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Michael Lynch: Peak Oil Demand? A Little History Lesson

Consumption

One thing is certain: Whenever the oil crash comes, it will be only the beginning. Every year that follows will bring more electric cars to the road, and less demand for oil. Someone will be left holding the barrel.” Joe Romm, ThinkProgress, Oct. 21, 2016

“Two fundamental trends are shaping the future of the automobile. The first is the leveling off of world oil production. The second is the projected increase in all the most essential uses of oil … there will be less and less fuel for cars.”  Running on Empty: The Future of the Automobile in an Oil Short World, Worldwatch Institute, 1979

Numerous prognosticators claim that there is a revolution coming in the energy business, especially affecting the oil industry. New technologies will change the way people move and the power used to move them. Autonomous vehicles and Uber will reduce vehicle ownership (and driving) and electric cars will displace the use of petroleum in vehicles. The result will be a peak in oil demand by 2020 and a drop in oil prices by 2025, in the most extreme cases. To many, the revolution is “unstoppable,” and they argue that the oil industry believes in it as well.

This is the point where aged methane emissions like myself shake our heads and say, “How old are you?” Or, to quote R.J. Squirrel, “That trick never works.” (B.J. Moose always responds, “This time for sure.” But the trick doesn’t work.) As in the case of the debate about peak oil supply, covered in depth in my book, there are a lot of shortcomings to these arguments and no little irrational exuberance.

Much of this is déjà vu all over again. The people talking about peak oil demand include some experts, but a lot more who are novices or laypeople ignorant of the industry, its history and economics, and especially the many other warnings that have been heard over the past few decades. (I even have a video lecture comparing some of the recent arguments and expectations with those from the 1970s.)

WHEN TESLAS FLY — Many prognosticators believe that electric vehicles made by the likes of Tesla are set to erode global gasoline significantly. Photographer: Jasper Juinen/Bloomberg

A good example is this much ballyhooed quote:“the chief financial officer of Royal Dutch Shell and one of the most respected figures in the industry, told analysts on a conference call for the Shell results presentation that he believed “oil demand will peak before supply and that peak may be between five and 15 years hence.”  The author apparently is unaware of many similar comments from industry executives used to support peak oil supply beliefs, such as 1979’s “…world oil output is at or near a peak. This year or next could represent the highest level to be achieved.”  This from ARCO chairman Robert O. Anderson in the above-cited Worldwatch Institute paper.

A first step in evaluating the likelihood of the proposed ‘peak oil demand’ revolution would be to consider some of the past revolutions. The real revolutions would include the rise of steam power, the spread of railroads, the discovery of oil and its use in the newly invented internal combustion engine. (Oil’s use in lighting was not a revolution, merely an improvement over candles and animal-fat lamps.)  In every case, the revolution was due to advances that made something better and cheaper in some combination, where consumers willingly switched over to improved products, in direct counterpoint to today’s advocates’ urging adoption of renewables and electric vehicles which require massive subsidies and mandates.

Now, there are a number of reasons have been put forward to explain why oil demand might (or will) peak in the near future, and most have some validity but most also have a long history of not developing as predicted. Most do not involve “better and cheaper” so much as “someday better and cheaper” technologies, or expected trends that are at least somewhat questionable.

Behavioral changes: When oil prices surged in the 1970s, it was suggested that consumers would rely more on alternative transportation, such as bicycles, mass transit and carpools, as well as moving back to urban areas. In the late 1990s, the rise of the internet convinced many that remote work (at-home especially) plus video conferencing would reduce travel. Now, a much-publicized report suggests that vehicle ownership will decline, replaced by “transportation as a service” and this will cause oil demand to peak within five years and decline sharply, along with prices.

Old-timers will recall that twenty years ago, the argument was made that consumers didn’t want oil, gas and electricity, but ‘services,’ like heat and light, and this would overturn the traditional utility model. Mother Jones described Amory Lovins visionary concept as follows, referring to his seminal 1976 Foreign Affairs article:  “In other words, consumers are not interested in gigajoules, watts, or Btu, [Lovins] argued. They want well-illuminated workspaces, hot showers, comfortable homes, effective transport. People want the service that energy provides.”

In reality, nearly everyone still buys gigjoules, watts and Btus, and travel is only marginally altered (see graph).

US Travel The author from St Louis Fed data

US Travel:  Highway miles on left hand scale, air passenger miles on right hand scale.

New fuels: Beginning in the 1970s, it has been suggested that gasoline could be replaced by: methanol, ethanol, DME, biodiesel (recycled fat or from plants), advanced biofuels (cellulosic ethanol and algae based diesel), compressed natural gas, LPG, LNG, and hydrogen. (Compressed air was never seriously considered and water-based engines, typically using hydrolysis to make hydrogen fuel, also liquefied nitrogen which would evaporate and drive a turbine didn’t catch on.)  Recall this initiative announced in 1997, as relayed by The Economist:

“[O]fficials from Daimler-Benz and Ford agreed in Stuttgart to form a new partnership with Ballard Power Systems, a tiny Canadian firm considered one of the leaders in the development of fuel-cell technology. With a combined investment of roughly $1 billion, the new consortium hopes to produce an initial 10,000-50,000 cars a year powered by fuel cells, starting commercially in 2004.”

Or this:

“Methanol is the latest in a line of investigated fuels, and the results of the research on the fuel have been so positive that the State of California is funding a $5 million pilot program to supply municipalities with methanol-fueled vehicles and study the results.)  (Automotive Fleet, 1982)

Advanced  petroleum engines and vehicles:  There have also been proposals for a variety of engines relying on petroleum, but with different engine designs, such as the Wankel rotary engine (actually used by Mazda for a time), the Stirling engine (primarily proposed for submarines), along with gas turbines, Brayton cycles, and the Scotch yoke engine. Additionally, there were claims for a “Supercar” which a Clinton-era research program promised to produce, as well as the constantly imminent Detroit-destroying “Hypercar” from maven Amory Lovins. His 1998 prediction for Hypercar sales was stratospherically optimistic:

“Andrews: Given the above, I have a serious question for the RMI Hypercar Brain Trust: How many hybrids and fuel-cell vehicles do you anticipate in 2010? (Round numbers of millions …)

Lovins: Collectively these could well have a market share around half—more like two thirds if one is optimistic. …”

Non-ICE engines: Electric engines have been promoted repeatedly, from the days of Solectria and the EV1 from GM in the 1990s, to the mid-2000s when various startups such as Aptera and Fisker promised to revolutionize the industry. More recently, gas-electric hybrids have reached critical mass and sell across the globe, having been popularized by Toyota (although Honda produced an earlier vehicle), and newer models are sometimes rechargeable by wire, instead of only from their ICE engines. To date, sales remain extremely small, accounting for 3% of U.S. auto sales, of which 75% are hybrid-electric, the rest split between plug-in hybrids and battery electric vehicles, but gas-hybrid electrics are clearly now past niche status. Expectations for battery electric vehicles are heavily based on anecdotal reports, and especially aspirations, rarely solid analysis.

Peak oil demand is not theoretically invalid, the way most of the peak oil supply arguments were, but it suffers from the same problem as the peak oil supply debate, namely that the discussion is dominated by faux experts who don’t realize that many of their ideas are not new and their evidence is often dubious. As Thomas Nichols notes in his excellent book, “The Death of Expertise,” many think that a little internet research makes one equally knowledgeable as someone who has spent decades working in an area.

There is clearly a lot of irrational exuberance involved in this debate, and some serious analysis is needed to resolve many of the specific questions, but that will have to await future posts.

Forbes



8 Comments on "Michael Lynch: Peak Oil Demand? A Little History Lesson"

  1. Jurgens on Fri, 26th May 2017 1:13 pm 

    Expertise is truly dead. Long live fauxpertise! Sure enough, the media will oblige.

  2. Bob on Fri, 26th May 2017 1:43 pm 

    Our legacy wells are declining 4-6% a year. In 20 years the oil world will be over. No guessing about that. For transport at that time I would go with electric bikes and motorcycles. Very efficient hybrid cars w/ gas, battery would round out personal transport. One other problem will be roads. They are made of oil and will not be well maintained and the amount of paved surface will shrink. The roads will shrink to allow efficient use of the remaining oil available with the slimmer transport modes. Speeds will be way down. Maybe 50 on Interstates and 35 everywhere else. All in all, a saner world.

  3. deadlykillerbeaz on Fri, 26th May 2017 6:27 pm 

    What will dominate in the electric machine world will be small battery-powered lawnmowers. You push a button then pull the engage lever, it goes. Far easier than a small engine to power a lawnmower. For small yards and detail work, battery-powered lawnmowers are the better choice.

    Golf carts, electric forklifts, and such other applications will dominate too. Flashlights, radios, computers, cameras, phones, batteries work fine providing temporary electricity.

    I’ll be taking my handy ice on the 1500 mile crosstown trip.

    However, if you have ever seen a Tesla up close, they’re a super cool car. Still have a carbon footprint, can’t escape that, you need tires, grease, and asphalt. The manufacturing plant is not oil-free.

    The employees aren’t parking their Acuras on gravel. Concrete or asphalt, doesn’t matter, you’ll be using oil to make and get it there. The same for the solar power plant.

    Ships at sea need oil. They’re shipping it, everywhere you go oil is making it all happen.

    Doesn’t matter what it is, resource extraction, transport, manufacture, financial, even war, oil is the number one resource ever.

    To even think that humanity in the post-modern era can in any way exist without fossil fuels is insane.

    Renewables are more or less snakeoil.

    Party On!

  4. Anonymous on Fri, 26th May 2017 8:08 pm 

    Peak oilers were drastically wrong. The Oil Drum shut down for a reason. Stuart Staniford stopped analyzing oil production for a reason. They were wrong. And don’t want to dwell on it. Or learn from it. Or face reality.

  5. Jan on Sat, 27th May 2017 2:56 am 

    Predicting peak oil required exact data on every oil producing country. It also required up to date knowledge of what techniques such as horizontal drilling and fracking could achieve.
    Unfortunately most contributors on the Oil Drum did not have either these attributes.

    http://www.theoildrum.com/node/5154

    According to this stupid assessment Saudi Arabia would be producing around 6 million barrels a day now.

    The few articles which were more positive about technology and cautious about decline rates were drowned out by the overwhelming number of every more extremely negative views.

    To calculate Peak Oil we need to go through every single country and asses oil reserves.

    http://oilprice.com/Latest-Energy-News/World-News/Iraqs-Oil-Reserves-Rise-To-153-Billion-Barrels.html

    If Iraq has 153 Billion barrels of oil, then it’s production, given ideal circumstances could reach 10 to 12 million barrels per day.

    Violence and corruption will have a negative impact but no one knows by how much.

    How effectively will Russia be able to exploit Artic Oil and it’s shale oil reserves.

    http://oilprice.com/Latest-Energy-News/World-News/Iraqs-Oil-Reserves-Rise-To-153-Billion-Barrels.html

    No one knows at the moment.

    The best we can do is have maximum and minimum assessments.

    One thing is for sure, they are not the assessments done by Oil Drum contributors.

  6. Jef on Sat, 27th May 2017 9:11 am 

    Great article! About time someone stated the more earth bound reality.

    Bob – What you leave out, just as about all other comments about our future leaves out, is how do we get from here to there when what is happening in the real world is the vast majority of the population has less and less money, more and more debt. There will eventually be a breaking point when we can’t figure out how to get enough money into the hands of enough people so they can thrive. Any hint that the future might not be bright and you have absolute chaos on your hands.

  7. Bob on Sat, 27th May 2017 11:00 am 

    Jeff, We get from here to there by our own personal decisions that we make every day. All we can do is try to make the best decisions we can and serve as an example to those around us. We can also join small, like-minded groups that share our make-it-better philosophy. The odds of being successful this way are very slim but individual action and example can at least soften the blows. It makes you more robust on the personal and family level also. I think this is about the best we can do for the transition. On my personal level I volunteer as a Disaster Action Team lead on weekends for the Red Cross and have been doing so for 12 years. I think it makes a difference for the better in our world. One thing I think for certain is that the Red Cross will be here 100 years from now and will still be trying to do the good work. In a tiny way I support them and serve as an example to my neighbors.

  8. newfie on Sat, 27th May 2017 6:51 pm 

    Electric cars ? Where will all the electricity come from ?

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