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Peak Oil Consumption Dead Ahead

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I have no idea nor will I take any guess as to the price of oil going forward. There are too many variables to make an educated guess. If you want a bullish or bearish POV on price…this isn’t likely the article for you. All I do know is the world is likely very near peak oil demand. Details and evidence follow…

The combined 34 OECD nations (list HERE) plus China, Russia, and Brazil represent 70% of global oil consumption while they represent about 40% of global population (chart below). In comparison, Africa and India (combined) make up 8% of oil consumption despite being 33% of global population and certainly beyond 2/3rds of all present net population growth (all population data is via OECD. stat HERE…and oil consumption via EIA HERE).

The chart below shows the EIA (Energy Information Administration) historic and estimated global oil consumption by OECD vs. China+Russia+Brazil vs. India+Africa vs. RoW.

From 2015 to 2040, the EIA anticipates global oil consumption to increase by over 27 million barrels a day. Of that, the OECD to represent 2% of the growth, China+Russia+Brazil 25%, India+Africa 27%, and the RoW 46%.

To begin, I’ll focus on the present consumers of 70% of the world’s crude, the OECD+China+Russia+Brazil. And if we check the annual change to their combined 0-64yr/old population (blue line in the chart below), 0-64yr/old population growth has decelerated 90% since the ’88 peak and cumulatively turns to outright annual declines by 2019. The annual declines accelerate indefinitely from there. I also show total 0-64yr/old annual global growth (black columns) and 0-64 growth among the RoW or Rest of the World (red line).

OECD

As for the OECD, the chart below shows 15-64yr/old annual population growth peaked in ’82 and has decelerated since. However, the deceleration went off a cliff in 2012 and continues slowing further until it goes into full decline as of the middle of next decade. However, OECD total oil consumption rose from 1981 until 2005 when it began a sharp contraction. Since 2005 on a 75% fall in annual adult population growth, total OECD oil consumption has fallen 10%. Over the next 25 years, EIA estimates oil consumption to be flat against the outright adult population declines upcoming. EIA estimates of flatlining consumption are highly unlikely against the core population declines to come. Further OECD oil consumption declines are almost a sure thing.


And if you’re curious how this correlates to Federal Funds Rate and global debt accumulation…yup, FFR’s peaked in ’81 just as the growth rate began decelerating and hit ZIRP just ahead of the demographic waterfall. Obviously, since 1981, the fall in FFR and rise in debt and oil consumption have all been very closely linked.

China, Russia, Brazil

Below, China+Russia+Brazil annual 15-64yr/old population change. Adult population growth has ceased among these nations and will continue falling for decades.

From this point forward, the EIA estimates that a declining combined total number of adults in China, Russia & Brazil will increase their oil consumption over the next 25 years by nearly 8mbd. How a shrinking population of adults (let alone shrinking under 65 population) would increase their consumption by nearly 50% over the next 2.5 decades while technology and environmental pressures continue to make oil usage more efficient…is a true mystery.

The chart below looks solely at China annual adult population change (blue columns), total Chinese debt (red line) and Chinese oil consumption (black line). Noteworthy since 2003, a 100%+ decline in Chinese adult population growth vs. the 1000% increase in total debt…all to achieve a doubling of oil consumption. The EIA apparently sees no red flags here & EIA estimates for China, Brazil, Russia oil consumption are pure fantasy. Outright consumption declines are far more likely.

Again, the population responsible for 70% of global oil consumption begins outright shrinking next year and continues thereafter indefinitely. Combine this with technological advancements, environmental restrictions and gaining market share among electric vehicles (etc., etc.) and the demand side of the equation is set to slow indefinitely regardless of IEA claims to the contrary.

India & Africa

What about substituting the growing populations of India or Africa for the shrinking wealthier nations? The chart below shows the growth in oil consumption since 1980 among China, India and Africa.

The EIA expects a combined India/Africa to double their oil consumption by 2040 & provide 27% of global growth in demand. My problem with this forecast isn’t a lack of population growth in India or Africa…as nearly 80% of the global growth will come from these two sources.

My problem is China’s ramping oil consumption has not been emulated by either India or Africa in the good times. Now, neither is likely to achieve similar export-driven growth in a world awash in overcapacity. Absent healthy importers, there can’t be healthy exporters.

Below, Indian 15-64yr/old annual population growth (blue columns) peaked in 2005 and continues decelerating from here (already down 20% from annual peak growth). Debt to GDP (red line) will likely rise significantly simply to maintain any growth in oil consumption (black line) against the decelerating population growth.

Below, Nigeria is representative for many African nations experiencing rapid annual core population growth (blue columns) despite seeing little to no gains in oil consumption (black line).

RoW (Rest of World)

As for the remaining 23% of the world’s population, the EIA has targeted a 60% increase by 2040 over their current oil consumption. This is 46% of the total estimated global oil consumption growth. Their population growth is decelerating but their incomes, savings and access to credit are higher than India/Africa. I could chart it all out but this is already too long and heck, the longer it takes the more time; I’m not looking for a job… so let’s just call it good here.

I’ll again take the under on the IEA RoW estimates as absent a healthy world, economic activity is slowing but this is a more disparate grouping and more difficult to make any sweeping statements regarding these estimates.

Conclusion

I make my argument why global oil consumption is likely soon to peak (OECD to continue declining; China+Russia+Brazil to begin declining; Africa+India flatlining; the RoW the wildcard)… and that all those spouting EIA estimates are likely spouting bogus information. But this isn’t just true for oil consumption but true for most commodity consumption & general consumption world over.

Not discussed is the price side of oil as I have no good way to gauge price impacts because demand is only one variable… the other variables of interest rates (potential NIRP), currency impacts, potential supply disruptions, new technology, etc., etc. are simply unknowable.

And of course, there is a real potential that as demand for oil and most things decelerates, that a real unwind takes place with far greater impacts than slight reductions in oil consumption.

seeking alpha



5 Comments on "Peak Oil Consumption Dead Ahead"

  1. penury on Tue, 21st Jun 2016 9:19 am 

    For once I agree with SA but the last paragraph says it all.

  2. tita on Tue, 21st Jun 2016 9:46 am 

    OECD have a long history of de-industrialization, in profit for emerging countries. Despite having only 17% of population, they still consume 50% of total oil produced. India, China and Brazil still have room for growth and are likely to see more changes in their consuming habits.

    The wrong idea of this “peak oil consumption” is that people have a fixed consumption profile (the inelastic oil demand). It’s not true. This can change over time. Of course, demographics impact growth and consumption, but energy availability at low prices has also a big impact. We just saw how low oil prices just boosted the consumption in OECD countries, despite having no major changes in demography.

    This article is a false belief of a macroeconomic study, applied mindlessly on general cases without opening enough the mind to understand that it can’t be used everywhere.

  3. JuanP on Tue, 21st Jun 2016 10:03 am 

    I don’t waste my time reading OECD or EIA forecasts so I skipped this article based on them, but I liked how colorful the graphs are! LOL!

  4. rockman on Tue, 21st Jun 2016 3:47 pm 

    I’m still waiting for clever folks like these to explain the focus on demand as a separate issue from supply. First how can a global demand of X bbls be satisfied if there’s less then X bbls of supply available? IOW isn’t meeting demand thus limited to the supply? Of course we understand the feedback loop: demand exceeding supply produces higher prices. Higher prices reduces the number of buyers who can afford that price. Thus supply now meets demand once again, right? Of course that defines dermand based upon what buyers CAN AFFORD and not what THEY WANT. But hasn’t that always been (and always will be) the case regardless of the level of oil production? IOW if oil were $1/bbl demand could never be met: there would be a huge shortage of oil…$1/ bbl oil that is.

    The other side of the coin: at $100/bbl the producers can deliver X bbl/day but there are not enough buyers who can afford $100/bbl. So the producers have a choice: sell less oil at $100/bbl or lower prices. But if they can live with that revenue level they hold at $100/bbl. Thus once more supply = demand.

    But what if an increasing number of buyers can’t afford that high priced oil, stop buying and revenue to the sellers is no longer accerptable to them? BTW regardless of how many buyers leave the market demand still equals supply.

    Simple solution for the sellers: lower prices to bring more buyers into the market and increase revenue. And, of course, dermand continues to equal supply.

    What else can the sellers do: they can’t force buyers to pay a higher price with monies they don’t have. The only control of the dynamic they control is the volume and not the price. Just as the buyers have no control over the volume the producers bring to market: they can only control how much they pay.

    Which is just a f*cking long way to say the same thing over and over again: after a rather short adjustment period supply will always be equal to demand…just as we have it today. There is no more a glut of oil today then there was a shortage when it was $120+/bbl. The only exception would be when a govt imposes price contrtols/rationing.

  5. JuanP on Tue, 21st Jun 2016 3:59 pm 

    Rock “I’m still waiting for clever folks like these to explain the focus on demand as a separate issue from supply.”
    Come on, Rock! You know as well as I do that the whole PO “demand” BS was created to sow confusion and distract the masses. The idea being to argue that PO is not a problem and never will be because we won’t need the oil anyway. Therefore, PO problem solved. Next! LOL!

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