A Peak Oil Twist

Commentary By Ron Beasley

When we think peak oil we generally think of peak supply.  The big oil exporting countries have another concern - peak demand.

Crude world has undergone massive transformation in recent months. Gone are the days when the issue of "peak oil" was dominating headlines. That has receded into the background. The very issue of peak demand is now getting on to the centre stage and is starting to impact things all around.

Demand has already peaked in Western, industrialized countries.
Everyone from IEA (International Energy Agency) to OPEC now seems to
agree. However, with demand continuing to rise in the emerging economies
of Asia, not everyone was initially concerned. Eyes remained glued to
China as the brightest star on the horizon as far as crude consumption
was concerned.

However, producers are beginning to get skeptic of
the emerging realities. The concept of peak demand has apparently crept
into the industry mainstream. Drop in global oil use last year caused by
the economic slowdown and coupled with efforts to combat climate change
and use oil more efficiently are starting to hurt the industry psyche.

"I
think that peak demand will come before peak of supply," said Ibrahim
Al-Muhanna, adviser to Minister of Petroleum and Mineral Resources Ali
Al-Naimi, while answering a question at an industry conference in Paris.
"The demand in emerging economies will take time to peak but it will
definitely peak, maybe this decade or early next decade," he asserted.
Oil consumption could fall even more in countries that are members of
the Organization for Economic Cooperation and Development (OECD),
Al-Muhanna added.

"In the OECD countries the peak is there and it
is declining very fast in some countries. We might see further decline
as a result of more efficiency and other sources of energy," he said.

As I pointed out here:

The complexity of our society is almost entirely the result of not just
oil but cheap oil. Even if we haven't reached peak oil
we reached  peak cheap oil.  We have known this day was coming for a very long time.

Oil exploration and recovery will continue to become more expensive, and that trend will be exacerbated by the Deepwater Horizon disaster.  But as Chris Nelder explains there is a limit as to high the price of oil can go before economic growth stops and demand dries up. We are uncomfortably close to that limit now.

Very simply, when oil got to $120 a barrel it cut into real productivity, and forced the world's most developed economies to shrink. At $147, it wreaked serious damage.

........

As we enter the post-peak phase of global oil supply sometime around 2012-2014, the price that heavily import-dependent countries like the U.S. would have to pay for that marginal barrel will become increasingly intolerable. In a weakened economy, $100 a barrel (or less) could be the new $120.

The true import of peak oil, therefore, may not be sustained high prices, but economic shrinkage. Demand will be destroyed long before oil gets to $200 a barrel, but it will not be destroyed by improved efficiency.

The real problem may have been peak demand all along.  Societies will be forced to simplify because of price not availability.    That simplification will be less painful in some areas than in others.  It will be the end of Wallmart and other big box retailers but a boon for local farmers and manufacturers.  It will be the end of long haul trucking but a new beginning for the railroads.    The first life changing event may be the end of widespread are travel and transport.