The World Is Millions Of Barrels Away From Peak Oil

The newest BP Statistical Review shows that demand for oil has never been higher, despite continued exponential growth in electric vehicle sales.

The notion that demand for crude oil will soon peak has largely replaced the idea from a decade ago that crude oil production was about to peak for geological reasons. This new idea is that we will no longer need oil (or at least a lot less of it) because consumers will choose alternatives to oil.

But actual oil consumption numbers suggest that peak demand for oil won’t happen soon, and when it does happen it will do so at a demand millions of barrels per day (BPD) higher than current demand.

Proponents of peak demand expect that exponential growth in electric vehicles (EVs), and to a lesser extent an increase in biofuel production will send oil demand into permanent decline. In fact, nearly a year and a half ago Bloomberg suggested that at a continued annual growth rate of 60%, electric vehicles could displace two million BPD of oil by 2023. At a 30% growth rate, two million BPD would be displaced by 2025.

I addressed the key problem with the Bloomberg scenario here. In a nutshell, the article treated oil demand as stagnant, which resulted in the assumption that in 2023 the displacement would take place from current demand levels. In other words, if 2016 demand was 95 million BPD, the Bloomberg scenario presumed 2023 demand at 93 million BPD (and falling every year).

The flaw in the scenario is that for over 30 years average oil demand has grown each year by more than a million BPD. Over the past decade, oil demand has grown each year by 1.1 million BPD. Over the past five years, 1.4 million BPD. Last week the bible of energy statistics was released — the BP Statistical Review of World Energy 2017 — and it showed that oil consumption grew by 1.6 million BPD last year:

World oil demand 1965-2016.
World oil demand 1965-2016.

Oil consumption in 2016 represents a new all-time high in global oil demand and occurred despite the fact that global EV sales grew at a 41% rate in 2016 to reach nearly 800,000 vehicles (Source: InsideEVs). The growth over the past decade also took place during a time that global biofuel production increased by over a million BPD. (I can recall many who suggested ten years ago that growth in biofuels would lead to peak oil demand).

Underlying oil demand is growing for several reasons. The population is growing, the middle class is growing, automobile sales in developing countries are growing at a blistering pace, and the number of miles driven is reaching all-time highs.

The implications are clear with respect to the peak demand argument. While many proponents are pushing the notion that peak demand is imminent, growth in EVs thus far hasn’t even been able to slow down oil demand growth.

What peak demand will actually look like — assuming EV sales continue at exponential growth rates — is for oil demand growth to first slow down. What we may see is that in contrast to Bloomberg’s scenario of 2023 demand being two million BPD less than current demand, it might only be five million BPD higher than today’s demand (instead of seven, which assumes the growth rate of oil remains consistent). In fact, oil demand today is close to two million BPD higher than it was when Bloomberg made its forecast in February 2016.

The bottom line is that even in a best case scenario for EV growth rates, demand for oil rose by 1.6 million BPD last year, and it’s projected to increase by 1.4 million BPD this year. It will take a few years of rapid EV growth to halt the growth rate for oil, and what that means — and what many peak demand proponents don’t get — is that peak demand for oil is going to be millions of BPD higher than current demand, and it’s almost certainly going to take place beyond 2023.

5 thoughts on “The World Is Millions Of Barrels Away From Peak Oil”

  1. Nice article. I do not want to be political, but I think this data points to a fundamental conflict in American society. The message from the media/pundits from the left is that fossil fuels are totally unethical and unneeded in the age of solar panels, and that rapid and total withdrawal from American fossil fuel use the “only way to go”. This then paints us Chem Engineers in the energy business as enemies of society, but in reality we are performing an important service for mankind, as far as providing relatively clean and cheap energy. Why would an American kid want to be a Chem engineer today? Not sure, OK for pre-medical maybe.

    The solution is of course to accept that we still need a mix of energy, and not condemn fossil fuels, But I do not know how we get there in our divisive society.

  2. What’s different today is we’re not as dependent on foreign oi. Currently, our economy benefits from oil. Not long ago we were savaged by Sultans, hiccups in the supply chain, and Middle East turbulence. We suffered through some expensive years for fuel and basically pledged to never again. We looked and continue to develop new forms of fuel and our domestic oil production invented a new technology for oil and natural gas production. Hopefully, we will not become complacent with low cost fuel. It doesn’t look so and Trump looks to support all energy production. So, to my thinking we are consuming more oil per the current low cost and high value. I can assure everyone if oil was maintained in the $100 on up range , peak oil would have occurred. I don’t think our society is held hostage anymore to oil supply. This is a big factor upon low cost.

    We have choice and each year we have more economical choice. This is a good thing/development. Biofuel is developing and moving forward upon cost, supply, and efficiency. If ever the fuel cost escalated this sector is up to the challenge. Engineering is figuring out how to maximize the fuel’s advantage. Same for battery cars, hybrids, lower weight vehicles, and in general the entire transportation sector. Reference the growing popularity of bike paths, local living, and electric bikes. Passenger and freight efficiency is expected to double. Car ownership may even plummet because of the cost and convenience in alternatives. Alternative energy continues to develop and improve same with our batteries and fuel cells. Were past the beginning of the beginning and steadfast within the begining. The entire energy sector looks great and is healthy. Oil will recover as consumers take advantage of cheap fuel supply and it looks like the citizens have not become complacent. I will offer thanks to the environmental group for the continued push to keep up with alternatives. There is a lot of work to be done to make it practical with decent production. Best to continue the struggle when not in desperate need. Less mistakes made this way. We all need to bow to oil and the ICE for our daily bread and life style. I don’t know what they are feeding kids in school nowadays, but they need to change their diet. They come out all full of hatred of oil and those that are extremely productive such as the wealthy.

  3. How about a follow up on your comments from a few years ago expecting nat gas prices to systemically recover?

    “If you are a long-term investor in natural gas companies or infrastructure providers, these seasonal fluctuations are not important. Over time, they will average themselves out, and there are a number of factors that argue that natural gas prices will move higher than may be implied by natural gas futures prices.” (AUG2014)

    “If you are a long-term investor in natural gas companies or infrastructure providers, these seasonal fluctuations are not important. Over time, they will “average themselves out, and there are a number of factors that argue that natural gas prices will move higher than may be implied by natural gas futures prices.

    US natural gas has averaged in low 3s since 2012. Futures strip predicts sub 3 dollars average over the next 5 years also.

    1. At the time, I could see three possible scenarios. In all of them, I saw demand increasing. If supply failed to keep up with demand growth, or if supplies actually declined substantially, then we should see prices go a lot higher. If supplies kept ahead of robust demand growth, then prices would remain in check. I felt like the former two possibilities were more likely, but the latter is what has happened. In any case, demand growth has indeed been very strong, it’s just that supply growth has managed to stay ahead of it. That’s been primarily due to unseasonably mild winters that have kept demand from being as strong as historical averages, but also supply growth has just been extremely strong.

      If prices are to remain in this range, supply growth is going to have to continue to be strong for years, because demand drivers are being put in place that ensures strong demand growth for years.

      It’s a similar story to oil. Demand growth continues to be strong, but supply growth has been even stronger. Net result = low prices.

  4. I agree that it was a supply story. Those of us who thought the promise of large tranches of low cost shale were sustainable were justified. Really on the oil side too. But very dramatically on the gas side. Heck, excepting very silly people, even the most optimistic boosters of shale gas underestimated it and its systemic effect. Ralph Eads said don’t worry, there is a huge amount of gas between 4 anf 5 dollars. But what he should have said was there was a huge amount of $3 gas!

    To a lesser extent we can see the same thing in shale oil. A lot of articles said that it would run out of juice in a few years at 100. Instead it has shown the ability to deliver in excess of 5 MM bpd at prices north of 50. Heck, if we had stayed at 100, is there any doubt that US would be at 12 MM bpd by now? If not more? Growth was actually accelerating before price turned.

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