demand-reductionFor a while now there has been a growing consensus that, whilst many people worry about peak supply of oil, peak demand is also an issue, especially in developed countries.

I blogged on this back in August, after an analysis by Oil Change, Greenpeace and Platform, argued we could be seeing a demand peak.

Well now the industry’s own experts are saying the same thing. Oil demand in developed countries—currently 54 percent of all oil demand—reached its all-time peak in 2005, according to new research by IHS Cambridge Energy Research Associates.

CERA, headed by Daniel Yergin of the Prize fame, is arguing that, whilst, world oil demand is 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 trend has been noticed elsewhere, as well. Even Exxon Mobil CEO Rex Tillerson said this month that US gasoline demand peaked in 2007.

“The economic downturn has been masking a larger trend in the oil demand of developed countries,” argues Daniel Yergin. “The fact is that OECD oil demand has been falling since late 2005, well before the Great Recession began.”

This is key. What CERA is saying that it was not the recession that caused the demand –crunch. It was declining demand in the transport sector — that accounts for 60 percent of OECD petroleum demand.

Basically, given higher oil prices and the threat of climate change, people are switching to smaller vehicles or alternative fuelled ones and once you have made the switch and save money, you don’t switch back. Also vehicle ownership rates in developed countries have reached saturation point.

This means that any future world oil demand growth will be driven almost exclusively by emerging markets, with China the key country.

But CERA says, rather than have a rapid decline, any decline will be modest. Even still this will have major implications: Peak demand will dampen the rate of increase in dependency on oil imports.

If it makes the US less dependent on the Canadian tar sands – where will their primary market be?

Shipping the tar sands all the way to China may make it too uneconomic …