World oil demand is set to grow next year for the first time since 2007 and return to pre-recession levels by 2012, according to IHS Cambridge Energy Research Associates (IHS CERA) in its quarterly World Oil Watch report. The rebound would mark a turnaround from the largest drop in global oil demand since the oil crisis of the early 1980s.
IHS CERA expects oil demand growth to resume by 900,000 barrels per day (bd) in 2010 and return to its 2007 high of 86.5 million barrels per day (mbd) by 2012 -- a five year turnaround.
"There are a lot of questions as to whether things will be 'different this time' in terms of the recovery of oil demand," said IHS CERA chairman and Pulitzer Prize-winning author of The Prize, Daniel Yergin. "While the answer is that it will be shorter, it is still going to take a substantial amount of time."
Oil demand dropped by 2.8 mbd from its high point of 86.5 mbd in 2007 to 83.8 mbd in 2009. The last time that the world experienced such a severe decline in oil consumption was in the early 1980s and it took nine years for demand to return to the 1979 pre-recession high. A five year turnaround -- while still a substantial amount of time -- would be swift in comparison.
The key differences between the current recovery and that of the 1980s are demand from emerging markets and fewer options for substituting fuels on a global scale, said IHS CERA global oil managing director, Jim Burkhard.
"In the 1980s the largest area of the demand decline came from power generation, where oil was replaced by readily available substitutes like coal, gas or nuclear," Mr. Burkhard said. "Today, global demand growth is coming from the transportation sector in emerging markets where there are fewer large-scale options for switching fuels."
Overall, emerging markets will drive the recovery of oil demand. IHS CERA expects oil demand to increase from 83.8 mbd in 2009 to 89.1 mbd in 2014. 83 percent (4.4 mbd) will come from non-OECD countries. China alone is expected to account for 1.6 mbd of cumulative growth. Just 900,000 bpd of growth is expected to come from OECD countries.
"This near-stagnation of oil demand growth in the industrial countries of the OECD highlights several structural changes," Burkhard said.
"Decreasing oil intensity associated with economic growth, higher fuel efficiency, the displacement of conventional oil with renewable energy sources and a slower pace of growth in transportation fuel consumption -- all these point to a leveling off of demand in the industrial world."
While the trajectory of oil demand seems certain, Burkhard pointed out that, as always, future events large and small could alter the course of demand.
"While our base case suggests that 2012 will be the year that global oil demand recovers to 2007 levels, we continue to research the alternative scenarios that could alter the balance in the oil market," said Burkhard.
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