By on October 8, 2012

TTAC is no stranger to the topic of Peak Oil, but the theory has fallen by the wayside with the recent explosion in unconventional oil and gas. A study by the British think tank Chatham House argues that the biggest issue facing oil and gas producers in the coming century isn’t Peak Oil, but Peak Demand (summary here).

The crux of Chatham House’s argument rests on the reformation of the transportation industry – a desire for fuel-efficient automobiles, the expanding use of biofuels and government regulation mandating reduced carbon emissions has all led to a slackening demand for oil.

Those factors, combined with the rise in “unconventional” supplies, like shale gas could have drastic effects on the oil and gas industry. In 2009, 95 percent of energy used in the global transportation sector came from petroleum. In 2030, Chatham House estimates this number could be as low as 60 percent. One interesting component of this actually comes from China. Chatham House argues that because their fueling infrastructure isn’t so tied into “legacy” fuels like gasoline, there is significant potential for them to be on the leading edge of alternative fuel adoption.

The report cites the increasing adoption of fuel-efficient vehicles like hybrids, Generation Y’s reluctance to drive cars and the potential for CNG powered automobiles as some of the largest drivers of peak demand phenomenon. Among the unintended consequences of reduced driving would be a significant drop off in tax revenues for municipalities that levy a gas tax. Reduced sales of fuel would naturally reduce revenues.

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36 Comments on “Peak Oil, Meet Plateauing Demand...”

  • avatar

    Good stuff DK.

  • avatar

    Interesting, but probably just trying to get in ahead of the IEA’s annual outlook that hits next month. They seem to see it going as low as 80% of today by 2035 based on the 450S model. Their base case seems to have oil demand growing slightly though.

  • avatar

    Great news. But there is always a discussion on how to replace petroleum for transports. Approx. 30% of fossil fuels are used for transports, 30% for processes and 30% to heat buildings and water. Fossil fuels are great for cars and airplanes. It is fairly simple to heat water with a tree, to drive a car on on it is more complicated and try to fly on a pine. We should use the fossil fuels for car and planes and to make plastics. Not for heating, processes and to make electricity. Then it will last for long.

  • avatar

    The hybrid technology is looking ever more attractive with the new things on offer. Hopefully we’re out of the “space ship novelty” mode and into a car you won’t feel puts you in a very exclusive club that debates between LaRouche and Nader.

    Unexpected side-effect from the gun-slit-window design strategy from a test sample of N=2:

    Some people really don’t want to drive a truck or an SUV. They want to drive a car, with one of the chief desires being visibility and maneuverability. But have you seen visibility? You have these high beltlines, gun-slit windows, rear “super coupe” windows that are mostly sunroofs for the package shelf, and so you have the situation where the advantages of a car are neutered. So, the design pushes you to look at the station-wagon-sized things next to them on the lot.

    I know that CUVs are spawns of the Devil himself, but have you driven a C-Max? I’m sure the Prius V is comparable: The interior is roomy, there is no crazy cock-pit cocoon to bend you to its Volvo-inspired shape, the short wheelbase makes lane changes and parking easy, the roofline height is about 8 inches higher than a Chevy Malibu – so it still doesn’t appear to lean like a truck, visibility is outstanding, and fuel economy is exceptional.

    Unlike with the CR-Z, power doesn’t appear to be lacking in the latest offerings – so you can actually leave the onramp at 80 without wheezing coughs from the engine, and the CVTs appear to be smoother than memory recalls them being. Regenerative braking no longer feels weird, and whisper-quiet operation up to 50+ mph is great.

    As I lose faith that there will ever be a non-Camaro, non-Cadillac Alpha Platform RWD + 250hp+, in car shopping, I was surprised by the package offering of the new hybrids. One could even get a Gun Owners of America plate frame to fit right below the Ford oval on the C-Max and not feel conflicted.

    If the age of oil primacy has come to a conclusion by various market forces and technological advances, three cheers to market solutions and fewer wars to defend oil supply lines.

    • 0 avatar

      The C-Max always struck me a good cross between Prius and attractive vehicle. The only problem I have with it is that it appears to have been created by combining a Ford Focus (I LOVE my Focus) with a Fiat 500 in the styling department. The 500’s genes have proven the more hereditary of the bunch. It’s a bit too chubby looking to me.

  • avatar

    2030 is only 18 years from now. Does anyone seriously believe we’ll see such a dramatic reduction in demand? No way, not as long as $4 gas is the new normal and mfrs continue to incentivize their vehicles.

  • avatar

    In 1998 I was putting 87 Octane Sunoco into my ’88 GMC Sieera, 10mpg (highway) at $0.69/gal. Life was good.

    Yesterday I put 89 Octane Sunoco into my ’11 Chrylser 300C 24mpg (highway) at $4.09/gal. Life is still good.

    It’s amazing how quickly we can acclimate if needed. Or how fast things can change.

    I’ll caveat the $0.69 cent thing by saying WaWa (Mid Atlantic Convenience Store Chain) was just opening up their Super Stores w/ gas pumps. They would drop the price by $0.30/gal to draw busineess/ loss leader tactic. The local Sunoco’s close to WaWa had to price match or go out of business. Because they opened a new store like every 3 months, I just had to drive to a different area to get that price / not hard since I was driving 150 miles RT in South Jersey in that timeframe.

    Good times.

  • avatar

    “Plateauing Demand”, eh?

    Well, you sure can’t tell it by California, and certainly not today. My gas is well over $5 a gallon today, and my Shell Premium gas set me back $5.89 a gallon this morning, and guess what? The demand is still there!!! And there is plenty of gas, too!!! People still waiting in line to fill’r up.

    Still the same long lines of people filling up their cars and their coffee mugs at 7/11 and every other gas outlet. Still the same amount of speeders on US62 and I-10 here in Southern California.

    No, I think that Chatham House may have erred on the side of conservative caution here because as gslippy wrote, with 2030 less than 18 years away, I doubt very much that the world, the planet, the global economy, will see much of a reduction is demand, in just 18 short years.

    There’s nothing on the horizon that will displace the internal combustion engine and there hasn’t been anything in over the past 100 years.

    Oil isn’t just used for fuels. All facets of industry and the economy depend on oil and its by-products. Fuels are a large part of oil, to be sure, but we currently have an overabundance of known oil reserves, and as technology improves we will be able to uncork even more unknown and as yet undiscovered reserves, all over the planet.

    Electric cars are a niche, a fad, a social statement. The electrical grid in California, especially where I live in the desert near Twentynine Palms, can’t even support the demand that is placed on it today.

    That’s why I have to run an AC generator to keep my airconditioners going in the summer when the power fails. This past summer was no different. No way can the grid handle another 25 million plug-in EVs if everyone in California was forced to buy one.

    What has already happened is that some people, like the guy in Northern California who made the news, drive a Leaf and tow an AC generator behind it on a trailer. Seems to me he would have been better off driving a Honda Fit or Toyota Yaris.

    Nah, I don’t buy into this at all. I hope to be alive in 18 more years, but I doubt that much will have changed transportation-wise. California’s High-speed Rail system is a bust. So much for progress.

    • 0 avatar

      To be completely fair, you don’t live in California without realizing it’s more expensive to live there.

      I live in Green Bay, Wisconsin. It doesn’t hurt that I can get a brand new, 2,000 square foot house for $150,000, or gas this morning for almost two whole dollars per gallon cheaper than you pay.

      • 0 avatar
        el scotto

        Think of the money saved on snow shovels, coats, and boots P)

      • 0 avatar

        I lived in California all my life since 1947 when I was born, except for my time with the Marine Corps and my three year stint at the Pentagon in Civil Service, and it wasn’t always expensive to live here.

        Although I have traveled a lot, all over the world, with the MEF on WestPac floats, and served in Iraq and Kuwait during the first Gulf War, there’s no place I’d rather live than in California.

        It has only been during the last twenty years that the cost of living has become more expensive. But at my age, and coming from the era of 25-cent gasoline in the fifties, I just pay whatever it costs to get me what I want.

        What is surprising, is that so many people who complain about the cost of gas and the cost of living, just keep right on spending and buying whatever it is they need, without regard to cost. The recent Apple iPhone release is a perfect example of what I mean. And gasoline is no different.

        The can always stop buying it, but they don’t because they want to drive themselves, more than anything else.

    • 0 avatar
      George B

      dodobreeder, I paid $3.369/gallon for E-10 reformulated gasoline at Sam’s in Plano, TX yesterday. Low vapor pressure 87 octane gasoline with ethanol added, not the cheaper gasoline available out in the country. Blame CARB and the EPA for making the gasoline requirements different for California. I’m sure that it’s possible to consolidate the many different boutique gasoline blend requirements into a few different blends that cover temperature and altitude differences. Consumers need to complain loudly until the gasoline market is made more efficient.

      • 0 avatar

        George B, I believe that California has always gone its own way since way back when, not just with smog-abatement requirements like EGR and catalytic converters, but also with fuel blend requirements to facilitate smaller, denser particulate emissions that do not remain air borne.

        And it has never mattered that the consumers in California complained loudly about these additional expenses and mandated requirements. To me it appears that it boils down to a political determination as to which path we Californians are on.

        If we keep electing the folks who bring us these wonderful and exotic idealog-driven ecology-oriented objectives, then we are solely to blame for what befalls us.

        As long as I choose to live where I live, I have to be prepared to put up with it. Just suck it up and pay the money.

        Having traveled to many different parts of the country, from San Diego to Maine, and from Seattle to Miami, I have burned a lot of gasoline in all the trucks, cars and SUVs I have owned over the many years and traveled in.

        I have made it a practice to burn only the very best, highest grade of gas available in my vehicles, both at home and on the road. My particular favorite is Shell but I use Chevron and Exxon, as well as Amoco and Marathon if there are any along the way.

        California and New York have the strictest standards for gasoline, and it even smells differently, but that is my opinion.

        Arizona, New Mexico and Texas have the gasolines that pack the most power, and that is based on my experience with them. Colorado gas has to be the worst I have encountered in all my travels, and that is because it is specially formulated for the higher altitude.

        So, it would seem to me that if we as a nation adopted the gasoline blend with the strictest standards, then de-octaned it to meet Colorado’s high altitude requirement, we would be able to use one blend of gasoline, nationwide. Imagine that! One blend.

        I can tell you that all my cars, trucks and SUVs ran fine on any kind of blend I picked up along the way, although some blends returned a lot more miles per gallon than others did.

        Because of political and tax-related constraints, I don’t think this, the one gas blend policy, will ever happen.

    • 0 avatar

      I think right now California has at least one refinery completely down (Exxon) and another running at reduced capacity due to a fire recently (Chevron). Gas would be higher in California anyway, but that is most of it.

    • 0 avatar

      Right now, the price of oil has nothing to do with supply.

      Slow downs in Europe and China over the last year has actually seen a decline in demand overall. But prices have stayed and in some cases increased overall.

      Clearly there are some disparities in gas prices based on taxation, location, as well as local fuel laws (Which is the case in CA as pointed by others).

      But overall we are seeing a price in gas prices because of massive financial easing. We’re basically printing tons of money, which has caused commodity prices such as oil to go up.

      The thing is, as the US is at the third-round of monetary expansion, even if we lower overall US demand via conservation and fuel efficient vehicles, we will still see an increase in gas prices.

      • 0 avatar

        “But overall we are seeing a price in gas prices because of massive financial easing. We’re basically printing tons of money, which has caused commodity prices such as oil to go up.”

        Yup, every time you fill up, you are now paying the Wall St/bankster tax.

    • 0 avatar

      The prices in california have nothing to do with global demand right now.

      What the report is saying is that by taking people out of their 20mpg vehicle and putting them into a 30mpg is going to make a difference, along with increased adoption of alternative fuel. The argument about decreased adoption of cars by younger folks in America and Europe is essentially witten off by the increased adoption of vehicles in Asia.

  • avatar
    George B

    I think liquid hydrocarbon fuels are so useful that if they became rare and expensive, we would make synthetic fuels to replace them. The energy density makes intercontinental air travel possible, for example. The distinction between refining petroleum into diesel and making diesel from natural gas, coal, plants, or animal fat doesn’t matter much to the end user.

  • avatar

    “The crux of Chatham House’s argument rests on the reformation of the transportation industry – a desire for fuel-efficient automobiles, the expanding use of biofuels and government regulation mandating reduced carbon emissions has all led to a slackening demand for oil.”

    And a recession–that led to as much slackening of demand as anything else.

  • avatar

    US Mail likely toast before 18 more years. The next elephant in the WH will sell it off. The other transporters are looking increasingly to slower, deferred service. This is what their customer base wants. The need for overnight express is not always there nor the want to pay the price. So NA may see more cargo moved by ocean than air by 2030.

  • avatar

    This scenario isn’t totally unrealistic with the explosion in natural gas availability. The easiest, most logical move with the quickest payback and biggest effect on petroleum use is conversion of heavy trucks (not passenger cars) to CNG. Truck fleets will see an immediate >50% fuel cost savings. The decrease in demand for liquid fuel will likely lead to cheaper fillups for the rest of us. Case in point: this will free up a lot of diesel for the RWD MT wagon of my dreams!

  • avatar

    I think hydrogen is the fuel of the future. Lots of power, and, when the smallest thing goes wrong, everything goes KaBOOM! In a big way! Its so quick and massive, you don’t feel a thing! Perfect! You know what they say, “no pain, no gain”!

  • avatar

    The Chatham House report makes good points but I think gives bio-fuels too much emphasis. Biofuels will be a part of the mix, but not very much more than now as long as oil supplies from conventional/unconventional are available. Carbon emissions are still the wildcard here. We are right now basing the global economy largely on one view of climate change. It seems to be happening, but we don’t exactly how much of it is caused by us. And, we won’t know for 50 years. It’s not such a bad thing that we are forcing engineering advances in transport, we should. I think all car enthusiasts would agree that this is a golden age of high-performance with high efficiency.
    Here in Alberta, we’ve lived very well as a result of a strong oil industry in the oil sands. Where else does the average tradesman earn $150,000 USD per year? But, with the collapse of KeystoneXL and the very unlikely pipeline route to the west coast, our oil will soon be effectively “locked in.” Personally I would rather see us refine the bitumen here. As one of our pols said, shipping bitumen is like a farmer selling his topsoil. Something else the Chatham House report doesn’t really address is the nature of growth itself. That the housing market was a gamed system and doomed to fail we recognize. But, I think this episode has also made a large segment of the population look at what it consumption and what they really need in terms of “Stuff.” And by stuff, I mean all that stuff we buy. I mean, with houses doubling in size in 30 years, we had to fill up all that space. now, people are re-evaluating. So, we have a paradox of lots of oil, but less need for it and the fact it’s harder to get – thus permanent high prices.

  • avatar

    One of the things must be fleet mpg. By 2030 there shouldn’t be too many of the gas guzzlers left in the auto fleet and the SUV craze *might* have slowed down. At least gotten smaller per vehicle. That has to pay dividends.

  • avatar
    Mike Kelley

    The enviro-lefties have painted us into a corner. No new refineries can or will be built in this country. In fact, some have shut down due to onerous EPA fines. With the brave new world of “alternative” energy, power grids are running with more and more intermittent sources of electricity and less coal. Blackouts and brownouts are sure to increase. Anyone who has ever been around a refinery or other industrial plant knows that power “bumps” are harmful to operations and may lead to down time or worse. Thanks to Californians for giving the rest of us a preview of our new economy.

    • 0 avatar

      Notice the crickets accompanying your comment.

      You need to read the news sometimes. This has nothing to do with politics. California ran out of gas because the PRIVATE refiners underestimated demand and there was a fire that put another out of commission.

  • avatar

    Aside from the recession, we’re also looking at a generation of buyers who are more in tune with the electronic lifestyle. Facebook, tele-conferencing, electronic back-offices… all drive demand for travel down.

    The problem with Peak demand is that it basically disincentivizes new investments in oil, whether traditional, alternative or biofuel. If there’s not enough demand to keep prices high, then biofuels won’t work… at all. Not enough profit to keep players in it.

    You can argue all you want about environmental policy, but this is basically it… we’ve been drinking from the gravy train and the gravy train is running dry.

  • avatar

    The age of conspicuous consumption of oil being all the rage is over. High prices, increased awareness and a shift of attention from cars to the rest of living amongst younger people is having a big effect.

    This is a good thing.

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