The Rapid Acceleration Towards Peak Oil Demand

By Dwayne Purvis, a reservoir engineering and management consultant based in Texas. Visits his website at www.dpurvisPE.com. Originally published at OilPrice

The drumbeat towards peak oil demand is accelerating, but since much of the acceleration is happening outside of the United States, its cadence is muted.

To be clear, the developed world passed peak oil demand a decade ago and has for years been forecast to continue reducing its demand. Increasing demand in industrializing countries, particularly China and India, each with a population tantamount to that of the OECD, slightly overpowers declines in the developed world, and as a result, global demand continues to increase. In its 2015 World Energy Outlook, the IEA forecast 1.5% y/y increase outside the OECD, -1.2% y/y in the OECD, and an overall growth of 0.5%. Global peak demand will likely occur while developing world demand is still growing. Increased decline in the first world could crest demand, but merely slowing the growth in the rest of the world is the more likely to tip the global balance to plateau then decline.

Demand for oil is dominated by transportation (cars, trucks/trains, planes and boats) and industry (plastics, fertilizers, steam/heat). Passenger vehicles comprise about 25% of global oil demand and thus are the number one target for major emissions reductions. When the IEA released its 2015 World Energy Outlook mentioned above, not a country on the planet had stated plans to ban new sales of oil-fueled cars. Only Japan and Portugal had even created incentives for electric vehicles. In 2016, three European countries outlined plans to end sales of new gasoline and diesel engines. Before the year was over, IEA revised its OECD forecast downward to -1.3% per year.

In 2017 a rash of targets to constrain fossil fuels for cars led Forbes to declare it to be “The Year Europe Got Serious about Killing the Internal Combustion Engine.” In 2018, even more European countries have joined the list, stating their intent to end the sale of new petroleum vehicles at some point between 2030 to 2040. Also this year, the trend has expanded out of Europe to Israel, Costa Rica, and Taiwan, with targets as early as 2021. Over the same three years, 2016 to present, 20 metropolitan areas from these and other countries announced their own plans to end the use (not just sale) of gasoline and/or diesel vehicles, and mostly before or by 2030.

What is more remarkable, China and India, the titans of demand growth, both declared similar intentions in 2017. China announced its study of a plan to end sales and production of oil-burning cars by 2040, and India asserted it wants to end new sales by 2030. The plans are not enforceable as law (yet), either in Asia or in Europe, and electric vehicles currently constitute only a trivial portion (1 to 1.5%) of vehicles in China and India. The discrepancy between target and current reality, though, points less to the improbability of perfection as it does to the political will for progress. And progress alone, not perfection, is sufficient to trigger peak demand and the tectonic shifts that go with it.

Those who wonder if these forecasts are accurate can look to the history of the greening of electricity generation in Europe and China and particularly in India where targets for are being raised as momentum gathers based on technological progress. Similarly, the rash of new entrants and accelerated development of electric cars demonstrates the depth of near-term changes now expected in passenger transportation.

Last month—only a year after China declared its intentions to reduce oil-burning vehicles—the research arm of China National Petroleum Corp issued its own research report on long-term use. It concluded that China’s demand for diesel fuel has already peaked, that its gasoline demand will peak in 2025, and that the country’s oil demand will peak in 2030, far sooner than forecast from a distance by American and European analysts.

Reflecting these trends, though only implicitly, the IEA recently released a major report describing how demand growth to 2030 and 2050 would be driven primarily by demand for petrochemicals, especially plastics, instead of transportation. Petrochemicals make up only 14% of use today but account for 3.2 mb/d of projected demand growth, rising nearly two and half times as fast as transportation, which makes up 56% of current demand. The familiar argument by IEA asserts that China, India, and others will approach the same levels of plastic use as western countries which, they note, use up to 10 times as much per capita. They expect that packaging will account for over a third of plastics consumed.

The dynamics of demand for plastics, too, though, seem to be changing rapidly, especially for “single use” plastics such as packaging. Data in the same IEA report shows that western countries have already begun to curtail their per capita use of plastics, and one could expect that the developing world will pursue the same kinds of policies in the same way as they have with transportation fuels. In fact, the developing world is leading the charge. Related: There’s No Strong Fundamental Reason For Oil’s Decline

While the US has sometimes targeted plastic bags and recently fiddled with banning straws, the EU has proposed (not passed) a ban on a spectrum of single-use plastics. On the other hand, Rwanda was a pioneer in banning plastic bags, and China has now begun enforcing a similar ban. When Europe began talking about a ban, 25 of the 29 states of India had already passed some kind of restriction on single-use plastics. Then last summer, India’s national government announced its intent to ban all single-use plastics by 2022. China and India don’t want plastic pollution in the water any more than they do combustion pollution in the air, and for those countries, reforms are a matter of public health. While the US has historically collected and interred or exported to China much of its plastic trash, littered plastics in developing countries often breed disease and affect water supplies.

Last month two independent studies predicted peak oil demand in the 2020s—as early as 2023–in the base case. The rapid evolution and s-curve adoption these analysts see as obvious has gotten hardly a nod in the mainstream. Last spring BP’s long-term Statistical Review of World Energy became the first major forecaster to acknowledge explicitly that the increased cadence of evolution in the demand for oil makes predictions difficult. Since the IEA completely missed the timing of peak oil demand in the developed world, it will be interesting to see whether its annual long-term outlook to be released next month reflects recent developments. It will be even more interesting to see whether anyone takes notice if it does. Meanwhile, news like last month’s UN climate change report continues to build the sense of urgency to protect mankind from climate change.

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26 comments

  1. The Rev Kev

    According to this article, oil-powered transport is slowly being unwound as peak oil can no longer be denied or ignored. The internal combustion engine is on a path of terminal destination which is probably just as well considering how much damage it has done to both people and the planet. Now, putting on my tin foil hat, I do note the following. Yesterday there was an article called “Why Plans to Turn America’s Rust Belt into a New Plastics Belt Are Bad News for the Climate” which talked about how plastic production is being ramped up in America’s heartlands and plastics was mentioned in this article too.
    Could it be that the petrochemical industry, seeing how oil-powered transport is now on the way out, decided to double down on plastic production to maintain revenue streams? If so, this looks like that it is a dead end too as the world has also decided that plastics carries too high a pollutant price to be tolerated. If one of the major reasons why future plastic production cannot be viable is also because of peak oil as well, all I can say to the plastic industry is:
    “Welcome to the party pal!”

    Reply
    1. Amfortas the hippie

      Big Oil has similar reasons for remaining staunch allies of Big Ag. The latter would be impossible without fossil fuels.
      The Second Invasion of Iraq led me to Peak Oil and Doomerism (I cut my intertube teeth at LATOC) so I have been pleased as punch to see the race to “alternative energy”, including wind-farms about 17 miles to my north…but it won’t be enough to stave off even a slow crash.
      Plastics just might end up being a bigger problem for the planet than even cars and bunker oil, but I suspect that the numerous down sides to the Big Ag System will be the author of our demise…that big hill of frac sand over there could conceivably be used to make glass, for instance.
      But things like topsoil degradation, dead zones, the inherent weakness of monoculture, antibiotic resistance and a million other often little things, contain within them Doom…a Doom that is as yet, still relatively under the collective radar.
      (in my ad hoc symposia, I find that No One likes to think about food security, or alternatives to the current system)
      I don’t expect egregores like conagra to be anywhere nimble enough to meet the coming self-created problems, let alone the emergent fallout from a changing climate.
      Know yer Farmer.

      Reply
      1. BlueMoose

        Know yer farmer – a big reason I am here in Poland. Still primarily an agricultural country but at a level that makes the EU crazy. Farms are too small. Everyone in the country has a few hectares and still work it. Kids might be in the city working but they have a place to come back to and they still know what to do.

        Reply
      2. John Wright

        >I don’t expect egregores like conagra to be anywhere nimble enough to meet the coming self-created problems, let alone the emergent fallout from a changing climate.

        Yes, even when corporations are aware of problems with their business, they can have a difficult time changing in response.

        For example, Eastman Kodak, Polaroid and Sears/Kmart (and maybe IBM, General Electric and HP)

        But there is one company that has survived even though its main product Tetraethyl Lead was largely phased out.

        From their website: “Ethyl Corporation meets market needs as a leading U.S. supplier of tetraethyl lead for aviation and racing fuel.”

        It attempted to diversify out of its main business some time ago

        From https://en.wikipedia.org/wiki/Ethyl_Corporation

        “In 1962, Albemarle Paper Manufacturing Company, in Richmond, borrowed $200 million and purchased Ethyl Corporation (Delaware), a corporation 13 times its size. Albemarle then changed its name to Ethyl Corporation. It is believed that General Motors thought to divest itself of “Ethyl Corporation,” owing to concern about liabilities of TEL. The 1962 transaction was the largest leveraged buyout until that time.”

        “During the 1970s and 1980s, the Ethyl Corporation expanded and diversified in response to the gradual decline of the market for TEL, as the automotive industry shifted to unleaded gasoline. In the late 1980s, Ethyl began to spin off a number of divisions. The aluminum, plastics, and energy units became Tredegar Corporation in 1989. In 1993, it spun off its life insurance company, First Colony Life, and then in 1994, the specialty chemicals business was spun off as an independent, publicly traded company named Albemarle Corporation.”

        Reply
    2. Ignacio

      Plastics are important for petrochemical industries because include commodities with higher prices. I believe that gums derived from isoprene and isobutadiene are included in the plastic mix. For instance isobutadiene prices are about 2.5 times those of gasoline.

      According to this, about 300 million tons of plastics are produced/consumed annualy. Oil Distillates (heating oil + diesel) account to about 1314 million tons annually, gasoline represents 993 million tons annually, jet fuel about 300 million tons, kerosene 50 million tons (and declining), residual fuel-oil 450 million tons (and declining). Oil and gas liquids & liquefied products include heating gases and precursors for plastics and gums. For instance liquified oil gases production accounts to about 400 millions annualy.

      I used this online tool to convert barrels per day of different distillates into tons per year.

      My opinion is that, for oil companies, to compensate for losses in gasoline, diesel and fuel oil consumption, plastic production and consumption should increase by a lot and that is not going to happen.

      Reply
    3. cnchal

      > Could it be that the petrochemical industry, seeing how oil-powered transport is now on the way out, decided to double down on plastic production to maintain revenue streams?

      I think that is a category error. The “petrochemical industry” isn’t a thinking monolith. First the oil, then the uses.

      The sequence of events leading up to the new ‘plastics belt’ is the discovery that oil could be extracted from shale close by, and with it comes material that has value as raw material to create plastic raw material, or as it’s called in the plastics business, resin, which are tiny plastic pellets of compounded material that have a wide variety of properties that are then transformed into the products with the derogatory name of “cheap plastic crap”, some of it in your close proximity.

      It is so cheap that over one third of the plastic produced is used for packaging, often to package an item that is made of plastic. Ironic, eh?

      Reply
    4. lyman alpha blob

      I think it’s important to clarify that this article is referring not to peak oil, but peak oil demand. In other words, even if the oil production hasn’t peaked (and I’d argue it has – even if we haven’t used up 50% of it yet, there’s no way at current levels of consumption that the remaining oil in the ground lasts another 150 years as it has so far), people don’t want it anyway.

      You mention yesterday’s article about turning fuel into plastics, and how that might not pan out either if the rest of the world has any say.

      That would be ideal, but my cynical self asks when have US petroleum companies ever given a damn about what the rest of the world or even people in the US think? Given the crapification of everything, if they can’t fuel the cars with petroleum, how long before some oil company genius decides to use all that unwanted fracked gas to simply make cheap cars out of plastic? The quicker they fall apart, the quicker they can use more plastic to replace them. Thousands of people crushed to death in plastic cars is simply collateral damage in the pursuit of endless profit.

      Reply
  2. Catsick

    A standard jet flying from Singapore to NY burns 1 ton of jet fuel for each passenger each way , equivalent to close to a million plastic bags per round trip ! Elon musk flying in his g650 is burning 1ton per hour , use of oil is not going to be impacted in any way by a few plastic bags not being used, meanwhile trump almost unnoticed passed massive subsidies to corporate jets ….

    Reply
    1. Louis Fyne

      picking on straws to greenwash/obfuscate other forms of hydrocarbon use.

      It’s a feature, not a bug!

      wake me up when Starbucks removes every drive-thru in the world and/or bans the venti size to reduce waistlines and plastic/paper use.

      Reply
      1. Code Name D

        No. This isn’t green washing. The primary reason for banning single use plastics is because they end up in the ocean and environment as pollution. And while plastic/oil ratio is smaller than transportation, its still a substantial volume to be sure.

        Keep your eye on the CORRECT ball.

        Reply
  3. johnnygl

    It’s sort of amusing how the most optimistic things we see seem to come out of oilprice.com!!!

    I hope they’re right…

    Reply
  4. Adam Eran

    First of all a (flawed) U.N. study says livestock exceeds the transportation sector in producing global warming. It’s at least a close second. So…go vegan! Actually, I’ve also read that if the U.S. population substituted beef with beans, livestock demand would diminish enough that green house gas production would reach Paris Accord targets. So…go beans!

    Meanwhile, our family bought a plug-in hybrid (Chevy Volt), and not only is the car extremely nice, we’ve driven 6,000+ miles on $40 worth of gas. I can’t detect the cost of charging it on my utility bill (it has a timer to charge at midnight when electricity is cheapest). Add to the gas savings the savings in maintenance. The internal combustion engine has 2,000 parts. An electric engine has 7.

    For more, see Tony Seba’s futurist talk. Seba is a fan of Uber/Lyft, but he makes some pretty good points

    Reply
    1. workingclasshero

      saw you tube thing on electric car motors.i didn’t realize how much more efficient they are compared to internal combustion motors.at sites like nc they seem to get so much bad press.i’ now moderately optimistic about them.

      Reply
      1. Rostale

        The problem is, like with electric heaters, you have to factor in the efficiency losses associated with generating and transmitting the electricity.

        Reply
    2. polecat

      In this household, we consume both beef, And beans … both of which product ‘gas’ ….
      So do we self eliminate our human selves, while knocking off the bovine herds ?
      As for plug-in hybrids, they, as with all modern vehicles, come with externalities embedded in their manufacture … what of those ??
      I think in the long run, we chimps who fling gas will have to resort to using animal power, and animal .. uh .. by-products, along with limited solar, wind, and hydro .. as a part of living, as societies did for millennia Before the discovery of petroleum made us collectively insane !

      Reply
  5. Code Name D

    This discussion still begs the question. What is the status of the oil glut? Surly inventories have not gone down and I still keep seeing reports about how US oil production is continuing to grow dispute the glut. On occasion, I might hear the oil glut as a possible source source for the next finical crises. Any truth to these arguments?

    If so, it presents an interesting twist on peek oil. Before, it was argued that demand would out-strip supply, and the crises would be caused by insufficient oil to meet energy needs. Now peek oil tends to refer to the reversal of demand while supply continues to expand, resulting in a massive overshoot.

    I am with Rev Ken, the intention to ramp up plastic production in the US may be a scheme to reverse the drop in demand. Because that is what Mr. Market says we need to do I guess.

    Reply
  6. Moshe Braner

    “Demand” is a slippery term. It’s not how much people want, it’s how much they can afford. Oil right now is far more expensive than it was historically, before the price spike circa 2007-2008. If supply was higher, relative to demand, the price would be lower. As was the case when there was a dip in demand after 2008. But supply is not plentiful, regardless of the hype. No matter how you spin it, there’s only that much oil in the ground. And fracking is expensive.

    Reply
    1. Ignacio

      You are talking demand in money terms. The article spells demand in terms of tons. You can translate it into km travelled, kwh heating, kwh electricity… but it is not slippery.

      Reply
      1. Moshe Braner

        Lower the price and people will buy more tons. You can never say that the “demand” has “peaked” without reference to the price. And you can thus describe the same situation saying “supply” has peaked. We’ve run out of cheap oil.

        Reply
  7. rjs

    i’ve seen no sign of this in the data…supply and demand continue to grow at the same slow pace as prior years in this decade…global demand should be hitting 100 million barrels per day for the first time this quarter…

    Reply
    1. Moshe Braner

      Except that those stats mix “oil” with some other things (such as ethane and ethanol). Also there is double-counting, as the “demand” stats ignore the fact that more and more of the “oil” is used for the purpose of “producing” the oil. E.g., diesel and propane (and coal and NG) are used to grow corn and process it into ethanol. Fracking requires endless truck runs hauling water and sand and pipes, etc. But yes, “supply” and “demand” are pretty much balanced (via price).

      Reply
  8. Susan the other

    So this reads like we can understand IEAs optimistic assessment of peak oil demand to be avoidance – not really denial. That’s progress. How nice. I’ll expect to see investment funds dry up sooner rather than later. This analysis was really pretty encouraging and it emphasizes something JLS said yesterday in her rundown of the new plastics push in the rust belt – that there is definitely a very near risk of stranded assets – to include newly built cracking plants for natgas. If plastics can be manufactured using cellulose and maybe the same equipment then the plastics industry won’t be quite so stranded, but petrochemicals will be. Hopefully. I get the feeling these days that everywhere we look, from the GFC to the war in the ME to the rush to control the eastern Mediterranean, to trade wars and deindustrialization can be attributed to progressive action to create a smooth transition to sustainable industries. I really hope I’m right.

    Reply
  9. Henry

    First I don’t think plastics are inherently bad, as William McDonough & Michael Braungart illustrate in their books (https://mbdc.com/project/cradle-to-cradle-book/), if plastics are kept in their own cycle. Also Paul Anastas and John Warner have made great strides in designing as system for developing chemical processes that are not toxic to us or the environment see: https://www.acs.org/content/acs/en/greenchemistry/principles/12-principles-of-green-chemistry.html. Now I have to agree that our current system is ridiculous with virtually none of the plastics actually being recycled, at best they are down cycled and if our societies are going to continue they have to change. Apparently most are not aware this transition has been shown to be profitable both monetarily and socially see Ray Anderson’s work with Interface carpets. See his books or for a summary: https://www.youtube.com/watch?v=iP9QF_lBOyA

    Now I must admit I’m biased choosing to build a solar array years ago to generate all my electricity for my needs at home and since I bought a bolt, also much of my transportation needs. Of course, that involved a large outlay of money and energy that were likely derived from fossil fuels yet these expenditures should be more than offset by the savings over their lifetime (One problem with learning to be more and more energy efficient in my lifestyle though is that the “savings” from the transition look less and less.) Finally on to my point, I think world production of oil will soon drop because oil will become/is too expensive. That is because like most/all extractive processes we have extracted the easy to get stuff first and it only gets more difficult from here on out. Not only does it now take a lot more energy to extract the oil, but also a bigger infrastructure and that itself takes a lot of energy to maintain. In the end what really matters is the net energy production from the oil extraction, refinement, transport, delivery system and currently that net energy is not really enough to keep our economy as it is constructed growing. We can use debt to pull demand from the future that would otherwise be unaffordable, but just like printing money these promises are worthless unless you transfer existing assets in a process formally called theft to back them up.
    See Nate Hagen’s work for a way more interesting and informative explanation than I can give:
    “From the lens of the Superorganism”
    http://www.postcarbon.org/energy-money-and-technology-from-the-lens-of-the-superorganism/
    &
    “Blind Spots & Super Heros”
    https://www.youtube.com/watch?v=YUSpsT6Oqrg

    PS: The hardest part in investing in the “green” economy, such as solar or electric cars, is that unlike the fossil fuel industry it is not dominated by a few large corporations yet thus unlike gas powered cars, which have remained virtually unchanged for decades, what you buy today will likely be obsolete in a few years.

    Reply
  10. Jeremy Grimm

    Peak demand for oil? All electric transportation before mid-century? I can’t follow the tail of this post as it flicks around. I see references to the IEA report and can’t figure out whether Dwayne is using the report for warrants or trying to somehow impeach the report in the concluding sentences of this post. Does Dwayne agree or disagree with the IEA assertion he references: “…the IEA recently released a major report describing how demand growth to 2030 and 2050 would be driven primarily by demand for petrochemicals, especially plastics, instead of transportation.”

    I went to Dwayne Purvis’s home website — it sure looks like an investment pushing website to me. He’s in Texas where the crude is playing out but there’s still plenty of nasty shit to steam and push out of the ground to use for making plastics. Wonder where Dwayne thinks a savvy investor out to move his investments to join the ‘smart money’ in taking advantage of the ” rapid evolution and s-curve adoption these analysts see as obvious…” and which has received “…hardly a nod in the mainstream…”? I’ve read this post three times trying to trace the assertions and their warrants such as there are and I feel like I’m following the movements of cards in a game of three card Monty.

    Reply

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