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Page added on May 30, 2017

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The Steady Drumbeat Of More Global Oil Demand

Consumption

This one is for all those who have worn the uniform, either still with us, or gone…I thank you.

It’s amazing to know that despite the extraction of 185 billion barrels over the period, today we have 70% more oil reserves than we had on June 6, 1944, when heroes landed at Omaha beach, fueled by oil, poised to end…the most powerfully evil force…that ever walked the Earth,” Jude Clemente, April 2, 2015

Most unfortunately, the U.S. oil companies do a horrible job of telling you what I’m about to, feeling pressured into showing you how they are trying to create substitutes for the very product that is the basis of their existence and the most important fuel…ever. Substitutes that I have already proven here that are not just more expensive, but actually worse for the environment!

Go figure.

But, I love oil. Oil was there for me when I needed it most: a flight to Guadalajara two hours after we learned my wife’s mom passed…rides home from the hospital after the birth of my two daughters.

And I got news: oil will continue to be there for you too.

As the world’s most important fuel, the most traded commodity, and the enabling force of globalization, the demand for oil is ever-growing. Every year, oil demand rises by around 1.3 million/d, or 1-2%.

This is an extra 55 million gallons of oil being added to global consumption every 12 months. And it’s easy to see why: around 97% of transportation is powered by oil, and global economic growth is tied to petroleum because it’s our primary fuel. Rising incomes mean more oil demand.

The criticality of oil is obvious: its price impacts currency rates, here.

The unstoppable importance of oil is easy to understand: oil remains the world’s main fuel even under the most stringent environmental policies that keep global temperatures from rising two degrees Celsius over preindustrial levels, following the Paris accord agreements (as modeled by the International Energy Agency).

Even in the developed nations, the irreplaceability of oil is demonstrated by the fact that demand will remain “buoyantly very high,” no matter what policies get passed. There is no significant substitute for oil: 92 million oil-based cars will be bought this year. If the global electric vehicle fleet every surges incredibly from less than 1 million today to 150 million, it would displace just 1.3 million b/d of oil. Not very much.

As for the developing nations, their massive potential for more oil demand is illustrated by a single statistic. In the U.S., with 330 million people, the average American consumes 2.7 gallons of oil products a day; in India, with 1,260 million people, the average Indian consumes just 0.15 gallons per day. You do the math on how much oil India could be consuming “if they ever consume like us.”

And don’t forget that today’s low prices continue to lock-in more consumers and oil-using infrastructure. The inertia and might of today’s oil-based energy system is routinely and drastically understated.

With all the energy that we want at our fingertips, we Westerners are having a very difficult time grasping a single reality: our energy decisions are becoming increasingly less important: the action is on the other side. Even in the U.S., the most saturated oil market in the world, total demand won’t dip below 19 million b/d in the coming decades. Funny indeed, as it turns out, “environmentalists” love oil too.

The developing nations will increasingly have their chance to consume more oil.

Data source: EIA, IEO 2016

The developing nations will increasingly have their chance to consume more oil.

As for supply, there is a de-conventionalization of the stockpile that continues to prove the oil naysayers wrong. Sources such as natural gas liquids, shale/tight oil, bitumen and extra-heavy oil, some biofuels, and perhaps eventually oil shale are helping us diversify. So, it’s not just about “oil” per se,  it’s really about “liquid fuels,” and we have an expanding supply of options.

The ongoing quest to find and produce more oil is thus a global imperative. The rate of natural oil field decline is around 7-9% per year, so more investments are required to avoid sharp drops in production. Over the next 25 years, output from currently producing fields will fall  by over 45 million b/d, or nearly half of current global production.
This idea of more investment required is timely today because still low prices have discouraged upstream investments to supply more oil, potentially leading to a severe disruption. Since demand is ever-growing, the International Energy Agency reports that we need to be investing $540 billion per year, 75% of which is in the upstream (E&P) sector.

The oil opportunities in the non-OPEC Western Hemisphere alone are limitless: namely, pre-salt in Brazil, bitumen in Canada, more U.S. shale oil, and Mexico’s historic 2013 Energy Reforms that will open the door for outside players. Globally, there is 1.7 trillion barrels of proven oil reserves, with Earth’s oil resource at least seven times that (I document the difference between “reserve” and “resource” here).

Forbes



29 Comments on "The Steady Drumbeat Of More Global Oil Demand"

  1. sidzepp on Tue, 30th May 2017 6:29 am 

    “Over the next 25 years, output from currently producing fields will fall by over 45 million b/d, or nearly half of current global production.”
    I think he summed up his article here without realizing he had done so.

  2. Davy on Tue, 30th May 2017 6:57 am 

    One thing that is not acknowledged about the future is the underlying inconsistencies of the global economy. We have significant issues to growth and stability in the fundamental nature of what drives growth now. We have bubbles that must be maintained or we will have a negative wealth effect. We have huge mal-investments and value evaporated financial products that our financial leadership continue to extend and pretend. Bad debt is not realized if it is systematically disruptive so systematically disruptive risk is magnified and dispersed throughout the system through moral hazard policies. Overcapacity and debt multiplies with dangerous limits.

    This post 08 adaptation has been done remarkably well so that we are now no longer in a normal financial environment of the previous century. All aspects of our financial and economic system have been changed by this transformation. Price discovery now operates in an environment of repressed cost of money and artificial liquidity from central bank easing. Central banks are buying stocks and bonds to maintain markets. How long can this habituated sense of normality last?

    We have been living in a vacuum for 9 years now. Problems are manipulated away today as a matter of policy. We are now in a mechanization of policy and this is driving the global economy not natural productivity. Honest price discovery in fair markets is no more the foundation. They were never completely fair or honest but the degree of change today from earlier times makes us now in a new arrangement. This new underlying arrangement is still operating with traditional business activity above this irrational foundation.

    It is the moral hazard of this adaptation as we go that is the problem. “Whatever it takes” is the new mantra. The rich are getting richer as the productive class is gutted because financialization is parasitic beyond a point. We are gutting our commons for private profit supported by “whatever it takes” policy. The results of these actions are a slow boil of dysfunction and decay that is leading to a paradigm shift of decline. We are in the vicinity of decline but these actions hide our true condition. Irrational policy will lead to consequences and many of them will be unintended and uncontrollable.

    It is this type of environment that underlies all these type of articles that forecast, predict, and assume future growth. I never see a future option that includes a significant correction, never. All I see is uninterrupted growth assumptions. This may be variable but variable in growth not decline. If we have an economic correction these assumptions of growth in every market and industry will be null and void. The conditions also exist that there may be no recovery from the next threshold break. We will have the opposite of the wealth effect. We already have stagflation and deflationary business activity. Businesses are not investing in growth but instead investing in cash flow or company valuation. Any prediction today over a few years should be suspect because of this condition of decline will shatter any growth based forecast.

  3. Cloud9 on Tue, 30th May 2017 7:08 am 

    How far out are we from the Hills Group cliff projection?

  4. Revi on Tue, 30th May 2017 7:59 am 

    I like the way he justifies the increase in oil consumption with this:
    As for supply, there is a de-conventionalization of the stockpile that continues to prove the oil naysayers wrong. Sources such as natural gas liquids, shale/tight oil, bitumen and extra-heavy oil, some biofuels, and perhaps eventually oil shale are helping us diversify. So, it’s not just about “oil” per se, it’s really about “liquid fuels,” and we have an expanding supply of options.

  5. Midnight Oil on Tue, 30th May 2017 8:28 am 

    Sure…we got all these “reserves” alright..
    We humans will joining them in the not too distant future pushing up daisies, because just about all are going to remain where they are….a little detail that was overlooked.
    Another thing…AGW was not mentioned either…
    Just another oversight, that’s gonna stay regardless…Doh.

  6. Jef on Tue, 30th May 2017 9:06 am 

    Sidzepp – Yes, as if we could wake up one morning and say, “Oh my, oil production has fallen to half of what it was”.

    The guy has one thing right, demand will continue…until it can’t.

    Davy – Great comment as usual. It seems that what is happening now proves that money doesn’t matter but it only doesn’t matter for the wealthy, for the rest of the population it matters a great deal as in life or death. Who is it that gets to make this kind of decision?

  7. rockman on Tue, 30th May 2017 9:46 am 

    Cloud – “How far out are we from the Hills Group cliff projection?” A valid question for sure. But here’s a bit of unsolicited advice: try to avoid phrases such as “falling off a cliff”, etc. The meaning varies greatly between individuals and thus it’s actually meaningless.

    But projected numerical values, such as $/bbl, bbls/day, % decline rate, etc. are easy to measure against the actual values that develop.

  8. Sissyfuss on Tue, 30th May 2017 10:01 am 

    Mo, it’s Forbesporn. They don’t mention AGW or anything else that doesn’t maximize profits.

  9. bobinget on Tue, 30th May 2017 10:07 am 

    This morning all major banks (in unison) downgraded oil.
    “Never ascribe to malice/collusion that which can be explained by greed/ignorance/stupidity.”

    Statements to the effect we have reached “peak demand”, ring (falsely) for several hours causing havoc among oil producers.

    Without going into details, I’ll put forward three oil centric occupations mankind can’t seem to make do without.

    Farming (eating)
    Waring (killing)
    Air, land, sea, transport of goods and people.

    Now, please tell me that any of the above are in any danger of losing popularity.

  10. rockman on Tue, 30th May 2017 10:31 am 

    Bob – Very cool. Thanks.

    And a learning moment for others:

    Look at the section at the mouth of the Mississippi River. Notice how close it is to the edge of the shelf. Normally the river would have changed course by now and probably would be going down the center of the state. But the US Corps of Engineers have prevented a levee breach that would have allowed that to happen. As a result the La. coastline is slowly receding despite being at the terminus of one of the largest river sediment transporters in the world. As a result all those BILLIONS of cubic feet of sediments have been sliding off the shelf into the deep GOM basin.

    Thus sea level continues to rise (relatively) along the coast as it slowly migrates north. And wound have happened if AGW induced sea levee change wasn’t happening. And making it worse is the continued subsidence of S La.

  11. bobinget on Tue, 30th May 2017 12:05 pm 

    Yup Rockman,

    Near-term upshot of receding coastline will terrible flooding. Sooner or later GOM will experience another superstorm. Chances are, with Gulf waters
    temps close to 90 degrees, this next hurricane
    https://www.nodc.noaa.gov/dsdt/cwtg/egof.html
    will doubtless be killer.

  12. Go Speed Racer on Tue, 30th May 2017 12:19 pm 

    This article is wrong. It says oil demand is
    rising. But everybody knows we don’t
    need oil anymore and demand is falling.

    It’s the most common news media theme
    nowadays. Thanks to windmills solar cells
    hamster wheels and electric cars, nowadays
    nobody needs oil anymore. So this article
    about rising oil demand is clearly all wrong.

  13. bobinget on Tue, 30th May 2017 12:47 pm 

    Speed Racer,
    By accident or design, you’ve uncovered my secret mantra, “Well I Guess we won’t be Needing Any More Oil”. (used in over 23 years of trading)
    I’ll admit, until today I’ve not used the mantra in months. Everything gets old, even secrets.

    In fact, oil futures haven’t fallen a full percent.

    http://www.livecharts.co.uk/MarketCharts/crude.php

    Few understand how important low oil prices are to world economies. (and condo prices in NYC and London)
    Banksters know this better then any.
    EIA won’t report this week till Thursday. Only then will this banker bullshit be exposed. In the meantime, small highly leveraged investors get fleeced. (even if oil goes back to $50, today)
    Expect the same Tuesday.

  14. Goat1001 on Tue, 30th May 2017 1:29 pm 

    There is a theory called “Abrupt Climate Change” where the rate of temperature rise is exponential instead of linear. Any idea how likely this is to be true and what the consequences would be on the economy? Linear is one thing but exponential sounds scary? Any thoughts?

  15. GregT on Tue, 30th May 2017 2:04 pm 

    “Any idea how likely this is to be true and what the consequences would be on the economy?”

    When climate change really goes exponential, the last thing that anybody will be concerned about will be the economy.

  16. dissident on Tue, 30th May 2017 2:07 pm 

    But Reuters told me that refineries were CLOGGED with oil (i.e. demand is collapsing). Reuters couldn’t full of sh*t, could it?

  17. bobinget on Tue, 30th May 2017 2:23 pm 

    Goat,
    Watch for run-away permafrost melt. Methane release will be more evident on land but a far greater threat undersea.

    A few native eskimo cabins tipping over won’t make the news. A Siberian pipeline collapse certainly will.

    Methane is a far more active GH gas then CO/2.
    Most Climate Scientists deny such a ‘chain reaction’ could or will take place. Our first clue will be more rapid sea-level rise. (from 1.2 centimeter per year to perhaps doubling yearly)

    ttps://en.wikipedia.org/wiki/Sea_level_rise

    We hear of Arctic and Antarctic ice melting. Most of this ice is already floating. Once gone however,
    glaciers being held back by thousands of sq miles
    of floating ice is now free to move off land into the sea.

    My personal theory: Once Washington DC gets flooded, politicians will pay attention.

    Some costal cities can be protected. Others cannot. Only one thing is certain, sea levels are indeed rising. We cannot stop Sea Level Rise.
    We could take some dramatic steps to save cities
    for no more good reason than where will those billions world-wide go to live?

    Irony: The making, transportation of concrete is in itself a huge GH gas producer.

  18. bobinget on Tue, 30th May 2017 2:36 pm 

    Demand, the last few week in the us has gone up from 9.6 MB p/d to last weeks 20.2 M B p/d.

    The first thing ya need to do is try visualizing 20 million factual barrels of oil sloshing around.

    Now, think how inexpensive it is to create ‘paper barrels’. Oil that exists only in a thesaurus.

  19. Go Speed Racer on Tue, 30th May 2017 2:45 pm 

    Bill Nye the science guy
    Vs
    Bill Whittle the right wing guy.
    He says it will take 5000 years to flood cities.
    https://youtu.be/v_RuverrEZ4

    We could say the fur is flying.
    Don’t blame me. I didn’t say my viewpoint.
    (But I am not buying any waterfront).

  20. Apneaman on Tue, 30th May 2017 2:50 pm 

    New wave of extinctions predicted for vital food species

    http://www.scidev.net/global/environment/news/poaching-extinction-fish-forest-biodiversity.html

    Massive Fish Extinction Alert: Big Fishes Most Likely To Disappear Soon

    http://www.sciencetimes.com/articles/16288/20170530/massive-fish-extinction-alert-big-fishes-disappear-soon.htm

    Oh well, there’s always plenty of Raman noodles to sustain one self.

  21. Apneaman on Tue, 30th May 2017 2:54 pm 

    Dutch Researchers: Indonesia Coral Reefs under Threat of Extinction

    http://www.en.netralnews.com/news/currentnews/read/6517/dutch.researchers.indonesia.coral.reefs.under.threat.of.extinction

  22. Apneaman on Tue, 30th May 2017 2:55 pm 

    France heat wave: Locals break 300 fire hydrants in bid to beat high temperatures

    “Refreshing with the hydrants [is] a bad idea! Fire hydrants are for the safety of everyone and are reserved for firefighters!” Paris firefighters said in a statement.

    In Lyon, violence erupted on the streets after firefighters clashed with a group who had been asked to stop their activities. A number of projectiles were thrown at emergency services, local media reported.”

    https://newsline.com/france-heat-wave-locals-break-300-fire-hydrants-in-bid-to-beat-high-temperatures/

  23. Apneaman on Tue, 30th May 2017 3:00 pm 

    Temperatures soar in Europe

    “Soaring temperatures are expected in continue in Europe with values up to 9C above normal for the time of year.”

    https://weather.com/en-GB/unitedkingdom/weather/news/temperatures-soar-heatwave-central-europe

    No respite from punishing heatwave

    “LAHORE: Turbat blazed for the second consecutive day, recording the highest ever temperature of 53 degrees centigrade, while Sibi faced around 51 degrees centigrade and Lasbela, 49.2 degrees centigrade.

    The country’s plains continued to be gripped with a severe heatwave on Monday and several areas in Sindh and Balochistan experienced their hottest ever recorded temperatures.”

    http://reliefweb.int/report/pakistan/no-respite-punishing-heatwave

    Heatwave grips many areas of Pakistan amid long power cuts

    “The power cuts have sparked street protests in many areas of energy-starved Pakistan.”

    https://www.washingtonpost.com/world/asia_pacific/heatwave-grips-many-areas-of-pakistan-amid-long-power-cuts/2017/05/30/64c8fb8a-4523-11e7-8de1-cec59a9bf4b1_story.html

  24. rockman on Tue, 30th May 2017 3:29 pm 

    Bob – The gurus in Colorado are predicting an usually active hurricane season this year: 10 – 14 named storms. Especially in the GOM: 2 – 4 named storms.

  25. Apneaman on Tue, 30th May 2017 3:42 pm 

    What better way to relieve the growing anxiety of cognitive dissonance caused by the both the biosphere and society unraveling then to continue to obsessively count barrels and pretend there is a future?

    I’m sure the current crop of do right politicians has a plan B to save us – they are Top Men all around.

    ‘I’ll put a bullet in your head’: Fistfight nearly erupts on final day of contentious legislative session

    https://www.dallasnews.com/news/texas-legislature/2017/05/29/fistfight-nearly-erupts-final-day-caps-contentious-legislative-session

    Protest sparks Texas lawmaker threats of gun violence

    https://www.usatoday.com/story/news/nation/2017/05/29/protest-sparks-texas-lawmaker-threats-gun-violence/102297314/

    Fucking monkeys.

    I guess barrel counting, especially cheer leading, is as good as any other distraction from reality. I think my AGW jacked disaster counting is in the same category too – it’s not really real until it happens to you.

    I just bought a new laptop, so they must keep the cancer going for a while longer so I can feel like I’m getting my moneys worth.

  26. Apneaman on Tue, 30th May 2017 4:03 pm 

    Call the system whatever you want, but just don’t call it capitalism. If the true doctrine of capitalism, sink or swim on your own, was practiced all the major industries would be a shadow of themselves and some would not exist.

    Federal government subsidies, tax breaks, costs of renewable and fossil energy production

    http://energyskeptic.com/2017/federal-government-subsidies-and-costs-gao-2014/

  27. Sissyfuss on Tue, 30th May 2017 6:25 pm 

    Rock, is that normal Wild West politics in Texas or is this something extra special?

  28. _______________________________ on Tue, 30th May 2017 6:34 pm 

    Here we go again. GWphobes are spreading the hate again. Every city on the coasts needs too be destroyed. Then you won’t worry about farting too much.

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