Kemp: Oil Demand Is Not Slowing Down
[By John Kemp]
“Peak oil demand” has become a fashionable concept among climate campaigners but the evidence suggests oil consumption is growing at the fastest rate for a decade and shows no sign of letting up.
Global oil consumption increased by nearly 1.9 million barrels per day (bpd) in 2015, the largest annual increase since 2004, apart from the post-crisis bounce recorded in 2010 (tmsnrt.rs/28L6jou).
Most forecasters predict consumption will grow by another 1.5 million bpd in 2016 and a similar amount in 2017, which would make it the strongest sustained period of growth since 2004-2006.
Oil consumption in the advanced industrial economies that are members of the Organisation for Economic Cooperation and Development (OECD) peaked at 50 million bpd as far back as 2005.
Between 2006 and 2014, OECD consumption declined in seven out of nine years (tmsnrt.rs/28L6bFv).
By 2014, OECD oil consumption had fallen by around 5 million bpd, or 10 percent (“BP Statistical Review of World Energy”, 2016).
In the OECD countries, consumption does indeed seem to have “peaked” thanks to a combination of high and rising oil prices, energy efficiency mandates and prolonged economic weakness.
But in the rest of the world, consumption has continued growing rapidly.
Non-OECD oil use grew by more than 13 million bpd between 2005 and 2014, an average of almost 1.5 million bpd per year.
In 2015, spurred by a combination of economic expansion and much lower fuel prices, even the OECD returned to growth with the first consumption increase since 2005 (again excepting the unusual 2010 post-recession bounce).
Over the entire 2005-2015 period, global consumption increased by more than 10 million bpd, as the growing thirst for oil in emerging markets more than offset lower OECD demand.
With the global economy still expanding and oil prices at the lowest level for 10 years, consumption is set to continue growing strongly for the foreseeable future.
TOP OIL CONSUMERS
In 2013, non-OECD countries consumed more oil than the advanced economies for the first time and there is no sign that consumption growth is slowing, let alone peaking, in the non-OECD economies (tmsnrt.rs/28L6Cj1).
OECD countries that have reported steep declines in consumption over the last decade include the United States (-1.4 million bpd), Japan (-1.2 million bpd), Germany (-0.3 million bpd), France (-0.3 million bpd) and Britain (-0.3 million bpd).
But this has been more than offset by rapid growth from non-OECD countries including China (+5.1 million bpd), India (+1.6 million bpd), Saudi Arabia (+1.7 million bpd) and Brazil (+1.0 million bpd).
As a result, 10 of the 20 oil-consuming countries in the world are now outside the OECD (tmsnrt.rs/28L6qjX).
Non-OECD countries have become central to the outlook for oil consumption over all time horizons from the short term (one to two years) to the very long term (one to two decades).
The rapidly expanding middle class in emerging markets shows a strong aspiration for car ownership and more air travel.
Vehicle registrations in emerging markets such as China and India are growing rapidly, from a low base, which means there is enormous potential for further rises (tmsnrt.rs/28L6wYS).
Major road-building programmes designed to connect urban centres with fast highways are both responding to and will likely stimulate more car ownership and driving.
Demand for regional as well as long-haul air travel is also increasing rapidly, with passenger-kilometres up by 6.8 percent in Latin America last year and 8.7 percent in the Asia-Pacific region (“Market Developments”, IATA, 2016).
Climate campaigners claim to foresee an inevitable peak in oil consumption within the next 10-20 years that will leave some oil reserves “stranded”.
But they focus too much on developments such as the potential for electric vehicles and greater fuel efficiency that could cut oil demand in the advanced economies.
The future of oil consumption is increasingly tied to the mobility revolution in emerging markets, where the growing demand to travel for work and pleasure shows no sign of abating.
The opinions expressed herein are the author’s and not necessarily those of The Maritime Executive.