The World Energy Council recently issued a very important report on the overall energy sector. What I found to be most noteworthy were the assumptions and conclusions reached on the long-term roll for oil in the overall energy complex. The Council stresses improvements in technology that will help clean energy, mostly solar and wind, gain market share through lower costs and improved efficiency. These sources of energy production will in the long term take over for the vast need of oil – oil is not going away but it will have a smaller market share. Overall the Council predicts that per capita energy demand for oil will peak before 2030!
As for overall demand for electricity, world demand is expected to double by 2060 from current levels. This shows how large this overall trend away from oil will be for the very long-term.
The report is long (138 pages) but if you have time I recommend taking some time and having a read over it. You can also read over the Key Findings section and jump around to what interests you most.
Also here is an article from Bloomberg that helps breakdown the report…
What OPEC’s Oil U-Turn Missed: Peak Demand Keeps Getting Closer
World Energy Council says consumption may stop growing by 2030
Renewable energy, electric vehicles will disrupt industry
OPEC’s decision last month to reverse its policy of unfettered production and cut oil output to boost prices may be at odds with the industry’s most important long-term trend: demand for what they produce could start falling within 15 years.
If rapid improvements continue in renewable energy, electric vehicles and other disruptive technologies, petroleum consumption will peak in 2030 and decline thereafter, according to a report from the World Energy Council. As the globe’s largest producers gather in London this week for the Oil and Money conference, they might want to check their assumption that the market will grow for decades to come.
The plunging cost of renewable energy — with solar-module costs falling 50 percent since 2009 — is already upending the business model of utilities. Disruption could spread to the oil industry as electric vehicles become more economic than gasoline or diesel cars, potentially displacing millions of barrels of daily fuel use by the late 2020s. Projections for decades of demand growth that underpin investments in oil projects could be misplaced.
“The longer-term outlook, beyond 10 years, is certainly less rosy,” said Alex Blein, London-based energy-portfolio manager at Amundi, which holds more than $1 trillion of assets. “Given the advances in battery technology, by 2030 carbon-powered vehicles will be the exception rather than the norm. This will inevitably impact on oil demand.”
Less Rampant
When the Organization of Petroleum Exporting Countries last cut production to support prices in 2008, the decision made economic sense. At that time, the phrase “peak oil” described the growing fear that the world was running out of petroleum, so the group’s 1 trillion barrels of reserves would be guaranteed to fetch a higher price in the future. That calculation may be changing, with a growing risk that some resources might not be needed.
This is evident in demand estimates from the International Energy Agency, which have been revised down over the past 20 years, just as projections for renewable energy increased, said Michael Liebreich, founder of Bloomberg New Energy Finance. He predicts the growth of electric vehicles and improvements in fuel efficiency mean oil demand will peak around 2025 and decline in the 2030s.
“The orthodoxy of ‘rampant growth’ has turned into ‘less rampant growth’ and actually now, ‘not very rampant growth’ at all,” Liebreich said in a phone interview.
The IEA has revised down demand growth forecasts in its annual World Energy Outlook
Source: IEA, Bloomberg New Energy Finance.
“The IEA has significantly raised its estimates for the deployment of renewables,” reflecting energy-policy changes around the world, the Paris-based agency said in an e-mailed statement. Its central demand scenario currently sees oil use expanding to 2040.
Major oil companies aren’t re-writing their business plans just yet.
The anticipated increase in demand of about 20 million barrels a day over the next two decades will probably be big enough to overwhelm the impact of the electric car, said Spencer Dale, chief economist for BP Plc. Those vehicles will have a bigger impact in 30 to 50 years, although there’s a chance it could happen sooner, he said.
Tesla Temptation
“Suppose people start buying EVs because of what it says about them, rather than the economics,” Dale said on Oct. 11. Existing demand models “may get thrown out the window.’’
There’s some evidence this is happening. Tesla Motors Inc.’s Model S accounted for almost a third of all U.S. luxury sedan sales in the third quarter, surpassing the BMW 7-Series and the Mercedes-Benz S-Class.
The WEC, which advises governments and other organizations on policy, outlines three oil-demand scenarios. If rapid adoption of new technology and business models disrupts the existing system, demand could peak in 2030 at 103 million barrels a day, compared with about 86 million in 2014, and decline by 0.9 percent a year to 80 million in 2060.
More aggressive adoption of low-carbon policies could bring a lower 2030 peak of 94 million barrels a day, while the status quo would mean demand reaching a plateau of about 104 million between 2040 and 2050, the WEC said.
Bloomberg New Energy Finance is a patron of the WEC.
Stranded Assets
A permanent shift from growth to decline would have an uneven impact on the giants of today’s oil world.
Saudi Arabia, the world’s largest oil exporter and de-facto leader of OPEC, is banking on its crude reserves of 266.5 billion barrels lasting another 70 years, according to a bond prospectus.
The kingdom has announced some long-term plans to diversify its economy away from oil, “but in a scenario where demand growth peaks sooner, pressure to do this will intensify,” said Carsten Fritsch, an analyst at Commerzbank AG.
Companies including Royal Dutch Shell Plc and BP are already shifting their output in favor of natural gas, for which demand keeps increasing in all of the WEC’s scenarios. Still, in the longer term, gas demand for power generation is also vulnerable to competition from renewables or tighter limits on carbon-dioxide emissions.
Brent crude this year has averaged less than half its value in 2014, when OPEC decided not to reduce output amid a glut. The global benchmark is up more than 12 percent since the group’s decision last month to cut supply; it slipped 0.3 percent to $51.79 a barrel as of 9:23 a.m. London time on Monday.
The greatest risk is that resources become “stranded,” meaning their value evaporates because it’s no longer economic to extract them, said the WEC. If oil producers fail to navigate the challenges of peak demand, “the destruction of vast amounts of public and private shareholder value is unavoidable.”
I think the majority of cars will still be gas powered in 2030. Manufacturers might be required to convert a% of production to electric such as 20%. They are not going to give up business if most customers still want engines.
Paul L, the article referred I believe to new car production.
Since the average life of a car is around a decade, it may well be that most vehicles may not be electric in 2030. However, it is highly probable that few combustion engined vehicles will be made at that time.
If you had watched Tony Seba’s talk, although he makes some errors in extrapolation, you would understand the effect of cost reductions for EV’s. https://m.youtube.com/watch?v=Kxryv2XrnqM
Not only will the purchase cost of an electric vehicle be substantially reduced, but the running cost, and even more importantly, the maintenance cost will drop substantially.
While some countries will never ban combustion engines, with the drop in taxation of fuel taxes as people convert to electric vehicles, I suspect governments will think of other ways to tax them, which could definitely destroy the accuracy of projections.
Aviation demand, however, will increase!
Plastics, fertilizer, petrochemical demand will increase.
With the development of the Indian and Chinese economies, even if NO oil is used for automobile fuel, I suspect the World Energy Council has under-estimated the need for oil.
While much plastic use can be replaced by alternative materials (e.g. synthetic fibers can be replaced by cotton or silk for fabrics) but as the price of oil is relatively reduced relative to the cost of natural fibers, the use of oil-related products will increase.
Extrapolations beyond a few years are commonly wrong.
But will those increases be enough to offset the decrease in demand from cars, trucks, motorcycles, etc. ?
My guess is no, not by a long shot.
So if the predictions regarding the decreasing costs for these alternative energies come true, especially for solar (plus the fact that an electric engine is way more efficient than an internal combustion engine) I think the oil shares will take a big hit, possibly in two or three years as by then we should get a better idea of the accuracy of the predictions.
I don’t know.
The population expansion in Asia, combined with increasing wealth could be incredible in its effect, in consumption of raw materials, and water.
We will not run out of water, but we will have to use sea-water. Will the desalination be powered by oil, gas or Solar? Currently, it is a mixture of oil, nuclear and gas, depending on location. Will the fields by tilled by hand or ox, or by machine? I suspect increasingly by machine. The world is changing more rapidly with time.
Of course all projections could be dramatically changed by war.
One final thought.
Much research is currently underway on fast growing plants, which utilize photosynthesis to produce hydrocarbons. Basically the plant, can then be modified to produce fuel, food, or hydrocarbon chemicals. Whether it is algae grown in water, or GM crops grown on land, we are but at the very front of a dramatic change in technology in this area also.
Yes, this is a fascinating area. By chance, have you ever read the book “Alcohol Can Be a Gas” by David Blume? Fascinating history of the history of ethanol in the country going back to Henry Ford.
http://fourtitude.com/news/Industry_News_3/germany-looks-to-ban-internal-combustion-engine-by-2030/
I posted this the other day. EU may ban engines by 2030.