So close….This would be such a great story if it weren’t for the facts….Damn!
A new phrase has entered our energy lexicon—peak oil demand. The essential idea: prophets of doom who warned about a looming global petroleum shortfall (‘peak oil’) were wrong; instead of a downturn in supply, we’re instead seeing the shrinkage of demand for oil. A non-problem just solved itself! Nothing to see, folks; move along.
What’s wrong with this framing of our energy situation? Plenty. (Links in original quote)
There are a fair number of individuals and corporations profiting from the continuing efforts to spin our energy supply challenges as not much more than a minor inconvenience blown entirely out of proportion by doom-and-gloomers like me because we … we … enjoy this because we get … something out of it—or something like that.
“Peak demand” has a much nicer ring to it. No doubts. We’ve now gotten so efficient that we just don’t need as much as we have for decades and decades. Aren’t we wonderful! We are, but not the way oil industry cheerleaders would have us all believe.
[D]oes this peak demand theory bear scrutiny? Looking at the case of the US in more detail, it is certainly true that in recent years US demand has seen a material decline from the highs reached before the global financial crisis. Data from the US Energy Information Administration show average consumption of 18.8m barrels a day over the four years 2009-12, compared with 20.5mbd over 2005-08, a drop of 1.7mbd or 8.3 per cent.
The question, though, is whether this drop is structural….
US oil consumption rose by 900,000 barrels a day in September, the fastest rate of growth in nearly a decade. Moreover, from date for 2013 released by the EIA recently, it is now clear that US demand not only increased last year, but accelerated rapidly over the course of the year.
Full-year growth in 2013 US oil consumption was 1.7 per cent, but year-on-year growth in the second half was 3.2 per cent and in the fourth quarter 3.8 per cent….
All of this [citing other data in addition to the above] implies that the reduction in US oil demand over 2008-12 was not so much structural as due mainly to the weakness of the US economy following the global financial crisis, and the tightness of the local oil market until recently. As the economy has started to recover and rising domestic supply has made local prices more affordable, US consumers – whose ranks have swollen by 14m since 2007 – have started coming back to market.
Against this backdrop, the peak-demand narrative looks deficient at best and a distraction at worst. (links in original quote)
More in line with reality is that we are each and all making decisions that there is only so much of our individual, family, and business budgets we can continue allocating to more costly energy supplies. Another pesky little Econ 101 factoid: if we stop spending, the Happy Talkers have less of our money to invest in all these more costly yet inferior substitutes. How those dominoes tumble isn’t all that complicated to figure out.
Still, the Happy Talk about being in the cusp of energy independence and the tremendous hikes in production because of our ingenuity and technological prowess (no disputing that) is a successful strategy in no small part because the ongoing promotion of conventional and unconventional supplies of oil and gas (principally via fracking) prevent us from spending the time, effort, and research funds to move away from a world powered by finite resources. More money for those few, and a lot more problems for all of us—and future generations—somewhere not too far down the road. But hey, at least a few will benefit in the short term, and shouldn’t we all feel good about that?
Lost amid all the happy Talk about massive, vast reserves available to us for umpteen years are a few facts. It’s costing us all a lot more to locate, extract, produce, and supply those reserves, for one thing. More energy in means less energy out. That’s another issue we never hear about from the Happy Talkers. Inferior quality of what’s being produced? Not a word. Rapid depletion rates? Silence. Water usage concerns brought about by fracking? No explanations. The list goes on.
The better-financed side of the discussion gets most of the airplay, but there are facts/evidence/reality to contend with despite the cherry-picking and might-possibly-could-perhaps-if strategies employed by those louder voices. Loud and better financed doesn’t mean they’re right. It also doesn’t mean we’re not all going to pay the price for neglecting the important facts and making alternate plans in order to continue paying homage to the corporate bottom line.
A peak in demand? Not so much….
‘The one thing you can say with real clarity is that China will need a lot more oil in the future, Matt Parry, senior economist at the IEA [International Energy Agency], said by phone from Paris today. ‘It’s been a strange year in the U.S., you’ve got the cheap U.S. oil story, you’ve got the petrochemical industry in the U.S. being a massive growth pool. That’s unlikely to be repeated this year….’
China became the first country to see domestic vehicle sales surpass 20 million units a year in 2013. Deliveries will rise as much as 10 percent this year, the state-backed China Association of Automobile Manufacturers said this month.
‘Most people in China don’t have cars and they want cars,’ Parry said. ‘A huge proportion of China’s population hasn’t ever flown on an airplane. It’s a huge population that currently consumes a tiny proportion of oil per head compared to the U.S.’ (links in original quote)
Global oil demand will increase this year more than previously forecast, the International Energy Agency said. A ban on U.S. crude exports may crimp output growth, the Paris-based group said.
World consumption will climb by 1.3 million barrels a day, or 1.4 percent, to a record 92.5 million barrels a day, the IEA said today in its Oil Market Report. The increase of 90,000 barrels a day from last month follows the first year of annual demand growth in developed nations since 2010, it said.
If we buy into the peak-demand-is-here story, we are implicitly assuming an unspoken agreement that we’ve had enough growth and progress. At odds with that notion are facts such as those stated above which indicate more accurately that we’ve just been in a holding pattern until we’re reasonably confident a more consistent economic upswing (assuming we can get that kind of assurance) is just ahead.
What happens when the Happy Talk collides with the realities: conventional crude supplies decline by about 5% each year. What the tar sands and tight oil are currently providing is keeping us afloat-barely. But the smaller the conventional supply we have going forward, and the more costly and rapidly-depleting is the supply from the tight oil/tar sands B Team, the more problems we’ll have. Only the delusional think that scenario is a winning formula for growth and progress benefiting more than a few.
One other annoying fact for consideration, alluded to above:
AP energy reporter Jonathan Fahey quoted the chief economist of ConocoPhilips as saying that the world middle class is now growing by 8 million people per day. There are 2 billion of them today, he says, and there will be 5 billion by 2030.
Who wants to tell those few extra billion people that we’re at Peak Demand, and that it’s just their rotten luck to come along at a time when a few loud voices have decided we’re comfortable with what we have, so … good luck?
(Adapted from a recent blog post of mine)
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