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Michael Lynch: What The Prophets Of Peak Oil Demand Are Missing

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



3 Comments on "Michael Lynch: What The Prophets Of Peak Oil Demand Are Missing"

  1. rockman on Mon, 29th May 2017 7:12 am 

    “Whenever the oil crash comes”. And right off a silly notion. Some forks keep blabbing on and on about the coming “oil crash”. I’ve repeated asked some of them to define the term and all the responses have no logical basis. The world recently reached peak oil production. Yes: it did not happen in 2005 as so many post. Prior to the US “shale revolution” the world was producing around 85 mm bopd according to the EIA:

    https://www.eia.gov/outlooks/steo/data/browser/#/?v=30&f=A&s=&start=2005&end=2018&linechart=PATC_R01&ctype=linechart&maptype=0&id=

    At most the US boom added 5.5 mm bopd. Again, according to the EIA, global oil production reached 96.7 mm bopd in 2016. So backing off all the US production increase (from both conventional and unconventional reservoirs) global oil production peaked in 2016 at 91+ mm bopd.

    So is that ultimate global PO? Won’t be able to prove that until being able to look back decades down the road. But one FACT can’t be denied: GPO did not happen before 2016.

    So back to the question I’ll ask one more time: what constitutes an “oil crash”? And if one defines it as a very quick and steep decline they’ll have to come up with some dynamic that makes sense. After all, even when oil prices fell in 2014 the world’s oil production increased for at least another 2 years. Will it continue to followed such an increasing trend? IMHO I doubt it since it seems to be sliding back a bit this year. Regardless there’s no data indicating it’s about the head off that “cliff” so many talk about.

    He’s obviously also wrong about peak oil being a “theoretical” concept. It’s a statistical fact. But perhaps he meant any estimate of the date of PO.

  2. ALCIADA-MOLE on Mon, 29th May 2017 9:40 am 

    Son of a bitch. ML is not infallible. Just looking at the graph where air miles went from Hindenburg to exceeding billion of cars on the road in miles traveled one ought to conclude for the power of convenience. Just ask mother Teresa when she was surfing the international air in her private jet

    By the way Hitchens said mother Teresa is solely interested in expanding the church not helping the poor.

    To do we need to empower women. Just because I can score doesn’t I have to be bitter and hate women

    MT [Mother Teresa] was not a friend of the poor. She was a friend of poverty. She said that suffering was a gift from God. She spent her life opposing the only known cure for poverty, which is the empowerment of women and the emancipation of them from a livestock version of compulsory reproduction.

  3. ALCIADA-MOLE on Tue, 30th May 2017 9:28 am 

    ML is alpha apex predator. He’s the ultimate troll. He trolls with impunity. He trolls both sides of the aisle.

    He makes money for his clients so right there it’s impossible to criticize him.

    Money justifies the mean.

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