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Page added on June 28, 2017

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The Fallacy Of Peak Oil Demand

Consumption

I have seen the handwriting on the wall for the coal industry for more than a decade. Not only is coal the most carbon-intensive of the fossil fuels, it is also the fuel that has the greatest number of potential replacements. Renewables may ultimately scale to displace a substantial fraction of our coal consumption, but it’s natural gas and nuclear power that spell the beginning of coal’s demise. Given the urgency with which the world is trying to curtail greenhouse gas emissions, natural gas and nuclear power could legitimately displace the power we currently produce from coal. In fact, this summer natural gas did overtake coal for the first time to become the leading source of electricity in the U.S.

Thus, those who argue about peak demand scenarios for coal consumption have some justification for that argument. There are scalable replacements for coal, and there is widespread legislation that will speed up that transition. Coal demand will soon peak and begin to decline because there are lower-carbon alternatives. That’s why I have consistently advised investors to avoid coal companies like Peabody Energy BTU +0.17% Corporation (NYSE: BTU) and Arch Coal Inc (NYSE: ACI), which have seen their market value obliterated over the past 5 years.

But the peak demand argument falls apart for petroleum. The difference between coal and oil is there is simply no scalable alternative to petroleum. The cars, airplanes, ships, and heavy trucks that make up the global transportation system are almost exclusively dependent on petroleum. Further, our dependence on petroleum continues to grow.

What about biofuels? The world currently consumes about 92 million barrels of oil per day. The world produces about 1.5 million barrels of oil equivalent (BOE) of biofuels per day. Since 2005, biofuel production in the world has grown by 1 million barrels a day, while crude oil production has grown by nearly 7 million barrels a day. Biofuels are certainly not growing at a fast enough rate to meet world demand – much less cut into petroleum’s dominance. Further, there isn’t enough available arable land in the world for biofuels to ever make more than a tiny contribution to the world’s oil supply. Advanced biofuels which many advocates assured us could deliver us from our oil dependence have failed to deliver – a topic I will address in a future column.

That brings me to the other primary contender often mentioned as a crude oil killer: the electric vehicle (EV). In theory, as the world switches to EVs, our crude oil consumption will peak and fall. But what is actually happening?

According to Inside EVs, a website that reports on EV sales, through the first 11 months of 2014 there were 110,011 EVs sold in the U.S. This year, sales in the first 11 months have fallen to 102,898 vehicles — a decline of 6.5%. Annual EV sales did grow rapidly from 2011 to 2013, but haven’t grown much beyond 2013’s 97,507 vehicles sold.

But 100,000 vehicles per year is nothing to sneeze at, right? Well, let’s compare that against overall vehicle sales. According to Automotive News, the first 11 months of 2014 saw overall vehicle sales in the U.S. of 15,015,434 automobiles (cars, light-duty trucks, and SUVs). That means that electric cars sales accounted for about 0.7% of the market. But what’s much more revealing is that overall vehicle sales in the U.S. this year through November were 15,826,634 automobiles. Thus, in one year the number of cars sold in the U.S. has increased by 811,200 vehicles. That’s a one-year increase that’s more than double the total EV sales of the past 5 years — and almost all of those vehicles run on petroleum.

Globally, the situation is much the same. Demand for liquid fuels is outpacing the ability of biofuels to keep up, and conventional vehicle sales are vastly outstripping EV sales. This is why global demand for oil has increased in 18 of the past 20 years. The only exceptions were during the global slowdown of 2008 and 2009, but then in 2010 demand growth was so strong that the world once again set an all-time oil consumption record. So those who expect ExxonMobil (NYSE: XOM) to meet a fate similar to Peabody’s are going to be waiting a very long time.

A popular saying with some is “The Stone Age didn’t end for lack of stone, and the oil age will end long before the world runs out of oil.” It may very well be that the twilight of the coal age is upon us, because scalable replacements are available. But there is still nothing on the horizon that signals even the beginning of the end of the oil age.

Robert Rapier

Forbes



9 Comments on "The Fallacy Of Peak Oil Demand"

  1. Cloggie on Wed, 28th Jun 2017 5:36 pm 

    But there is still nothing on the horizon that signals even the beginning of the end of the oil age.

    https://www.theguardian.com/environment/2017/feb/09/new-energy-europe-renewable-sources-2016

  2. Dave Thompson on Wed, 28th Jun 2017 6:56 pm 

    “natural gas and nuclear power could legitimately displace the power we currently produce from coal.” In the short term yes trends point to less coal and more Nat.Gas. However when was the last time a nuke was built in the US for example? The US is a net importer of Nat. Gas. So I would classify this as, any fool can see where we are headed, including me fool.

  3. Ned Flanders on Wed, 28th Jun 2017 8:13 pm 

    article is 19 months old…. here’s the author admitting a 37% increase in EVs for 2016:

    https://www.forbes.com/sites/rrapier/2017/02/05/u-s-electric-vehicle-sales-soared-in-2016/#77d871e3217f

  4. rockman on Wed, 28th Jun 2017 11:17 pm 

    While Chinese coal consumption has decreased recently the govt has stated different long term plans. From just last November:

    ““Coal consumption growth over the next five years is projected to be stronger than previously expected,” Helen Lau, an analyst at Argonaut Securities Asia Ltd., said. “That implies that coal production must not be reduced further, otherwise, the coal market will be in deficit.

    China will need to cut about 150 gigawatts of coal-fired power from projects that are either approved for construction or already under construction to maintain the 1,100-gigawatt limit, Huang Xuenong, director of the power generation division of NEA said during the webcast. Without restrictions the country’s coal-fired power capacity could reach about 1,250 gigawatts by 2020, he said.”

    And then there’s India. From just last December:

    “India will see an annual average growth rate of 5 per cent by 2021 even as demand peaks in the world’s top consumer, China, the Paris-based body said in a report. India’s coal output rose 5.1 per cent last year, it said.

    “Growth in global coal demand will stall over the next five years as the appetite for the fuel wanes and other energy sources gain ground,” according to IEA’s latest coal forecast. But much of Asia will remain hooked on coal which, while polluting, is also affordable and widely available, IEA said.”

    So globally coal consumption may be down but in a number of major consuming countries King Coal is far from dead. And even though global consumption has begun to decline we are currently still burning 50% more coal then we were just 10 years ago.

  5. Cloggie on Thu, 29th Jun 2017 3:26 am 

    New Gode Wind 582 MW offshore wind farm has gone live for the German coast:

    https://deepresource.wordpress.com/2017/06/29/german-gode-wind-1-and-2-offshore-wind-farms-go-live/

    But remember folks, it is all an illusion. As Greg and sunweb have sufficiently pointed out, these wind farms are an extension of fossil fuel and don’t produce anything of value. They might as well have not been built. Renewable energy will never work.rofl

  6. Cloggie on Thu, 29th Jun 2017 3:49 am 

    New small floating offshore wind park gone live for the coast of Scotland:

    https://deepresource.wordpress.com/2017/06/29/hywind-scotland-floating-wind-turbines-pilot-completed/

    This is good news for America, that doesn’t have much shallow offshore water.

    Open your wallets and order your turnkey floating offshore wind farm in Europe now!

  7. Cloggie on Thu, 29th Jun 2017 3:57 am 

    More good news: prices for utility solar are already below $1/Watt. But according to a new study these prices will drop an additional 27% over the coming 5 years:

    https://deepresource.wordpress.com/2017/06/29/price-utility-solar-to-drop-with-27-in-2022/

    But remember folks: you cannot use kwh’s from solar panels to produce new solar panels. Machines producing solar panels or wind turbines in principle refuse to operate on low quality kwh’s from solar panels (or wind). Everybody knows that (here).rofl

  8. Cloggie on Thu, 29th Jun 2017 4:01 am 

    Uproar in America!

    250 bipartisan mayors of US cities have adopted a resolution that calls for 100% renewable energy for their cities by 2035.

    http://legacy.usmayors.org/resolutions/85th_Conference/proposedcommittee.asp?committee=Energy

    This of course could be seen as a middle finger against both Donald J. Trump as well as against this forum, that stubbornly keeps insisting that renewable energy won’t work, because, you see, renewable energy is an extension of fossil fuel, you stupid.

  9. rockman on Thu, 29th Jun 2017 10:26 am 

    “250 bipartisan mayors of US cities have adopted a resolution that calls for 100% renewable energy for their cities by 2035.”

    And if one were to waste their time wrong thru this pile of bullsh*t they would discover that their “commitment” is essentially based on the federal govt paying to achieve the goal with nothing coming from the cities beyond their existing minimal efforts:

    “WHEREAS, many cities are not able to expand or implement the full range of these types of programs due to budgetary constraints; and

    WHEREAS, the federal government, by supporting these types of local activities, would demonstrate its commitment to help solve some of the most important issues facing the nation – energy independence, reducing greenhouse gas emissions, and improving the environment; and”

    Etc, etc, etc.

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