We are getting really mixed messages over what will come first: peak oil or peak supply.
First of this week was BP saying global peak oil demand will happen sometime between 2020 and 2030.
Then we had the UK Industry Task-Force on Peak Oil and Energy Security which published a report entitled “The Oil Crunch – a wake-up call for the UK economy”. This argued that that oil shortages, insecurity of supply and price volatility will destabilise economic, political and social activity within five years.
Now the International Energy Agency has weighed into the debate saying that demand for oil has peaked forever in the US and Europe, with growth only coming from Asia.
Although the IEA has increased its forecasts saying it now expects the world to need 86.5m barrels of oil a day, up 1.8 per cent from last year, this is only part of the story.
Opec has warned that the slow pace of global economic recovery in 2010 would lead to a subdued improvement in oil demand this year.
And what demand increase there is will only come non-OECD countries.
Demand for oil remains sluggish with the recession playing a big part. Despite a record cold winter season in the eastern United States and Northern Europe, crude prices have been relatively unmoved. The demand is just not increasing and so the price is staying reasonably static.
The renaissance of natural gas in part of the explanation. America’s recent discoveries of shale gas are now affecting gas markets worldwide. People are switching from oil to cleaner natural gas. Add to this the drive for energy efficiency especially in transport along with the increased use of biofuels and oil’s demand is in decline.
“This recovery risks being ‘oil-less’ as far as the OECD is concerned, potentially supporting the argument that OECD demand has peaked,” said the IEA in its monthly report.
Such is oil’s decline in OECD countries that there is now a glut of oil refineries. Yesterday, Total SA’s CEO, Christophe de Margerie said more refinery closures were needed in OECD countries due to fuel product overcapacity.
“What’s going on with Total is only a sign that something has to give.”
What many analysts will be watching is as the Western economies pick up whether the demand for oil also increases or whether the demand is taken up by other energy sources.
If it is the later, we might be able to begin to write the final chapters of the oil age.
Although I am sure there are some twists and turns to come….