Just before Christmas, 2017, I posted an article on the Friends of Science blog entitled, “Global Oil Demand – Up, UP and Away!” In it, I contrasted the claims of environmental activists in Canada that the world is “getting off oil” with the reality of rapidly increasing world oil demand, as documented in the statistics and projections of the International Energy Agency (IEA), the United States Energy Information Administration (EIA) and the Organization of Petroleum Exporting Countries (OPEC).
Less than three months later, the trends I saw documented then are even more pronounced.
World oil consumption grew from 85 million barrels per day in 2008 to 97 million barrels per day in 2016; over that period the growth in consumption averaged about 1.2 million barrels per day. This extraordinary increase occurred during a period when many of the world’s governments were claiming that climate policies would reduce demand.
In the last few years, the increases in demand have been accelerating. The IEA estimated in its late 2017 Oil Market Report that demand would grow by 1.5 million barrels by day in 2017. 2018 would add another 1.3 million barrels per day to take total world consumption to almost 102 million barrels per day, by far the highest total in world history.
As recently as last year, British Petroleum, one of the foremost forecasters of global energy supply and demand, projected that oil demand would not reach 110 million barrels per day until 2035.
On March 5, 2018 the IEA released its most recent Medium Term Oil Market Report projecting oil supply and demand to 2023. Based on strong economic growth estimated by the International Monetary Fund at 3.9% per year in the next few years, the IEA projects oil demand to continue growing at the average rate of 1.2 million barrels per day. By 2023, oil demand would reach 104.7 million barrels per day, up 6.9 million barrels per day from 2017. The IEA acknowledged, “there is no peak oil demand in sight”.
As has been the case for some years, China and India together will contribute almost 50% of the increase in demand. Interestingly, however, the fastest growing source of demand growth is projected to be petrochemicals, especially in the United States and China. “Global economic growth is lifting more people into the middle class in developing countries and higher incomes mean sharply rising demand for consumer goods and services. A large group of chemicals derived from oil and natural gas are crucial to the manufacture of many products that satisfy this rising demand.” In other words, a rising income and standard of living is causing the people in the developing countries to seek the same kinds of energy goods and services that are enjoyed by people in the more industrialized countries.
The IEA report was received coolly by some in the investment community for a perhaps surprising reason. The IEA has developed a longstanding reputation for consistently under-estimating the trends in oil demand. For example, the IEA’s 2013 projection of 2018 oil demand was 96.68 million barrels per day, 2.42 million barrels per day below what is now expected. If the IEA adheres to its past track record, global oil demand could be significantly higher than its new projections.
As Yogi Berra once quipped, “Forecasting is difficult. Especially about the future”. While the IEA projects global oil supply to continue growing to meet demand based largely on new oil shale production in the U.S., the low levels of oil industry capital investment over the past four years may have adverse effects on production capacity in the 2021 to 2023 period. A tighter match between supply and demand, resulting in higher crude prices, could dampen demand even as they provide the revenues for a later surge in production.
For the time being, however, it is clear that the world loves oil, even if the environmental activists don’t.