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Page added on November 18, 2017

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When Will Oil Demand Begin To Taper Off?

Consumption

It’s possible that 2017 may go down as the year when the concept of peak oil demand went from speculation to potential reality, as companies and energy analysts began estimating when demand growth for oil would begin to taper off.

The debate over whether peak demand is coming has been fierce, but it’s possible that the inordinate focus on the potential plateau in global oil demand ignores more important, immediate concerns that will have a much bigger impact on prices.

While the predictions of when peak demand may come vary quite considerably, they mostly point to levelling demand in the developing world due to slowing growth, stable or declining demand in the industrial world due to the widespread adoption of electric vehicles, and the replacement of oil by natural gas or renewable energy. New demand will come from petrochemicals, driving the need for light end products and diminishing the need for heavier crudes, according to McKinsey & Company.

Electric and self-driving vehicles will be the key disruptors. EVs, which currently account for only 0.2 percent of all cars, will make up one-third of all new car sales by 2040 according to IHS Markit, increasing their overall share to 16 percent.

The IEA revised its demand prediction downwards this week by 100,000 bpd for both 2017 and 2018, to 1.5 million bpd and 1.3 million bpd respectively. The group, which has caught some flak for its incredibly optimistic estimates of U.S. shale production, also cautioned that higher non-OPEC production next year will keep prices from rising above $60. Prices slumped a bit this week on the back of weaker demand forecasts and reports of higher inventories in the U.S.

Peak demand has become an established idea, to the point that BP’s CEO Bob Dudley was able to quote an exact date. Asked when peak oil demand would arrive, he suggested June 2, 2042.

But is the case for peak oil overblown? Should the market be more concerned with short term factors, rather than the still distant prospect of slowing or declining demand?

OPEC doesn’t think peak demand will come before 2040, citing strong current demand and the continued economic growth in the developing world. Daniel Yergin, energy expert and vice president of IHS Markit, thinks it’s “funny to be talking about peak demand” when annual demand growth remains so strong, and when economic activity in the developed world, particularly North American and Western Europe, has recovered.

Jamie Webster of BCG’s Center for Energy Impact noted that oil demand in 2017 was particularly strong, rising 1.6 million bpd. Demand growth will likely continue to be strong for years before peaking, but Webster points to a much bigger short-term problem: the rising decline rate and the reduction in capex committed to new production.

Placing a hard figure on decline rates has been tricky, but the rule of thumb has been 3–6 percent a year. Offshore tends to decline faster than onshore, while shale declines faster than anything else.

The average decline rate has spiked in part due to the growing emphasis on shale production, where decline rates are high. According to one estimate, 2016 had the highest decline rate on record, and BCG assessed the decline rate for 2017 at 9 percent or 8.8 million bpd.

The Eagle Ford Region in Texas, according to the EIA, is adding new production, but its legacy oil production fell so far as to balance out the increase, leaving the field with zero net change between October and November.

This is potentially a much more important consideration than peak demand. Earlier this year the IEA ran alarm bells, warning that the fall in capex on developing new production (a result of the slump in oil prices) would lead to near-term shortages as decline rates accelerated. The group’s five-year forecast saw higher prices as spare production falls to a fourteen-year low in 2022.

Companies spent $450 billion on upstream in 2016—about 25 percent less than what they need to meet demand growth and make up for the decline rate.

A potential silver lining is the fact that new shale production can come online relatively quickly, making up for the higher decline rate. But shale, despite the IEA’s abundant optimism, can’t shoulder the burden on its own. While acknowledging that shale has over-performed and proven quite resilient amidst low prices, Webster points out that its growing importance to the supply balance will increase the risk of supply shortages in the near-term, impacting prices in more immediate ways than the distant, nebulous prospect of peak demand.

By Gregory Brew for Oilprice.com

 



13 Comments on "When Will Oil Demand Begin To Taper Off?"

  1. Makati1 on Sat, 18th Nov 2017 6:40 pm 

    Guesses, fiction and hopes. Nothing firm here.

    Subtract the oil that the Chinese are hoarding and the demand drop would be in progress. When the Chinese stop building tanks to hold their hoard, THEN the oil demand decline will be obvious. Better hope that is not soon, because, when they do, it is the end of possible higher oily prices. Until then, keep guessing and writing “for a paycheck” fluff articles.

  2. JuanP on Sat, 18th Nov 2017 9:27 pm 

    I am sick and tired of these oil writers who can’t tell demand from demand growth. They are NOT the same thing! This PO demand BS has become a broken record, but dmand keeps GROWING!

  3. Cloggie on Sun, 19th Nov 2017 2:57 am 

    E-vehicles are the future. There are however different flavors:

    1. battery based
    2. hydrogen fuel cell based

    The EU and US mainly put their investment money into option #1. Japan however opts for #2

    http://www.spiegel.de/auto/aktuell/toyota-und-der-glaube-an-die-wasserstoff-gesellschaft-a-1177469.html

    Renewable energy produces the hydrogen (power-to-gas) that is tanked like LPG.

    Big advantage: superior range, refueling goes swift, no need for giant batteries with lot of embedded energy.

    Honda, Hyundai und Mercedes have small production lines of fuel cell cars, but Toyota is beating them all. Toyota-Chef Akio Toyoda openly believes in the hydrogen society of which the fuel cell cars are a part.

    Toyota test plant with Windturbine, power-to-gas converter and a bunch of fork-lifters (40), together a closed system with zero-emissions:

    https://www.youtube.com/watch?v=scUBkG8yMW4

    Toyota believes that batteries do have future in small cars, but in trucks, vans, buses, larger cars it should be hydrogen. Hydrogen is the fuel with the highest energy density per kilo.

    Toyota SORA fuel cell bus to be promoted during 2020 Olympics in Japan:

    https://www.youtube.com/watch?v=iPP8QaoBTPo

    The Japanese plans to use both wind and solar for hydrogen production; wind in Japan and solar in Australia (liquid hydrogen).

  4. Cloggie on Sun, 19th Nov 2017 4:42 am 

    https://deepresource.wordpress.com/2017/11/19/airbus-vahana-autonomous-e-chopper-plane-ready-for-tests/

    Airbus Vahana Autonomous E-Chopper-Plane Ready for Tests.

  5. Davy on Sun, 19th Nov 2017 5:38 am 

    Peak demand is a reality but the results are not understood well at the moment. One reason is demand growth is still there but the amount of demand growth is not pointing to a continued growing demand like we have seen in earlier pre-crisis times. Many economic and technical conditions are occurring and the article covered many of these. I still feel the economic situation is the big wild card and this is not only “bad economy less oil”. This is also about less EV’s forecasted and less renewable transition along with less oil. How that balances out if the economy does stall significantly is a question. The renewable transition will stop in its tracks when times get hard just like oil investment has historically. Oil will drop too but it can only slow so much because of the inelasticity of demand of a foundational resource. Too much of a drop with oil means game over.

    We know peak oil dynamics are fully in force and “tic toc-ing” away into the future. Investments are not being made like the past. Oil nations are destabilizing. The quality of oil is not what is was. We have adapted very well to this lower quality with shale and other liquids by refining strategies but the point remains unconventionals cost more and what happens when the economy declines in a recession? People have this habituated understanding of growth. We have not had a recession for years now and the one we had recently was unique. What happens when we are poorer in the old fashion sense of lost output and destroyed demand forces? Everywhere poorer not just certain segments and classes. Currently we have both growth and decline forces that appear to average out to below par growth but growth nonetheless.

    What is rarely acknowledged these days is the systematic value of that growth. We need to understand more debt and its relationship to low rates along with the discounted reality that there is so much bad debt of all kinds out there in an environment of moral hazard. We are extending and pretending bad debt at all levels and we are again using exotic debt instruments and lax credit to stimulate demand. These days this low quality high risk debt is properly documented as high risk but the fact remains systematically this search for yield and dispersion of risk is systematically unstable. The worst instabilities are in China where the worst of bubble games are being played. We are stimulating demand with credit injections that just pump the Ponzi and continue the house of cards. We have in many ways a hollow global economy. We have huge overcapacities from poor investment. Huge amounts of investment that are not the rate of return they are portrayed as. Huge amounts of risk dispersed throughout the global economy and managed by central banks. What could go wrong with that? Lol. All this is repression and managed liquidity by central banks who are not sure what they are doing.

    The huge momentum of human growth keeps all this going. Populations are growing and that is a huge growth impulse in itself. Too bad we are in population overshoot so this is just bad news growth. It means the destruction of the planetary ecosystem and the forcing of a stable climate. Techno optimism dives human confidence with human emotions that are not all rational. We have so much riding on the fake green future of renewables and EV’s along with shale and natural gas. The digital AI craze is all the rage yet think about that what does it represent? It only represents more complexity at a time when we are struggling everywhere with problems and predicaments. How is more complexity a good thing in such a situation? We think we need it but much of it is just making our situation more untenable. Luckily time for mere mortals is relative. A decade is an eternity for a mere mortal right here right now but a civilization a decade is just a short phase.

    What is not talked about enough in sobriety and humility is the stalling of techno optimism and oil demand growth with a recession. There are so many forces at work it is really hard to say what peak oil demand is and when it will actually drop. Demand destruction through technological transition which is just the substitution principal is in reality like a seed but it has yet sprouted. I think the next few years will be the key to where all this goes. Right now we are in an undulating plateau of turbulence and there are no equations for turbulence. Phase changes are sudden. Will the economy hold and will these technological forces materialize with significant effect? We are in a zone of optimism and worry that reflect multiple issues good and bad. Complexity is a bitch.

  6. Cloggie on Sun, 19th Nov 2017 6:05 am 

    The renewable energy storage potential is there, in spades:

    https://deepresource.wordpress.com/2017/11/19/world-record-pumped-hydro-storage-for-scotland/

    “World-Record Pumped-Hydro Storage for Scotland?”

    One giant pumped hydro storage facility has the potential to service entire Europe.

    Finally some competition for Norway.

    Perhaps Scotland would consider an Exit-from-Brexit first, before continental Europe decides to put most of its energy storage eggs in a Scottish basket under control of West-Minster.

  7. Davy on Sun, 19th Nov 2017 6:36 am 

    “One giant pumped hydro storage facility has the potential to service entire Europe.”

    What a joke. Let’s take this wild fantasy and add all the options in and see what it cost and how close to reality. It is like a poor peasant pricing a Rolls. Techno hubris for the reality challenged.

  8. Cloggie on Sun, 19th Nov 2017 6:41 am 

    What a joke.

    Day the energy expert, light on knowledge, heavy on opinions.

    Such an energy storage would probably be “anti-American” or sumthing.

  9. Davy on Sun, 19th Nov 2017 6:43 am 

    LOL, lots of ways to look at this from the failure of predictions to stupid anti-Americanism challenges. One thing is certain our ability to predict, project, and forecast the future is difficult. I would say its effectiveness drops with the square of the distance or something LOL!

    “The U.S. Is Crushing Its Clean Energy Forecasts”
    http://tinyurl.com/y92aq8d3

    “Paris, schmarish…In a February 2007 report, the United States Department of Energy made thirty-year predictions for the country’s energy usage and production. As Statista’s infographic below shows, using data from the non-profit international environmental pressure group Natural Resources Defense Council, these forecasts have so far been smashed. Infographic: The U.S. Is Smashing Its Clean Energy Forecasts | Statista You will find more statistics at Statista Martin Armstrong details that actual CO2 emissions in 2016 have undercut the 2006 predictions by 24 percent. In terms of the energy mix, power generated from coal was 45 percent beneath the forecast while clean(er) alternatives natural gas and wind/solar power saw overshoots of 79 and 383 percent, respectively. Renewable energy infrastructure is also expanding at a much faster rate than was thought ten years ago. 2006’s prediction for installed solar was a massive 4,813 percent shy of the 2016 reality. The U.S now also has installed wind capacity of 82 gigawatts, 361 percent more than had been hoped for. In fact, energy consumption in total was also 17 percent lower than expected… which is odd and perhaps a better indication of the recovery-less recovery’s reality?”

  10. Davy on Sun, 19th Nov 2017 7:01 am 

    “Bosnia’s silent killer: The coal industry”
    http://tinyurl.com/yalmhpfp

    “After the US decision to quit the Paris climate agreement, the European Union set its sights on becoming a global leader in curbing fossil fuel emissions. But some of its eastern neighbours that seek to join the bloc have severe levels of air pollution. Many people are switching back to coal as a cheaper alternative to imported gas from Russia. In Bosnia-Herzegovina, the high level of air pollution has become a cause for alarm for the locals. Produced by Camelia Sadeghzadeh; filmed by Marek Polaszewski”

  11. Cloggie on Sun, 19th Nov 2017 7:50 am 

    Autonomous e-driving, the UK stepping on the gas and wants to be first:

    http://www.sueddeutsche.de/auto/autonomes-fahren-grossbritannien-testet-von-an-roboterautos-ohne-fahrer-1.3755690

    Public testing as of 2019 and unrestricted introduction in 2021.

    Britain that historically was the first with trains, intends to give the train a new boost, now from door to door.

    Cars will come with curtains for privacy, table lamps, television, beds, bookcase, you name it. The days of the Orient Express are returning.lol

  12. David York on Sun, 19th Nov 2017 3:17 pm 

    Getting real tired of natural gas being called “clean energy”. Any honest examination of methane leaks shows that Natgas adds more heating potential to the atmosphere than burning oil.

  13. dave thompson on Mon, 20th Nov 2017 3:05 pm 

    Yea all this ev, solar,wind, pumped hydro adds up to what? More Co2, methane, nitrous oxide in the atmosphere. This year is proving to be the worst on record.

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