Study shows oil demand will peak before supply

| November 09, 2011

A new peak oil study completed by Ricardo Strategic Consulting and Kevin J. Lindemer Consulting LLC, has a new twist on the peak oil debate. “I think that one of the unique things about this study,” said Scott Hare, associate for Ricardo Strategic Consulting, “is that usually when you hear about peak oil, it is always driven from the supply side scenario.” The study, titled, “Technology, Markets and Policies: Bringing Peak Oil Demand Even Closer,” argues that the demand for oil will peak before supply, and according to the study, that oil demand peak will happen before the end of the decade.

“Over the years, we’ve looked at this idea, that oil demand may actually peak at some point,” Kevin Lindemer said, noting that even a past secretary for OPEC shared the same view. For this study, Lindemer explained, the research team took into account the many factors that are affecting oil demand today, including everything from high oil prices to government policies to demographic changes and even technology resources.

After completing their work that began this past summer, the group arrived at the simple conclusion that oil demand will peak before oil supply based on the combination of several factors that are driving down the need for oil. “What is happening now and what is driving a lot of the change,” Hare said, is that “we’ve reached this point where policy, demographics and technology are all working together in unison to drive down the demand for oil. I don’t know that this is a case of ranking one above the other but rather a case of all three working together in conjunction to drive this peak.”

According to the study, oil demand demand in 2020 will be roughly 4% higher than 2010 levels, but then decline to reach 3% below 2010 levels in 2035 (10% below 2010 levels when you include the impact of biofuels). The fall in demand, as Hare told Biorefining Magazine, is a combination of a number of different factors, that when taken as a whole show a clear peak in demand before 2020.

To start, governmental polices across the world are working to reduce each country’s dependence or consumption of fossil-based liquid fuel. In addition to government policy, the study asserts that technology in the form of fuel-efficient vehicles will reduce the need for fossil-based liquid transportation fuel. Although Ricardo believes projections that automobile numbers will increase, fuel efficiency standards and technology advances will offset the increase. Natural gas deposits and technology advances to access the gas will also decrease the demand for oil by 2020, and, as the study shows, the impact of biofuels will also play a role.

Hare, who was brought onto the research team specifically to study the impact of biofuels, said that although the study took a conservative approach to its inclusion of biofuels technology that might ultimately cause a major change in the decline in the demand for oil, he believes biofuels could and will play a large role in the decline of oil demand.

Lindemer said, “If on the agriculture or the biofuels side there is a step change in technology that allows cost-competitive biofuels from biomass without government subsidy it would reduce the demand for crude oil even further,” but, he added, “it wouldn’t reduce the demand for liquid fuels, for example, at the pump.”

Lindemer and his consulting team including Hare and others said that this peak in oil demand hasn’t happened before, and because of that, his team is working with clients to help them mitigate risk no matter where they are on the oil supply chain. “If oil demand does begin to decline, the implications are really quite broad,” Lindemer said. “There are implications for the energy industry obviously, it has implications for policy, and” he added, “I think what would be important is at this point people think about that possibility of, what would you do differently?”

To purchase the study in its entirety, click here