Following my previous article — Peak Demand? No, A New Gasoline Demand Record — I received some interesting feedback from readers. It quickly became apparent that some didn’t understand that the current discussions around “peak oil demand” are quite different than the “peak oil” arguments that were popular a few years ago.
Some interpreted my headline to mean that peak oil is a myth and that oil supplies will simply continue to grow. Actually, I was addressing the irrational exuberance around the near-term peak oil demand argument, which is something entirely different.
So let’s review.
Almost from the beginning of the U.S. oil industry, there have been those who suggested that it wouldn’t be long before oil production began to inevitably decline. The layman’s understanding of “peak oil” typically boiled down to “The world is running out of oil.”
But that was a misunderstanding of the actual peak oil argument. It wasn’t that the world was going to run out of oil, it was that oil production would begin a long decline and cause havoc in a world that is still highly dependent upon oil. A decade ago many prognosticators made dire predictions of the consequences of peak oil, pointing to events like the 1973 OPEC oil embargo or highlighting the fallout whenever oil shortages took place in an area.
Simply put, modern civilization can’t function without oil, so peak oil necessarily meant dire consequences. Books were written on the concept. In 2005 the late Matt Simmons published Twilight in the Desert
For a while, it looked like Simmons could be right. Production in Saudi Arabia remained flat, global demand continued to grow, and oil prices skyrocketed above $100 a barrel (bbl). These were just the types of consequences predicted by the peak oil camp.
Fast forward a few years, and after falling for nearly 40 years, U.S. oil production began to surge as a result of the marriage between hydraulic fracturing and horizontal drilling. It turns out that high prices can indeed enable a lot of new oil production, which was perhaps the biggest blind spot among the near-term peak oil adherents.
That’s the peak oil argument in a nutshell, but the peak demand argument is entirely different. In this case, oil production falls — not because of geological factors — but because the world turns its back on oil as cleaner, cheaper options become available. Electric vehicles and ride-sharing on a massive scale are envisioned as two of the key factors that will make oil obsolete.
I think the picture is quickly becoming more complicated. There are five or six players and much depends on what they do:
The U.S. – oil producer
China – an oil buyer, clean tech leader
Russia – oil producer
Western Europe
All the other oil producers
Rest of the World
Potentially, the biggest player, the one left out of too many scenarios, is China. Maybe they’re already the biggest player.
The critical country at the moment is probably the U.S. A year ago, the U.S. was a smarter country. Now it’s not clear what’s going to happen. Here’s the key: if jobs from fracking start to slip and if they’re not replaced in other areas, the U.S. economy may slip into recession. This may dampen both oil production and the production of clean energy. At that point, things start getting complicated with different possible outcomes.
It is different math nowadays. Before oil was the only option for transportation. Now, thanks mostly to Environmentalists we have a steady push from international community to produce alternative energy and increase efficiency. It’s a work in progress, but a steady stream of technology improvements. The risk is to become complacent with cheap and plentiful oil. I don’t think this will happen. I read Mazda had a diesel cycle gasoline engine that boasted 30% efficiency gain. Consumers can change habits and utilize higher efficiency vehicles upon oil spike. Fuel is gaining elasticity in economic terms.