17 March 2010

World Demand For Oil Set to Decline Rapidly

“A peak in oil demand was barely discussed even a year ago, but now it is a viable idea. When it happens, I wouldn’t want to guess, but it will happen sooner than we thought. There has been lots of talk about a supply peak, but it is good to start talking about a demand peak, and that has huge implications for these companies.”

In the developed world, demand for oil -- the blood of many world dictatorships and terror sponsors -- is declining.  Many popular progrnosticators are predicting that as the economies of China, India, and much of the third world revs up, the demand for oil will skyrocket.  Such predictions are not particularly thoughtful or insightful regarding large-scale trends of world demography.

It is true that third world population continues to grow at the same time as  populations in the advanced world are shrinking rapidly.  It makes superficial sense for demand in the shrinking first world to decline, while in the expanding third world demand should explode.  Superficial sense.  Certainly in the oil producing countries themselves, local demand for oil will increase as long as fuel prices are subsidised by governments.  But such practises can only go on for so long before becoming too costly to maintain.

Rising efficiency, conservation and substitution are steadily reducing the amount of oil needed to fuel an increase in the goods and services produced around the world.
Oil demand in the rich, industrialized countries of the West already appears to have peaked and the trend in developing economies is toward an ever-smaller increase in the amount of oil consumed for every extra unit of economic growth.
Global oil intensity - oil demand growth divided by economic growth - has fallen by about two per cent a year during the last decade and the decline is now accelerating, spurred by high oil prices, moves to alternative fuels and measures to curb global warming.
This does not yet mean that absolute oil consumption is falling because population growth and rising wealth in poorer parts of the world will push up oil consumption for some time.
But it does mean global oil use will eventually peak and start declining - and "oil-less growth" may not be far away.
"The rate of decline of oil intensity will accelerate," said Eduardo Lopez, oil demand analyst at the International Energy Agency (IEA) in Paris, which advises industrialized countries.
"There is a structural change - difficult to measure admittedly, but clear - that demand for burningfuels is no longer what it used to be."
David Fyfe, head of the IEA's oil industry and markets division, says price controls and subsidies as well as economic stimulus packages in China and elsewhere, will help prop up oil demand short-term, but longer-term the trend is downward.
"Our working assumption is that with fuel economy standards, fuel diversification and substitution ... oil intensity lessens by just under 2.5 per cent over the next five or six years," Fyfe said.
This acceleration is probably partly because of prices: crude oil hit a record high of almost $150 per barrel in 2008 and are now fairly high historically at around $80.
Estimates of when global oil consumption will stop rising vary, but many analysts see it happening over the next 15 years.
BP chief executive Tony Hayward said last month world oil demand would peak sometime after 2020 at between 95 million and 110 million barrels per day (bpd), compared with current oil demand of around 85 million bpd.
The trend toward better fuel economy for cars and other vehicles has been clear for some time and it is no surprise that developed economies are using less oil for power generation.
But data from the IEA shows it is not just the richer parts of the world that are weaning themselves off oil.
Although fuel intensity in the developed countries of the Organisation for Economic Co-operation and Development (OECD) has consistently been far lower than in non-OECD countries, the rate of decline has been very similar, IEA figures show.
 Montreal Gazette

More on short term prospects for oil here

Simply put, the third world cannot pull itself up by its own bootstraps.  China pulled itself up using cheap labour and business-friendly policies to draw vast foreign investment, leading to massive export profits.   China now has a significant economic foundation upon which to build.  But internal rot within China will limit future growth -- no matter what China's Potemkin balance sheets will tend to show.  Long term growth in China also depends upon how aggressive China's government is willing to be against the rest of the world in the quest for resources and markets.

The outside world is no longer buying at frantic pace of the 80s, 90s, and early 00s.  The China model cannot be emulated by others because world economic conditions have changed.   And face it -- there is only one China.

As Europe, Japan, South Korea, and parts of North America and Oceania dwindle away, demand for oil and other resources and exports will dwindle away with them.  As the formerly dynamic economy of the US is stifled by the Obama Pelosi reich rules of energy and industrial strangulation, demand for resources and exports will dwindle even more.

Oil traders and speculators will try to re-inflate the oil balloon in the same way as they did in 2007 and 2008.  But the aftermath when the balloon bursts will be the same.  Instead of wasting all of our time and resources on false dreams of future demand growth and grandeur, it is time to begin to focus on building a solid foundation for something truly great.

More: Beware the bursting of the China Superbubble!

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Anonymous Anonymous said...

This is just the beginning. Oil will be a marginal or an almost worthless resource sometime in the future(shale oil will never be exploited). If Mercedes Benz and other car makers are jumping the GM Volt bandwagon with limited electric range vehicles/range extenders, then we can only imagine how oil demand will plummet. I bet even Harley Davidson will come up with electric hybrids that will still retain the throaty roar of a gas engine if they want to stay alive. We're at a point similar to 1985 with cell phones. On a negative note, all those oil dictatorships with bursting populations will be a tinderbox waiting to explode. Oil will see one last blow off before its final collapse; never to rise again.

Wednesday, 17 March, 2010  
Blogger neil craig said...

I think the decline in developed world oil use is because the developed world has largely fallen to the Green lie. Laws are being twisted to prevent use of oil & indeed energy, producing "oil-less growth" but that growth is far slower than if the free matket was allowed to operate. Add to that the fact that we are in a recession entirely caused by the regulations & government parasitism "greenery" supports.

The reason China & India are growing is because they encourage free market growth, at least to a greater extent.

Cheap energy & free economies equal growth.

Thursday, 18 March, 2010  

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