Exploring Hydrocarbon Depletion
Page added on April 10, 2017
Standing at the front of a windowless room in downtown Washington last week, the Swiss energy economist Christoff Frei lectured on how the world’s energy sector is about to undergo an upheaval the likes of which has not been seen in a century.
Between the insurgence of electric cars, climate change policy and a host of economic factors, Frei posited the world’s thirst for oil might well peak within the next decade as society gets more and more of our energy from the power grid.
“Electricity is the new oil,” he quipped.
Asked what he was seeing that organizations including the International Energy Agency and Exxon Mobil are not, Frei, who was recently named secretary general of the inter-governmental group World Energy Council, turned coy.
“They do quite a wide range of scenarios,” Frei said. “But don’t quote me on IEA scenarios.”
Peak oil demand theory has quickly become the conversation du jour within the world’s energy corridors, following on from a surprise pronouncement by Royal Dutch Shell CEO Ben van Beurden in Houston earlier this year that their models showed demand potentially peaking as early as the late 2020s.
With so many companies and organizations offering different forecasts – or scenarios, depending on their confidence – predicting the world’s oil needs has become more a matter of art than science.
Economists like Frie argue that the long held correlation that with economic growth comes growth in energy demand is diminishing, as buildings and cars get more efficient and rapidly advancing digital technology allows humans to change their lifestyles. Think ride sharing instead of driving your own car or video conferencing instead of getting on an airplane.
Add in the growing shift to natural gas and improvements in renewable technology, and not only is oil’s market share shrinking but so is the market itself.
Yet the IEA, which has long served as a guiding light for the world’s oil industry, said last November that even with the Paris agreement on climate change oil demand would continue to rise through 2040 – mirroring predictions by the likes of Exxon Mobil.
Michael Lynch, a former researcher at the Massachusetts Institute of Technology who now runs the consulting firm Strategic Energy and Economic Research Inc., likens the buzz around peak oil demand to that around peak supply in the early 2000s.
At the time, Lynch drew angry criticism when he argued technology would ultimately win out and allow more oil to be accessed – as came to pass with the advent of hydraulic fracturing. Now, Lynch says, peak oil demand proponents are making too much of the impact digitization and renewables will have on energy demand.
“I was looking at air miles traveled, and the internet doesn’t seem to have made as much difference as people thought. It’s slowed a little in the U.S. but not in other places,” he said. “Let me ask you, When you saw this guy talk yesterday, was he present?”
What IEA is essentially counting on is that the trends of the oil industry’s entire existence – namely that energy consumption rises with economic growth – will continue. And with countries like China and India expected to grow their economies considerably in the decades ahead, it would make sense to assume they will need lots of energy to get there.
That isn’t proving out the way it used to, said Andrew Logan, director of oil and gas program at CERES, a nonprofit investment firm that advocates for corporate sustainability.
“IEA projections are always declining. Every year they have to notch it down. It’s pretty incredible they get it wrong year after year,” he said. “I don’t know the answer on when (oil demand peaks), but the way we look at it the future of energy is more uncertain than it’s been in a very long time.”
So why would a CEO like van Beurden openly discuss a decreasing demand for his product within the next decade when environmentalists are not entirely convinced the timetable is so short?
Lynch said he wasn’t sure, but he offered, “It sounds a lot sexier than we’re going to keep driving cars with gasoline and diesel for the next 30 years.”