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Remember Peak Oil? Demand May Top Out Before Supply Does

Remember Peak Oil? Demand May Top Out Before Supply Does thumbnail

When Bob Dudley, chief executive officer of British oil giant BP Plc, was asked at a recent conference when oil demand will peak, he had a precise answer: June 2, 2042.

The audience at the annual St. Petersburg International Economic Forum burst into laughter, knowing it’s impossible to predict such an event down to the day. But the American executive wasn’t speaking entirely in jest: The most recent edition of BP’s widely scrutinized Energy Outlook has global demand for crude maxing out in 2½ decades, give or take a year. That projection casts a shadow over one of the world’s largest industries, which until recently was far more concerned with boosting supply. The advent of electric cars, the fight against climate change, and slowing economic growth in China is dampening the world’s once boundless appetite for crude. Carmaker Volvo AB announced on July 5 that it will manufacture only electric or hybrid models from 2019 onward. Three days later, France said it would ban sales of cars with diesel and gasoline engines starting in 2040.

Patrick Pouyanne, CEO of Total SA, says demand will peak at some point in the 2040s, which is why the French energy giant he runs has been investing in solar power. Ben van Beurden, CEO of Royal Dutch Shell Plc, has said the zenith could arrive a lot sooner, in the next 15 years or so, if electric cars became really popular. “The energy transition is unstoppable,” Van Beurden told the St. Petersburg forum in early June. “In the most aggressive scenario, you can see oil already peaking in late 2020s or early 2030s.” In the time scale of the oil industry, where multibillion-dollar projects often take a decade or longer to come to fruition, that’s as close as it gets to saying “the day after tomorrow.”

If such forecasts prove right, oil prices are likely to remain low for a lot longer. That raises the possibility that some hard-to-reach deposits, like those in the Arctic, may never be tapped, turning what today are considered valuable reserves into assets of questionable worth. That worries big institutional investors such as BlackRock Inc. that manage mutual funds composed of energy stocks.

Oil companies may still adapt by diversifying into petrochemicals, for which demand is expected to keep climbing, and renewables such as solar, wind, and biofuels. Natural gas demand will also continue to grow, which is good news for companies like Exxon Mobil Corp. and Shell that have invested heavily in liquefied natural gas for export.

For Middle East nations that sit on huge hydrocarbon reserves, peak demand is more of an existential threat. “If you have 100 years’ worth of oil reserves, then 25 years looks like a very short time frame,” says Martijn Rats, a Morgan Stanley oil analyst in London. Saudi Arabia and Kuwait depend on oil for as much as 90 percent of their income. They and other Middle East nations have used their oil wealth to provide their populations with well-paid employment in the public sector and generous handouts—a tacit social contract underpinning their absolute petromonarchies.

The current bout of low prices offers clues about how these countries would handle a permanent drop-off in demand. With oil revenues sharply down, Middle East producers are dipping into their foreign exchange reserves—Saudi Arabia has drawn almost $250 billion since mid-2014. They’re also borrowing more. The combined public debt of Bahrain, Kuwait, Oman, Qatar, Saudi, and the United Arab Emirates is set to jump to almost $800 billion by 2020, more than double its 2015 level, according to the International Institute of Finance, a group representing large banks. The situation is direst in such places as Nigeria and Venezuela, where corruption and mismanagement have drained state coffers.

BP’s Dudley and his counterparts at Total and Shell acknowledge that their forecasts hinge on many variables and could easily turn out to be wrong. And even if they’re right, oil consumption wouldn’t suddenly plunge; it might plateau for several years or begin a slow decline.

This view isn’t universal inside the industry. The International Energy Agency, which advises rich countries on policy, sees consumption growing steadily at least through 2040, the cutoff date for its long-term outlook. That’s also the view at Exxon. And Saudi Arabia and Russia, the world’s two largest oil exporters, don’t see a peak until 2050 at the earliest.

Others point out that a few years ago all the talk was of a peak in supply. Then new technologies unlocked fresh production, notably from shale formations in the U.S. “I’m very skeptical about peak oil demand,” says Bob McNally, a former White House energy expert and founder of Rapidan Group, a consulting firm. “The next big surprise is when we reach the peak of  ‘peak demand’ talk and people realize that consumption continues to rise.”

Short-term trends back the view that peak oil consumption is a long way off. Last year global demand growth was 1.6 million barrels a day, above the 10-year average of 1.1 million.

Still, oil companies need only to look at the electricity sector for clues about how quickly technology can disrupt an industry. The U.K., for instance, marked a significant milestone this year: a 24-hour period in which not a single power plant burned coal, a first  in 200 years. Despite its famously rainy weather, Britain at times gets 10 percent to 20 percent of its electricity from solar photovoltaic panels. Technology, some executives say, is the wild card. “The pace at which electric cars will be adopted could be surprising,” says Francesco Starace, CEO of Enel SpA, one of the largest utilities in Europe.

Philip Verleger, an energy consultant, thinks oil majors and oil-exporting countries are confronting a similar situation to the likes of Kodak, Polaroid, and Encyclopedia Britannica. “Sadly, these seem destined to make the same mistakes,” he says. —With assistance from Jack Farchy

Bloomberg



11 Comments on "Remember Peak Oil? Demand May Top Out Before Supply Does"

  1. deadlykillerbeaz on Tue, 11th Jul 2017 6:38 am 

    You gotta have diesel fuel to power farm machinery.

    No diesel, no crops.

    Without oil and refined crude oil products, civilization collapses.

    It is not rocket science.

    It’ll be bad.

  2. baha on Tue, 11th Jul 2017 8:25 am 

    You may starve but I have all the food I want

  3. deadlykillerbeaz on Tue, 11th Jul 2017 8:52 am 

    I have a garden with 70 tomato plants, 500 cabbages, 1000 lettuce plants, 700 kohlrabi, 1000 plants of spinach, about 300 cucumber plants, 50 broccoli, 150 Brussels sprout plants, 400 green bean plants, chard, 75 zucchini plants, 600 corn plants, approximately 500 garlic plants, 15 hills of watermelon, 20 cantaloupe plants, lots of peas, peppers of all kinds, and a planting of 250 pounds of potatoes. Parsley and herbs for flavors.

    I feed not only myself but many others.

    If no rain from the sky, a well to water it all to guarantee success. Failure is not an option.

    No pesticides nor any herbicides used.

    No wall of worry for me.

    Gotta have a tractor and a plow, though.

    With no fuel for the tractor and other machines, mowers, tillers, etc, it all ends fast.

  4. Richard on Tue, 11th Jul 2017 9:21 am 

    It may work, only time will tell. At the end of the day, petroleum is still required in our society.

  5. Cloggie on Tue, 11th Jul 2017 9:23 am 

    You gotta have diesel fuel to power farm machinery.

    No You Don’t.

    https://www.youtube.com/watch?v=0BJAtZ8HzCE

    https://www.youtube.com/watch?v=912XK-U_6ZE&t=164s

    Another myth shattered.

  6. deadlykillerbeaz on Tue, 11th Jul 2017 10:22 am 

    Clogged brain, a farmer in the area plants canola, grains, done with air seeders.

    The total acreage exceeds 11,000 acres.

    It ain’t gonna be done with electric tractors.

    An electric combine will die after a 100 scres.
    Maybe to cut tulips in the Nederlands, but the Great Plains needs large scale farming for production never imagined.

    Electricity won’t do that kind if work.

  7. Soylent Green on Tue, 11th Jul 2017 10:37 am 

    Better have a lot of spare battery packs ready for that electric tractor when the plow hits the dirt!

  8. bobinget on Tue, 11th Jul 2017 5:06 pm 

    Peak demand? Not so fast.

    https://twitter.com/EnergyBasis/status/884878925087858688

    More
    #Gasoline demand only needs to increase by +0.117 mbpd to surpass our record high set back in wk end 5/26/17 @ 9.822 mbpd #OOTT

  9. bobinget on Tue, 11th Jul 2017 5:10 pm 

    Can we generate enough on farm electricity to power a 500 HP, self driving tractor running 18 hours day & night? Not just yet.

    That’s not to say it won’t happen.

  10. Antius on Thu, 13th Jul 2017 6:36 am 

    Peak oil demand will happen soon, but not for the reasons cornucopias think.

    Low cost (conventional) oil supply peaked in 2005, and shortly afterwards the world entered the great recession. Demand is shrinking in developed countries because few people under the age of 30 have very good employment prospects, money or property and their numbers are shrinking with falling white birth-rates. No money = no car = low oil consumption.

    Here is the UK, politics is lurching in a very unpleasant socialist direction. Young people want prosperity and they aren’t very interested in the details.

    We will see peak demand soon if the world enters another great depression. All it would take is a modest rise in interest rates, which will have to come eventually.

  11. Kenz300 on Thu, 13th Jul 2017 1:03 pm 

    John Deere is working on all electric farm tractors.

    Buses and taxis are now going electric because it is cleaner and cheaper in the long run with electric motors requiring less maintenance, no gas or diesel and motors that last over 1,000,000 miles.

    Tesla will be introducing their all electric Semi tractor for long haul delivery in September.

    The wold is going to all electric transportation.

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