Register

Peak Oil is You


Donate Bitcoins ;-) or Paypal :-)


Page added on March 28, 2017

Bookmark and Share

There Is No Such Thing As Peak Oil Demand

There Is No Such Thing As Peak Oil Demand thumbnail

Notwithstanding that oil demand has increased for over 150 years, it will eventually stop increasing. If oil demand were to reach an actual peak, then the top might be easier to predict. As it stands, the forecast models of demand are likely predicting peak demand far later than it will be.

The so-called balance of supply and demand has always been a moving target, a race to the top in which the two run neck and neck. Imbalances result from out-of-step growth rates and not from movements away from a stationary balance. Perversely, imbalances breed further imbalances as the supply and demand components are provoked in opposite directions but with different timing, magnitudes and inertias. Without sufficient damping, the market has often overcompensated. Of course, there are also exogenous events like political turmoil, policy shifts, technological innovations and demographic changes which can unexpectedly and significantly alter not just the immediate balance but fundamentally shift the way supply and demand curves respond to price movements. The trends are plagued by inherent and irreducible irregularities.

Such a structural change has recently occurred. High prices persisted long enough for the industry in the U.S. to build a larger fleet of modern rigs and to learn how effectively to hydraulically fracture shale wells. It also persisted long enough for new efficiencies to incubate towards maturity, and the Paris accords promised to further reduce carbon emissions through policy changes. By the time that Saudi Arabia finally acted to protect not only its place among suppliers but also, and more importantly, the role of oil in the world economy. The backbone of shale supply in the U.S. was strong, and the seeds of lesser use were established. After these fundamental shifts, the rest of the world realized what Saudi Oil Minister Al-Naimi argued long ago and what Shell Oil has more recently asserted, namely that peak demand will occur long before peak supply.

 

 

To understand the trajectory of demand growth, we turn to econometric models like those published by the EIA and IEA. The central problem with long term supply and demand models is that they require assumptions about the many and interrelated responses to today’s prices. Though modeled responses may be tuned with low precision to relatively recent events and new realities, the actual response curves are poorly constrained and continue to evolve, in some cases at an accelerating pace. As the aphorism goes, all models are wrong, but some are useful.

The EIA, IEA and other public econometric models call for global oil demand to continue growing through 2040, and the EIA even calls for renewed growth in the U.S. and OECD demand. The forecasts of growth in global demand rely upon increased use by developing countries, most importantly China and India. On the other hand, the United States has already seen demand decline for about 13 years. In fact it was the second to last of the world’s seven major developed countries to enter demand decline, and the entire OECD group of countries has, as a whole, seen shrinking demand since 2007. EIA data shows that 35 countries in all have already reached and descended from maximum oil demand. The experience of projected versus actual peak oil demand in the U.S. and OECD countries provides an empirical test and thus context to evaluate the current forecasts of growth and delayed maximum.

The following chart compares actual oil demand in the U.S. to several relevant demand forecasts of the EIA, all data coming from the EIA itself. U.S. demand reached a plateau for four years ending in 2007. Before, during, and even after the actual maximum demand, the models predicted decades of growth.

(Click to enlarge)

The next chart shows the same kind of comparison for the IEA’s models of OECD oil demand. Actual demand gently achieved its maximum in 2005. Even the alternative policy (lower demand) case in 2006 failed to capture the impending decline, but the reference cases adapted to the reality of declining demand much more quickly than did the EIA. Still the IEA over predicted the actual demand. Though not shown in charts, the EIA’s model of OECD demand growth and the IEA’s model of U.S. demand growth follow the same patterns. In short, these deeply technical and widely used referenced models missed badly the pivot point, the watershed of the object of analysis. For truly exculpatory reasons, the second and third order dynamics of reality were not captured by the models.

(Click to enlarge)

Rather than the theoretical calculation by such models, empirical observation of history is likely more informative when it comes to anticipating the timing of maximum demand. The graph below normalizes annual oil demand from the G7 countries with the U.S. shown in black, each normalized to its own year and volume of maximum demand. The scales show a 15 year window around the maximum annual consumption, and the pattern of the G7 is repeated in the OECD total and in most all of the 28 other countries.

(Click to enlarge)

The same data viewed on the scale of generations may resemble an alpine peak, but from the experience of living through it, demand does not peak. It sputters, surges and stalls as it rolls over from a slow incline into a slow decline. It is less a peak and more a crest of demand.

Sequential global demand forecasts over the last decade have projected slower growth, mostly now forecast at less than 1 percent, and sensitivity cases now allow for the possibility of substantial demand decline by 2040. Unfortunately, experience demonstrates that the crest will likely occur unexpectedly and sooner than predicted. And then our industry enters a whole new world as the moving balance of supply and demand turns into a race to the bottom.

By Dwayne Purvis for Oilprice.com



15 Comments on "There Is No Such Thing As Peak Oil Demand"

  1. Go Speed Racer on Wed, 29th Mar 2017 2:14 am 

    The spin that ‘oil demand peaked’ is brilliant.
    So when all the dumb sheeple wonder why the
    gasoline is at $8 a gallon, and production is
    way down, we just tell the sheeple, ‘you didnt
    want it anymore, there is no demand, the demand
    has peaked’. And the rhetoric will keep them
    properly mesmerized, while they burn old
    pallets to stay warm.

  2. Cloggie on Wed, 29th Mar 2017 4:03 am 

    It wold seem to me that even the sheeple would smell a rat when somebody tries to a explain $8 gasoline with “no demand”.

    60 year old hookers are usually cheaper than 20 year old ones. Has everything to do with demand.

  3. Davy on Wed, 29th Mar 2017 6:39 am 

    Models today are not valid for many reason. They cannot model complexity near turbulence. They are corrupted and manipulated for goal seek agenda. They want to conform to our societal narrative of techno progress. They want to show a negative (acknowledgment of science) that is call to action and a positive (denial of the findings of science) if we do this or that. That further gets caught up in politics and the hijacking of the world by fake liberal democracy and market based capitalism. They are corrupted by the human want of transcendence and deliverance but there is no such thing in a catch 22 trap. They are one of our best expressions of our human lie and evolutionary dead end.

    When one respects the systematic rigidities and dangerous threshold break points of globalism we understand as globalism approaches minimums of operation it will destabilize and bifurcate. This bifurcation is extremely dangerous considering “ALL” locals have been delocalized by globalism. Globalism is overconsumption and overpopulation. Taken together globalism represents dangerous dependence on a system that has no future in declining growth. All locals rich, poor, overpopulated and stable are a risk from catastrophic failure. Our globalism is little more than an abstraction from a real planet. It is a just-in-time economies of scale that are financed by a global liquidity of a Ponzi confidence of a world that is little more than a house of cards built upon a depleting planet. It by definition has no future when one realizes technology and innovation have hit diminishing returns and technology/progress is the problem not the answer. Technology and progress is the “ONLY” human positive and it is digging the hole deeper.

    These finale words are worth referencing because they hit the mark
    The same data viewed on the scale of generations may resemble an alpine peak, but from the experience of living through it, demand does not peak. It sputters, surges and stalls as it rolls over from a slow incline into a slow decline. It is less a peak and more a crest of demand. Sequential global demand forecasts over the last decade have projected slower growth, mostly now forecast at less than 1 percent, and sensitivity cases now allow for the possibility of substantial demand decline by 2040. Unfortunately, experience demonstrates that the crest will likely occur unexpectedly and sooner than predicted. And then our industry enters a whole new world as the moving balance of supply and demand turns into a race to the bottom.

  4. deadlykillerbeaz on Wed, 29th Mar 2017 7:24 am 

    The demand for oil is not little.

    The canary in the coal mine is the population decline in both the eastern and western meadowlarks.

    I do hear and see a few of the western meadowlarks during the summer months, but not the numbers that once were.

    Something is wrong with the picture, meadowlarks are endangered.

    Just one observation that tells me all is not well out there in the natural habitats nature provides.

    The US uses 25 percent of the world’s daily oil supply, the rest of the world greedily gobbles the other 75 percent.

    Humans need to stop being such greedy pigs.

  5. Revi on Wed, 29th Mar 2017 7:26 am 

    So we have hit “peak demand”. Doesn’t that look a lot like the old Peak Oil scenario. Call it what you will, we are using less of the stuff, and the market is bad for what they produce, so it will probably produce less of it, eventually.

  6. marmico on Wed, 29th Mar 2017 8:48 am 

    2016 world oil production (“peak supply”) hit another record high. Just slightly above 2015 production levels…80.662 million barrels per day, with a monthly record in November 2016 of 82.23 million barrels per day.

    https://www.eia.gov/totalenergy/data/monthly/pdf/sec11_5.pdf

  7. paulo1 on Wed, 29th Mar 2017 9:36 am 

    When even fudged growth stats are just over 1%, there will certainly be a relationship to demand. The clock spring is winding down because the cheap energy has been burned.

    Good comments up above, even if you don’t like mine. 🙂

    regards

  8. Davy on Wed, 29th Mar 2017 9:59 am 

    I May not particuliarly like you and you cousins but I have the highest respect for your individual way of life and attitude related to that life. We just get sideways for nationalistic and political reasons and those are really just abstractions. I would give my left nut to live where you do with the homestead you describe. I was once a pilot and a wanna-be bush pilot like you were.

  9. Sissyfuss on Wed, 29th Mar 2017 10:14 am 

    It’s would, Clogdum.Learn to spell.

  10. Sissyfuss on Wed, 29th Mar 2017 10:21 am 

    Bees, 6 mass extinction likes Meadowlarks too. Not frighten you but the bees in my countryside have all but disappeared.

  11. Davy on Wed, 29th Mar 2017 11:36 am 

    What are you crowing about marmico, just a few years ago we were supposed to be at 90 or above by now. Pretty sad results and outlook if you ask me.

  12. GregT on Wed, 29th Mar 2017 12:11 pm 

    “80.662 million barrels per day, with a monthly record in November 2016 of 82.23 million barrels per day.”

    Considering the fact that oil is our main source of energy, the volume is somewhat irrelevant. It is the amount of energy contained within those barrels of oil, and the cost to produce it that are relevant.

  13. newfie on Thu, 30th Mar 2017 5:08 pm 

    The IEA states that world oil supply is 98 million barrels per day:

    http://www.iea.org/oilmarketreport/omrpublic/

    And that demand is increasing steadily year-to-year.

    Peak oil demand is a load of baloney. Ever increasing numbers of ships, trains, planes and cars require ever increasing amounts of oil.

  14. Boat on Thu, 30th Mar 2017 6:44 pm 

    Newfie,

    A few of us have been saying the same thing about demand for years with accompanying graphs and links much to the disapproval of many in the doomer crowd. Them boys just hate reality.

  15. GregT on Thu, 30th Mar 2017 9:46 pm 

    “Ever increasing numbers of ships, trains, planes and cars require ever increasing amounts of oil.”

    As does a planet with an exponentially growing population, as well as economies that would rather be growing at around 6% instead of 2%.

    The demand will always be there for oil, whether it is affordable or not is an entirely different matter.

Leave a Reply

Your email address will not be published. Required fields are marked *