World oil demand is poised for recovery driven by emerging markets but demand from developed countries is unlikely return report finds
Demand for oil in developed countries—currently 54 percent of all oil demand—has passed its peak, the latest research suggests.
Industry analysts reckon oil demand in developed countries likely reached its all-time peak in 2005. According to the new research report by business analysts, IHS Cambridge Energy Research Associates (IHS CERA), while world oil demand is now set to grow as the world economy moves from recession to recovery, the demand lost in 30 developed countries that make up the Organization for Economic Cooperation and Development (OECD) is not likely to ever be regained.
“The economic downturn has been masking a larger trend in the oil demand of developed countries,” said IHS CERA Chairman and Pulitzer Prize-winning author of The Prize, Daniel Yergin. “The fact is that OECD oil demand has been falling since late 2005, well before the Great Recession began.”
It would appear that developed countries focus on greener car, vans and trucks could be at the heart of oil demand decline. The key factor, IHS CERA says, making it unlikely for OECD demand to ever return to its 2005 peak is that petroleum demand in the transportation sector—which accounts for 60 per cent of OECD petroleum demand—is likely to flatten out after years of steady growth. Oil demand outside the transportation sector has already been relatively flat since 1980.
Other factors such as vehicle ownership rates in developed countries reaching‘saturation’ level is also affect oil demand from the transport sector. Ageing populations with low to negative population growth emonstrated in many OECD countries suggests a flattening of demand for mobility. The growth of women’s participation in the labour force is also levelling off, meaning the flattening of another source of demand growth. But the stronger governmental and consumer push for passenger vehicle fuel economy gains driven by energy security concerns and climate change initiatives have also led to reduced demand for oil in the OECD.
The rise in energy prices over the past several years has pushed consumers to value increased efficiency and influenced the auto industry through a major re-orientation toward greater fuel efficiency.
New vehicle technologies and alternative fuel vehicles, favoured by governments and incentivised across the OECD have increased the market share of fuel efficient new vehicles. New technologies such as plug-in hybrid electric vehicles and next-generation biofuels could also have a greater impact in the future oil demand.
“Petroleum for transportation has been the single driving force behind OECD oil demand for the past two decades,” said Aaron Brady, IHS CERA Director, Global Oil. “After the oil crisis of the early 1980s the non-transportation sector turned to readily available substitutes like coal, gas or nuclear power. Now we are seeing the tempering of the last significant driver of oil demand in developed countries—petroleum for transportation.”
Future world oil demand growth will be driven almost exclusively by emerging markets, the report concludes. The latest IHS CERA ‘World Oil Watch’ report expects oil demand to increase from 83.8 million barrels per day (mbd) in 2009 to 89.1 mbd in 2014. 83 per cent (4.4 mbd) will come from non-OECD countries. China alone is expected to account for 1.6 mbd of cumulative growth. Just 900,000 bpd of growth is expected to come from OECD countries, just a fraction of the 3.7 million bpd of demand lost over the course of 2005 to 2009. But the peak of OECD oil demand does not mean that the end of the oil age in these developed economies is imminent. The size of the decline in oil demand from the peak year of 2005 to 2030 is expected to be fairly modest, says Brady, assuming that some demand rebounds over the next few years.
“The reason for a modest decline is that although the potential for demand growth has diminished so has the potential, at least in the short to medium term, for large-scale substitution away from petroleum,” Brady said. “Today’s alternative fuels and technologies can only gain market share slowly owing to the slow turnover of the cars, trucks and airplanes that use petroleum. Petroleum will still be the dominant fuel for transportation 25 years from now, although other sources of energy will likely have captured a growing foothold in transportation.”
Regardless if the decline is modest, the peak of OECD demand will have major implications not just environmentally, but economically. Peak demand will dampen the rate of increase in dependency on oil imports. It likewise could also help make economic growth in those countries less susceptible to oil price shocks. Finally, peak OECD demand could counteract the expected rapid demand growth in the developing world.
