Peak Oil Demand Will Lead to Economic Disaster
We are increasingly hearing from a variety of commentators that peak oil consumption is just around the corner. A few days ago, Royal Dutch Shell Plc stated that it expected demand to peak in the next 5 to 15 years. Even OPEC has a scenario whereby oil consumption will peak in around 10 years’ time.
There are various reasons for this view: climate change policies cause a reduction in demand; the switch to gas speeds up; renewables dramatically increase market share; electric and fuel cell vehicles become very common.
In my opinion none of these reasons will have a material impact upon oil consumption anytime soon. The entire global transportation system depends upon oil. The world consumes around 90 million barrels of oil per day.
The main alternative is biofuels. Only around 1 million tonnes of biofuels are consumed each day. Biofuel production is not going to grow at a rate to supplant oil consumption. In fact, there is probably not enough arable land available to allow any meaningful growth in production.
The oil industry is huge; it is the most important global industry after food production. The image below shows the size of the oil market compared with the metal markets.
Chart Courtesy Visual Capitalist
Our economy today is predicated upon continued, strong economic growth. I wrote about this last week, read it here. Without growth, our current economic system cannot be sustained. Increasing demand for oil is integral to our economic model. If oil demand declines, then so will the economy.
We are already in a slow growth (no growth) global economy. Declining oil consumption would slow the global economy even more. We should not look forward to peak oil demand, as I suspect many alarmists do. For the present economic system to survive, we need to see continuing growth in oil consumption.