Peak oil has been in the news again over the last week, but this time in relation to the theory of peak oil demand. This recent report by the McKinsey Global Institute, explores a number of potential long-term themes that it believes will be driven by technological change, including the notion that by 2035, we may have seen peak in global demand for oil.

“Demand for oil will peak under our tech acceleration scenario, although the global economy will remain dependent on oil.”
– McKinsey Global Institute.

peak oil demand

McKinsey argues that as the main driver of oil demand is the transportation sector, representing 56% of total primary oil consumption, the growth of electric and autonomous vehicles and ride sharing combined with ongoing improvements in fuel efficiency could see demand growth peaking in around 2025, and being 2% below its 2013 level by 2035.

It also believes that technological advances are likely to contribute to reduced oil demand by heavy-duty vehicles and aviation, driven by improved aerodynamics, technology-driven “platooning” (where a line of vehicles closely follow one another to reduce drag) and the use of telematics to optimise fleet performance.

McKinsey also identifies some second order effects from the technology-driven changes in light vehicle usage. As ride-sharing increases, so the demand for cars would reduce, leading to a corresponding reduction in demand for oil as a feedstock for the production of plastics.

“If the market penetration of electric, autonomous, and shared vehicles accelerates, oil demand driven by light vehicles could be approximately 3 million barrels lower in 2035 than assumed in the business-as-usual case. Together, this accelerated adoption of light-vehicle technologies and the adjustment of plastics demand could reduce 2035 oil demand by nearly 6 million barrels per day. An important result is that oil demand will peak around 2030, at fewer than 100 million barrels per day in this scenario.”

peak oil demand

McKinsey’s views are shared by some of the oil majors. According to the Financial Times, Shell believes the peak may be reached as early as the late 2020s, while Statoil has suggested it might be anywhere between the mid-2020s to late 2030s. The surge in battery-powered vehicles will cause demand for oil-based fuels to peak in the 2030s, Total’s Chief Energy Economist, Joel Couse, was reported by Bloomberg as saying that the growth in EVs will see peak oil demand in the 2030s.

According to Richard Branson in fifteen years “every car on the road will be electric” and Bloomberg suggests that “Electric Cars will cause the next oil crisis.” 

However others disagree. The International Energy Agency predicts oil demand will continue to grow unto the 2040s and beyond, while Chevron and BP have also expressed doubts. John Watson, chief executive of Chevron reportedly described forecasts of impending peak oil demand as “wishful thinking” while BP’s chief economist, Spencer Dale, is doubtful that electric cars alone will have a game-changing impact on oil demand.

The CEO of Saudi Aramco, Amin Nasser, also disagrees with the peak oil-demand predictions, pointing out that the global economy is forecast to doubly by 2050 leading to higher energy demand. He described the peak-oil demand forecasts as “equally as mis-leading” as the now discredited theories about the peak supply of oil.

Recent forecasts from the IEA show overall oil consumption growing into the 2040s, however its data already indicate that demand for oil in some sectors is already falling, including in the important passenger vehicle segment where oil consumption by cars is expected to fall by 600,000 barrels per day, albeit that this will be offset by increased demand from buses and motorbikes.

oil demand

A lot depends on the actions taken by governments to reduce greenhouse gases and other emissions. On the one hand, the election of Donald Trump may be seen as expansive for oil, while on the other hand, if governments act to limit atmospheric greenhouse gas concentrations to around 450 parts per million of CO2 the oil demand could fall sharply.

The IEA has consistently under-estimated demand for renewable energy sources, and may well also be under-estimating the growth in self-driving cars. However some commentators have suggested that the growth in autonomous vehicles will increase oil demand rather than reduce it…in a world where active driving is no longer needed, more people may undertake car journeys than might otherwise have been the case. Self-driving cars may also be programmed to drive empty, collect people from various locations or to find parking spaces, potentially displacing other modes of transport.

Furthermore, although battery technology has improved significantly in recent years, batteries still do not offer the full functionality of a petrol or diesel car, meaning that without subsidies and other inducements it’s difficult to see demand growing to the extent of the more ambitious forecasts. Energy economist Michael Lynch argues that claims of peak oil demand are no more credible than previous theories of peak oil supply.

Social mobility may also be a relevant factor – as most people globally have yet to join the middle classes, significant increases in demand for oil and derivative products can be expected. EVs and other technologies still have some way to go before they would be a natural first step for new car ownership in developing countries, with a lack of charging infrastructure creating additional barriers to adoption.

Energy demand may have become decoupled from GDP growth in some developed regions but there’s a long was to go before this is the case everywhere. Expectations of peak oil demand in the next couple of decades suggests a change in trajectory that is not, so far, justified by the data. Like it’s supply-side cousin, the theory of peak oil demand could well turn out to be just as overblown.

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