Peak oil – sooner than many think

Peak oil – sooner than many think

Portrait of David Frans
Amsterdam Office, Western Europe
+31 20 7960-600
May 19, 2017

The Economist put up the proper question: Oil demand in most developed countries has already peaked, when will the rest of the world follow? The magazine refers to some of our findings. The realm of oil and gas is a perfect example of what we call "vuca" – an acronym for "volatility," "uncertainty," "complexity" and "ambiguity." Players in this field, being producers, traders or consumers, face an industry environment characterized by lower oil prices, uncertain demand development and higher volatility.

Succeeding in this vuca world comes down to a solid vision, realistic scenarios and capabilities that allow players to adapt to the new conditions that set the tone in the oil and gas market.

The oil price is mainly influenced by geopolitical developments, OPEC oil production decisions, exploitation of shale/tight oil, climate policies and oil demand developments.

Only in 3 of the top 10 largest oil-consuming countries, demand is still growing.
Only in 3 of the top 10 largest oil-consuming countries, demand is still growing.

Please find my latest personal observations on the oil demand developments below:

  1. Oil demand has already had a peak in 2005 in the world’s 35 most developed countries. Historical data show that the daily oil consumption in the OECD economies grew steadily through 2005, after which it started declining. The decline was serious during the crisis years, and although these economies have grown further since 2009, oil demand did not return to 2005 levels. Since the 2005 peak, these economies have reduced daily oil demand by 4.1 million barrels while adding $7.2 trillion to their GDP. The rest of the world has likewise required much less oil to achieve similar GDP levels. ( See details, PDF)

  2. Oil demand growth is tapering off in other large oil-consuming economies. Only in 3 of the top 10 largest oil-consuming countries, demand is still growing (China, India and South Korea); however, growth is tapering off. Similarly to OECD countries these large oil consumers have also set stringent vehicle emission targets for 2020. Vehicle use in these countries will increase but oil demand growth will be dampened by stricter vehicle emission regulations.

  3. Worldwide oil demand may peak sooner than many think because of rapidly changing consumer perception in Asia. A recent survey by Roland Berger shows that 60%, 54% and 51% of consumers in China, South-Korea and India respectively, are considering buying an electric vehicle as their next vehicle. Couple consumers' considerations with government policies promoting electric vehicles and oil demand growth may come to a stall.

Observations 1 through 3 lead to the following viewpoint: oil demand in emerging markets may continue to grow but it is questionable if this growth offsets the expected further reduction in oil demand in developed countries. If it does not, worldwide oil demand will peak.

Read The Economist's article here.