Warren Martin, Executive
Director K.O.G.R.F. — Kansas Strong
This year brought a tremendous drop in oil consumption and price crash earlier this year. Numerous articles have speculated about peak oil and the potential demise of the fossil fuel industry. Some articles have even asserted that a terminal decline in oil consumption has already begun. The majority list peak production for oil in 2030. These postulations, however, appear to be more of an attempt to determine peak oil’s destiny rather than to forecast it.
The International Energy Administration (IEA) still predicts oil will continue to rise in production through the year 2040, but with an “if” added to the forecast. The “if” comes down to whether or not policy makers intervene during the pandemic and recovery to alter the energy landscape away from fossil fuels.
The IEA’s World Energy Outlook 2019 shows a marked increase in oil through the year 2030. At which point it is predicted to plateau. However, it still shows a continued increase in oil consistently through the year 2040.
The World Energy Outlook 2019 does have a caveat to the forecast. What it calls the “Sustainable Development Scenario” could radically alter oil consumption. According to the IEA, “the Sustainable Development Scenario maps out a way to meet sustainable energy goals in full, requiring rapid and widespread changes across all parts of the energy system.”
This considers an environmentalist view of the future many advocates are banking on for systemic changes to curb the usage of fossil fuels. The limitations on fossil fuels in such a scenario would not come through market pressures, but by systemic changes. There are many organizations and institutions (government and private) who want to utilize the current pandemic as a catalyst to advance those changes.
Thus, many articles are discussing peak oil hitting in 2030 (or possibly sooner) from the perspective of the pandemic’s impact on consumption being the new norm. This view is being leveraged towards changes to keep fossil fuel consumption down.
Much like Emmanuel Macron, the President of France, stated in the Financial Times, “We have stopped half the planet to save lives, there are no precedents for that in our history.” He went on to state that people have to come to the understanding “that no one hesitates to make very profound, brutal choices when it’s a matter of saving lives. It’s the same for climate risk.”
Even with these current efforts to reshape the energy sector, indicators signal the oil industry will rebound and continue to grow in the future. For starters, the IEA is standing by their forecast of oil continuing to increase through 2040.
One of the brightest stars for the industry is petrochemicals. Petrochemicals are used for materials to make mobile phones, medicines, packaging and medical supplies, and other products used more regularly during a pandemic. They account for about 19% of crude oil and are growing profoundly. According to Platt Analytics petrochemical growth could delay peak oil demand till 2041.
More than 60% of oil is used for transportation. There are certainly intriguing questions about whether new pandemic habits will stick or revert. As we do go back to work, there are tremendous indicators people are opting out of mass transit and carpooling options. People still like their cars and SUVs. We also like delivery. Airline and cruise industries have been tremendously disrupted but they only account for 8% and 6% of transportation oil respectively. The trucking industry has seen a tremendous increase as more people opted for delivery. That increase is expected to be sustained.
Also, virtually all industry analysts are predicting energy consumption will only increase in the future. The IEA predicts that energy consumption will increase 28% by 2040 and over half will come from oil and natural gas.
Cheap, reliable and transportable energy is crucial to maximizing personal income and industry. Petroleum will continue to be the most versatile energy source on the planet…unless. Unless free markets are further enacted upon by systemic changes that artificially restrict its production.
IEA World Energy Outlook 2019
Financial Times Article