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Look just before 2010—you can see a slight 2005-2009 dip in the already mostly flat curve representing developed world oil consumption. (image: mazamascience.com)
Usually, the news about the market forces that influence oil prices, including heating oil prices, is negative in one way or another. Often, it’s a report that the world is in danger of running out of oil, or at least that we’re at or near the peak in oil production, after which supply goes downhill and price goes uphill. Or else it’s that oil prices are down because the recession reduced economic activity and hence demand, which is mixed news at best since gloom about lost jobs and a weak economy tarnish any happiness consumers would otherwise feel about lower oil prices.
How about some unadulterated good news for a change? As reported by Jad Mouawad the New York Times Tuesday, research shows that oil demand in developed nations is down, owing in large part to increased fuel efficiency and greater use of non-oil fuels and energy sources. IHS Cambridge Energy Research Associates found that oil demand from the 30 industrial nations that make up the Organization for Economic Cooperation and Development decreased by 3.7 percent between 2005 and 2009—the decline started well before the economic downturn. CERA’s analysis identifies efficiency gains in transportation as the biggest driver of the reduction, since “[p]etroleum for transportation has been the single driving force behind OECD oil demand for the past two decades.”
Other positive factors identified by CERA include growth in alternative energy sources and fuels, as well as demographics: as the developed world’s population ages, it uses less oil.
Even when the economy does improve, the expected impact on OECD oil consumption is projected to be minimal: an increase of 900,000 barrels per day by 2014, which would still leave it 2.8 million barrels short of where it stood at its peak in 2005.
Globally, oil consumption is expected to increase over the next few years. CERA’s world-wide projection is for an increase from 83.8 million barrels consumed per day in 2009 to 89.1 million by 2014. Mathematically, if only 900,000 of those barrels are coming from the developed world, the other 3.5 million barrels of growth must be coming from the developing world—which is exactly what CERA predicts. The organization’s researchers see almost all growth in oil consumption coming from the emerging markets, with China alone projected to account for 1.6 million barrels of additional consumption per day.
However, even with total oil consumption climbing, the good news is that it’s not going to be climbing nearly as fast as it could. The nations that make up the OECD currently account for 54 percent of world oil demand, with the other 165 nations together only consuming 46 percent of the world’s oil. If the OECD members’ oil thirst were growing by even 5 percent per year, that alone would drive a 2.7 percent annual increase—by 2014, that would be a 13.5 percent increase in world demand on top of increases from the rest of the world. Instead, with OECD demand down since 2005, total world growth in oil consumption will be held to 5 percent over the next 5 years.
The developed world reducing its oil consumption will go along way towards offsetting increases in consumption among the developing world, including China. Knowledgeable observers have opined, for example, that increases in Chinese demand are not enough to make up for demand reductions from the developed world.
The decline in oil consumption in developed nations may help peak oil—if peak oil theory is correct, slowing the rate of increase of consumption will help push off the peak, and decrease the price impact from passing the peak. Even before any production peak, slower growth in consumption will help hold down demand-driven price increases, which in turn will help keep heating our homes with oil affordable. It will also help with global warming—less oil consumption equals less carbon emissions from oil.
Those are the global impacts. In the developed nations that have been moderating their oil thirst—like ours—there will be other benefits as well. For example, as CERA noted in their press release about their findings: “[T]he peak of OECD 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.”
In other words, those nations that consume less oil will be less dependent on oil—a conclusion that may not actually require a high-powered think tank to come to, but is welcome nonetheless.
