounts of recoverable oil may never be extracted, low-cost producers have a strong incentive to use their comparative advantage to squeeze out high-cost producers and gain market share — just as with any other competitive market,” Dale and Fattouh wrote.  

Oil producers will need to adapt to a “higher volume, lower price” environment. For consumers, however, the shift will bring benefits, including more options and cheaper energy.

At the country level, this is scary stuff. Many oil producers have hefty spending requirements to satisfy their populaces, including for healthcare, housing, employment, etc. Ample global oil supply for the foreseeable future, combined with an eventual peak in demand, threatens persistent fiscal deficits and some hard choices.

Saudi Arabia has offered up its Vision 2030, which the report by Dale and Fattouh say is probably “the most prominent example of a major oil producer responding to the changing environment,” but economic transformations are incredibly difficult and would conceivably take decades to pull off.

It’s hard to imagine countries that depend on oil for more than 90 percent of their export revenue adapting well — it’s a slow-motion train wreck. Dale and Fattouh say it may require “an eventual adjustment in living standards,” which is a rather diplomatic way of putting it.

Comments

directaction Sun, 01/21/2018 - 16:04 Permalink

Whenever I read the words "peak oil demand" strung together in a row I quit reading. 

The looming economic catastrophe facing humanity is properly called "peak oil." 

Moe-Monay Bastiat Sun, 01/21/2018 - 16:30 Permalink

directaction - You are strictly speaking incorrect.

Peak Oil was a theory about how oil usage would peak due to scarcity.

Peak Oil Demand - is a more viable theory based on the fact that oil consumption is largely inelastic and thus the price will go up sufficiently to enforce higher production. Thus production will peak IF AND ONLY IF oil demand peaks.

You see "peak oil" was a theory by the environmental nutters.  "Peak oil demand" is the theory of mathematically minded who think logically.  The past 10 years have proven we peak oil demand theorists correct.  According the the left wingers who will lie about anything to "prove a point" told us oil production could not rise.  Then boom out of the blue fracking is a thing.  But then I never expect a lefty to really be good at science or mathematics. Too much work. They prefer womyn's studies.

In reply to by Bastiat

skbull44 Moe-Monay Sun, 01/21/2018 - 16:45 Permalink

I think you need to read a lot more about what the 'Peak Oil' community has said. You have not characterized their concerns well at all and failed to consider the very significant point about energy-return-on-energy-invested (EROEI). Read MK Hubert's work, some Richard Heinberg, Michael Ruppert, Nicole Foss, Gail Tverberg, Ugo Bardi, Raul Ilargi Meijer, Kurt Cobb, Dimitry Orlov, etc..

 

https://olduvai.ca

In reply to by Moe-Monay

D503 francis scott … Sun, 01/21/2018 - 20:02 Permalink

There is certainly no such "concept" of peak demand save for those idiots over in the economic fields that steal all their ideas from mathematicians, physicists, chemists, and the respective engineers (applied scientists) who make available fuels and markets. Keynes' children who quite clearly are inbred with Ken Hamm's children.

Demand can never peak unless the population itself decides it has enough. I can personally ensure demand never peaks with one simply desire:

Move our solar system to within range of another goldilocks planet so I can get the fuck off this ride, and again indefinitely until I am satisfied. 

Energy available per capita per second and the efficiency which that energy is applied to meet the expected result (food, shelter, information, entertainment, etc) is the upper and lower bounds. Too much and you get fidget spinners, too little and you get revolt and starvation. 

Jevon's paradox and the Khazzoom-Brookes postulate prove that there will never be a peak demand. As it turns out, idiots don't know what to do with their free time besides fuck and make more idiots who consume more energy. 

We have obviously already peaked in EROEI as we are clearly fracking and scraping tar sands for shit fuels relative to light crude. If this shit is fucking infinite, why are we sourcing the $5 crackwhores when these top tier bitches want to supposedly fuck for free? It violates the easiest first principle. 

People who presume we haven't already peaked ignore the definitive EROEI values that every engineer can work out, ignore the fact that shale has always had a negative cash flow that exceeds the average lateral well's lifetime already, and refuse to acknowledge the massive savings from having a military boot on the neck of the middle east. 

The simple fact is, the end of oil threatens your survival of self. It means easy street has let you off in downtown Baltimore and you spent your whole life publicly shitting on others and now you're shitting your pants with nowhere to run surrounded by people too stupid to understand why their Xbox won't go online and their food stamps aren't coming. 

You can't fix shit, Cook shit, Preserve shit, Raise shit, Grow shit, Build shit, Shoot shit, or Sew shit. 

You spent your life learning how to Bullshit. 

I'very heard it said that a lot of people's last words were, "Oh shit." I've always wondered if it was an exclamation of surprise, or self-awareness. 

In reply to by francis scott …

D503 King of Ruperts Land Sun, 01/21/2018 - 21:23 Permalink

That must be why ExxonMobil has slipped from the world's largest non state oil producer by volume to ninth in the past five years. 

I guess they're "peak oil" bullshitters who cannot produce at a positive cash flow relative to others. Like GE they're making an increasing percentage of their money from fiscal market manipulation, not actual product. 

In reply to by King of Ruperts Land

francis scott … D503 Mon, 01/22/2018 - 01:36 Permalink

Very good comment, D503

 

The phrase 'peak demand' flows off the pen of Nick Cunningham so take your

complaint up with him.  He never tells us that it is the consumption of crude oil

contrasted against its production and not its demand that's what Hubbert's

Peak Oil Theory is all about.

 

DEMAND requires that a resource must still be purchased with an acceptable

'store of value' and 'at the market,' whilst CONSUMPTION implies the resource

has already been bought and paid for (and probably all used up).

 

If you happen to find another goldilocks planet let me know.  I don't think you will.

But good luck.

 

 

In reply to by D503

Demon Slayer francis scott … Sun, 01/21/2018 - 22:11 Permalink

Luxembourg military????

LOLOLOL!!!

I lived in Luxembourg for a few years. They have no navy..not one boat. They have no air force; not one plane.

The Luxembourg military includes Luxembourg police. 
 

 The army has been an all-volunteer force since 1967.[2] It has a current strength of approximately 450 professional soldiers, 340 enlisted recruits and 100 civilians, and a total budget of $369 million, or 0.9% of GDP.

The army is under civilian control. The Commander-in-Chief is the Grand Duke.

http://military.wikia.com/wiki/Luxembourg_Army

Newport Beach is bigger than Luxembourg. Luxembourg is basically three blocks of stores and houses on either side of the small canyon (20 meters wide max. Outside of the capital, there are very few homes with the exception of one very small village. If you drive south 20 minutes from the capital, you're in France. If you drive 45 minutes east, you're in the Netherlands. If you go north, in 25 minutes, you're in Belgium...in every direction from the capital, after 5 minutes or less, you have relatively untouched nature.

To drive through the capital from north to south at 65 mph, you would pass the entire capital in 4 minutes..max. Outside of the capital, there is basically nothing.

In reply to by francis scott …

anti-republocrat Moe-Monay Mon, 01/22/2018 - 00:31 Permalink

Actually, peak production of conventional oil was reached several years ago, and as someone else here mentioned, conventional oil production has been plateaued for several years, varying slightly above and below what is bound to be the highest level of conventional oil production that will ever be achieved.  What was predicted was that more expensive, non-conventional sources of oil (off-shore and even deep water, shale, fracking and tar sands) would satisfy the increasing demand, combined with the fact that the higher price of oil necessary to sustain non-conventional production would slow the increase in demand and eventually reverse it, resulting in both decreased oil consumption as well as decreased production from all sources, with of course conventional decline being steeper.  Some of the decline in conventional production would have been expected to be a result of holding the oil off the market in the expectation of continued rising prices.

Where the peak oil theorists erred was their assumption that no energy source could take the place of oil for things like transportation.  They believed that the cost of electrical energy produced from renewable sources would never be able to compete with oil, but we are seeing today that they were wrong.  It is today almost as cheap to fuel a car with electricity generated from wind or solar as it is to fuel it with gasoline or diesel, and the unit cost of electrical energy is continuing to decline.  This puts a cap on the price of oil, because gasoline will not be sold at a price that's not competitive with driving an electric vehicle.  Furthermore, since renewable electricity continues to decline in cost, that price cap for oil will decline, representing that demand for oil has peaked and is declining.  Conventional producers know this, so they are currently pumping as fast as they can so that their assets will not end up stranded.  They would increase their production rates if they could, but they can't because they're already producing as much as is possible.  Ie, they've peaked, but the replacement is not going to be non-conventional oil, but rather electricity from renewable sources.

In reply to by Moe-Monay

francis scott … Lumberjack Mon, 01/22/2018 - 02:22 Permalink

Fake news, dude.  Syria and Iran's complaints about

the Turkish move into Afrin, are as fake as

Boris Johnson's hair-dos.

 

They're all Russia's allies along with Turkey and have

taken a phony stance on Turkey's attack, WHICH

WEAKENS THE US AND COALITION'S UNWANTED

POSITION IN SYRIA.  AND THE PAPER THIS STORY

APPEARS IN IS CHINESE, ANOTHER RUSSIAN ALLY.

 

 

Don't get mad at Russia for fighting fire with fire

and lies with lies.

 

In reply to by Lumberjack

Crazy Or Not directaction Sun, 01/21/2018 - 16:28 Permalink

Peak Oil has been a scare story for at least ten years, and we're still not there. If it arrives it will either be because KSA supply fails, and shale/frack can't pick up the slack, or global economy tanks. 

We live on a perpetual motion machine (planet earth), we just haven't learnt yet how to bring either jet stream wind power down to the surface, or transfer atmospheric electrical charge into useful energy, we will at some point - providing we can make it past our current conflict bullshit.

In reply to by directaction

KansasCrude Crazy Or Not Sun, 01/21/2018 - 17:50 Permalink

Please quit wasting your time with this freaking moron.  He ain't worth it.  Conventional oil peaked close to a decade ago what we have now is not economically feasible at even current prices for producers or connedsumers.   He ain't got time to see the financial carnage in the oil patch.  Please don't check out BHP and how they spent $2 Billion on shale oil assets going to make a bundle now its all for sale for most likely a billion less than they paid or less.  Please don't bother him with facts on how they producers aren't even replacing 20% of what we use a year with new discoveries.   Stop wasting your time he is fully committed to group think and its really an ingrained human defense mechanism.  The perception won't change until the group think is forced to accept the reality due to it being fully in their face....sad but true.

 

In reply to by Crazy Or Not

MasterPo Crazy Or Not Sun, 01/21/2018 - 17:01 Permalink

Actually zero point energy has been around since Tesla, but they will not let us have it because it will break their "bend over and smile while we rob you blind" money machine. They've based the entire world's financial system on the petro dollar.

Sad really, that because they are such greedy bastards, instead of phasing it in over decades to assure a smooth transition, it now requires the whole system to implode, collapse, and reboot. 

Their hubris and stupidity knows no limits.

[But soon will...]

In reply to by Crazy Or Not

tmosley directaction Sun, 01/21/2018 - 16:46 Permalink

That is because you are a doomboner.

If we all got a Mr. Fusion in the mail tomorrow, oil demand would got to ZERO, and no-one would care.

It's like whining about peak whale oil, peak charcoal, or peak candlewax.

The people were never hurt because they stopped wanting/needing something. What hurts them is when something they want or need stops being available.

In reply to by directaction

AGuy directaction Sun, 01/21/2018 - 17:24 Permalink

"Whenever I read the words "peak oil demand"...It is properly called peak oil."

The Author knows what Peak Oil is, but there is also "Peak Oil demand", As Oil demand trends Demographics. All those baby boomers are retiring or cutting back on travel to save more for retirement. Retired people generally consume less. Also as oil prices increase, demand decreases as those that cannot afford high energy prices cut back, use energy more efficiency, or simple cannot afford the higher costs.

Most of the industrial world is rapidly aging, and so is Asia. The only region with high fertility rates, is the middle east.

To some degree business are using less energy as knowledge Workers (white collar) use the IT and the internet for business needs. Before Remote access (ie GotoMeeting, WebEx) salesmen had to get on a plane or in a car to present thier product at their customer sites. Now they can do it from a home-office.

In reply to by directaction

nonplused directaction Mon, 01/22/2018 - 18:35 Permalink

Directaction - The problem is that economists cannot tell the difference between peak oil and peak demand since with the exception of a few months worth of storage they both look the same.  Peak oil causes higher prices which in turn cause demand to drop until supply and demand are in balance again.  I would argue that this process is already occurring, as at the currently "low" price of oil in the $60 range a lot of economic activity is already under pressure.  Yet the marginal producers like US shale are bleeding red ink all over the place, so eventually prices will rise even further again, bringing about a new phase of demand destruction.

In reply to by directaction

stacking12321 Stuck on Zero Sun, 01/21/2018 - 16:55 Permalink

deep oil? as in, too expensive to extract oil, which is why it's being left there?

what's going to power this supposed new electric economy? electricity isn't a power source, it's a method of distribution. energy density is key, and there's no battery technology available to allow for powering of all the world's cars, trucks, buses and trains, even if a source to provide the electricity were readily available.

In reply to by Stuck on Zero

AGuy Stuck on Zero Sun, 01/21/2018 - 17:28 Permalink

"There's a lot more deep oil in the ground than earth's atmosphere can tolerate. We're entering a new electric economy."

Which (electric economy) is fueled by NatGas. As far as "deep oil", not really. deep hydrocarbon deposits are natural gas because the earth's heat cooks the oil into Natgas. if you referring to deep ocean oil, its too expensive to drill for, probably about $140-$160 bbl, which consumers cannot afford. There is not a lot of it. That said there is still a lot of coal left.

In reply to by Stuck on Zero

gregga777 Sun, 01/21/2018 - 16:28 Permalink

"For consumers, however, the shift will bring benefits, including more options and cheaper energy."

 

Exactly how will that be accomplished? Electricity prices are directly proportional to the amount supplied by wind turbines and/or solar. More electricity from wind or solar means much higher prices of lower quality. 

How will electricity be applied for transportation? About 97% of the shipping of goods around the world is via diesel powered ships. Plus, batteries are merely energy storage devices that are massively inferior to chemical energy storage. The author of this article is a complete ignoramous with respect to the physics of energy sources, storage and supply.