Lead Angle: Are we near the peak?

Peak oil demand is in the news. In a May Wall Street Journal article, for instance, authors Lynn Cook and Elena Cherney stated, "The world's largest oil companies are girding for the biggest shift in energy consumption since the Industrial Revolution: After decades of growth, global demand for oil is poised to peak and fall in the coming years."

July 15, 2017By Alan Richter

Open Flipbook

Peak oil demand is in the news. (Then again, with the proliferation of news outlets, everything under the sun seems to be receiving a fair amount of media “covfefe” these days.) In a May Wall Street Journal article, for instance, authors Lynn Cook and Elena Cherney stated, “The world’s largest oil companies are girding for the biggest shift in energy consumption since the Industrial Revolution: After decades of growth, global demand for oil is poised to peak and fall in the coming years.”

They noted, “Since 1965, global oil consumption has increased from 30 million barrels a day to nearly 95 million.”

The article cites a number of reasons for an eventual peak, including new technologies that improve vehicle fuel efficiency, the possibility that electric vehicles will gain traction and the prospect of governments taxing carbon emissions at high-enough rates to discourage fossil-fuel consumption. It’s highly probable that the demand for oil will eventually plateau and drop.

The bigger question is when.

Some major European oil producers predict a peak as soon as 2025. BP PLC’s base case calls for a peak in the mid-2040s, with the caveat that it could come sooner or later, the WSJ reports.

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Others aren’t so sure the peak is around the corner. Chevron and ExxonMobil, the two biggest U.S.-based oil companies, don’t foresee a peak, according to the article. And Michael Lynch, who analyzes petroleum economics and energy policy, wrote in a contribution to Forbes.com: “Now, there are a number of reasons that have been put forward to explain why oil demand might (or will) peak in the near future, and most have some validity but most also have a long history of not developing as predicted. Most do not involve ‘better and cheaper’ so much as ‘someday better and cheaper’ technologies, or expected trends that are at least somewhat questionable.”

Nonetheless, even small changes could add up to significant reductions in demand, wrote Jessica Shankleman and Hayley Warren in a May Bloomberg article (tinyurl.com/ya82pfpa). “Advances in vehicle efficiency, a rise in electric cars, tighter emissions standards and shifts to other fuel sources would result in oil demand much lower than the industry is banking on.” They added that about 60 percent of oil is used in transportation, which is also where the biggest technological changes are emerging.

One change is vehicle lightweighting. As an example, Fiat Chrysler Automobiles (FCA) reports it is using aluminum to account for 45 percent of car body weight in its new Alfa Romeo Giulia. This shift will reduce weight by 90kg (198 lbs.) compared to an all-steel body. In addition, Germany-based Henkel AG & Co. KGaA announced that it has partnered with FCA to develop a new surface-treatment process for mixed-metal car bodies. The process uses materials that are lighter than previous generations of products.

Lightweighting also applies to machined parts. And, unfortunately, when peak oil demand does occur, it will negatively impact demand for the machined parts needed by the oil and gas industry. The sharp drop in oil prices already caused severe pain to numerous shops serving that market. Reduced demand will only bring more agony. Hopefully, those shops will have sufficiently diversified by the time that day arrives.