Oil demand in developed countries -- currently 54 percent of all oil demand -- likely reached its all-time peak in 2005, according to a new research report by IHS Cambridge Energy Research Associates. While world oil demand is now set to grow as the world economy moves from recession to recovery, the demand lost in 30 developed countries that make up the Organization for Economic Cooperation and Development (OECD) is not likely to ever be regained, the report finds.
"The economic downturn has been masking a larger trend in the oil demand of developed countries," said IHS CERA Chairman and Pulitzer Prize-winning author of The Prize, Daniel Yergin. "The fact is that OECD oil demand has been falling since late 2005, well before the Great Recession began."
The key factor making it unlikely for OECD demand to ever return to its 2005 peak is that petroleum demand in the transportation sector -- which accounts for 60 percent of OECD petroleum demand -- is likely to flatten out after years of steady growth. Oil demand outside the transportation sector has already been relatively flat since 1980. Now the conjunction of several long-term factors is doing the same to transportation:
"Petroleum for transportation has been the single driving force behind OECD oil demand for the past two decades," said Aaron Brady, IHS CERA Director, Global Oil. "After the oil crisis of the early 1980s the nontransportation sector turned to readily available substitutes like coal, gas or nuclear power. Now we are seeing the tempering of the last significant driver of oil demand in developed countries -- petroleum for transportation."
Future world oil demand growth will be driven almost exclusively by emerging markets. The latest IHS CERA World Oil Watch 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, just a fraction of the 3.7 million bpd of demand lost over the course of 2005 to 2009.
But the peak of OECD oil demand does not mean that the end of the oil age in these developed economies is imminent, the report finds. The size of the decline in oil demand from the peak year of 2005 to 2030 is expected to be fairly modest, says Brady, assuming that some demand rebounds over the next few years.
"The reason for a modest decline is that although the potential for demand growth has diminished so has the potential, at least in the short to medium term, for large-scale substitution away from petroleum," he said. "Today's alternative fuels and technologies can only gain market share slowly owing to the slow turnover of the cars, trucks and airplanes that use petroleum. Petroleum will still be the dominant fuel for transportation 25 years from now, although other sources of energy will likely have captured a growing foothold in transportation."
Regardless if the decline is modest, the peak of OECD demand will have major implications, the report finds. Peak 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. Finally, peak OECD demand could counteract the expected rapid demand growth in the developing world.
Most Popular Articles
From the Career Center
Jobs that may interest you