Michael Lynch

Michael Lynch, Contributor

I analyze petroleum economics and energy policy.

8/06/2013 @ 11:18AM |3,218 views

Is Peak Oil Demand Real?

There has been increasing chatter in the Internet aether about the possibility that world oil demand might peak sometime in the near future.  The thinking is informed primarily by falling demand in areas like the US and Europe, but especially the perception that a plethora of new transportation technologies, such as plug-in hybrids, electric vehicles and hydrogen fuel cell vehicles are now viable.

Economists agree to the possibility, often citing the aphorism, “The Stone Age didn’t end because we ran out of stones,” which was used to refute the ‘peak oil’ view of scarce resources.  But it also referred to the fact that resources are much less likely to ‘run out’ than to be replaced by better resources–better meaning cheaper, more convenient, and cleaner, among other attributes.

Clearly, the weak demand for oil in the industrialized nations could prove permanent, as it reflects not just recent weak economic growth, but also population decline in some countries and especially price-driven efficiency, most notably in the US.  Transport fuel demand has fallen by over 1 million barrels per day in the US in the past 5 years, although it is not clear if lower gasoline prices would see a reversal of this trend.

The problem is that we don’t yet have a ‘better’ energy source than petroleum, especially for transportation.  Compressed natural gas comes closest.  It is great for fleet vehicles, but inconvenient for passenger cars and trucks, requiring a large tank and lacking many fueling stations.  But the market is likely to remain a niche one, not expanding beyond current areas.

This is not to say that there aren’t many applications where oil is overused.  In some countries like Japan, significant amounts of oil (a quarter million barrels a day last year) are used for power generation where gas would be better, but is overpriced (see Coffee, Tea or Gas?  The Mispricing of Gas on World Markets).

Even worse is the number of poor countries where people do not have access to reliable power from their national grid, and as a result frequently rely on diesel generators.  Countries like India and Pakistan suffer in this way because of bad policy and especially political graft and corruption.  Attempts to bring solar power to them are usually motivated by a desire to promote solar power, despite its high cost.  Kind of a “let them eat green cake’ attitude.

English: The Lucas Gusher at Spindletop Hill, ...

On the other hand, oil is often underutilized.  Billions of people are ‘energy impoverished’ and rely on biomass like wood and dung for cooking fuel, resulting in both significant health problems; the WHO estimatesindoor air pollution causes nearly 2 million premature deaths a year.  And deforestation creates numerous problems for the poor in a number of countries where commercial energy is not available.  Although the idea is anathema to many activists, most of these people would be much better off using propane or even kerosene, if natural gas or electricity isn’t available.

In 1901, the discovery of Spindletop in Texas convinced the railroads that oil was not a scarce resource and encouraged them to switch from coal to diesel fuel.  Maybe now, the new gusher of shale oil will help promote the use of more petroleum, particularly where it is the fuel of choice.  This includes automobiles, not just cooking stoves, as much as some dislike it.


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  • lupe wadosy lupe wadosy 8 months ago

    demand is falling in the US and europe because the price of oil is so high

    the price of oil is so high because cheap oil production peaked

    big mystery

  • forbes2010 forbes2010 8 months ago

    If shale oil is a “gusher”, it is an expensive gusher – only high oil prices allow it to be profitable. And a small gusher. And a temporary gusher. And yet people look to it as proof of the incorrectness of the “Peak Oil Theory”.

    Unfortunately, the world is far different from the time of Spindletop. Far more populated – 1.65 billion back then – over 7 billion now. Many more drivers and many more cars. Air travel now exists. Trucks, ships and trains running on diesel move massive amounts of goods around. It am baffled by how anyone can be optimistic about oil production. Oil discoveries peaked in the 1960′s. Just because the price went up enough to make expensive techniques profitable enough to get oil out of shale rock, doesn’t change the hard fact that oil is a finite depletable resource.

    The vast majority of economists shouldn’t be predicting anything, let alone the future of a critical natural resource.

    unlike at the timeSpindletop, the world is for the other side calling for Peak Oil Demand – what kind of fall in demand is it if oil is over $100 a barrel?

  • Michael Lynch Michael Lynch, Contributor 8 months ago

    It is hard to see shale oil as a ‘small’ or ‘temporary’ gusher. Early estimates of the amount now economically and technically recoverable are about 350 billion barrels, which assumes a very low recovery rate. It is early days in the development of the optimal methods, and it appears that there will be at least a dozen shales that can produce as much as Bakken. The cost is far below current prices, especially if cyclical elements are excluded.

  • lupe wadosy lupe wadosy 8 months ago

    please post urls leading to those estimates of 350 billion barrles…

    dont bother including estimates from CERA… yergin has been way too haywire in the past, and so have you

  • Michael Lynch Michael Lynch, Contributor 8 months ago

    This was a widely publicized study. I’m surprised you haven’t heard of it. Of course, your comment about Yergin and myself being way too haywire suggests that you are not very familiar with petroleum economics and markets.

  • lupe wadosy lupe wadosy 8 months ago

    i’m familiar enough with petroleum economics to see that the price of oil is confirmation of peak oil

    for instance, what happened to spindletop production?

    as far as the EIA is concerned, their predictions have turned out to be nearly as wild as yours and yergin’s

  • Michael Lynch Michael Lynch, Contributor 8 months ago

    I would guess that you aren’t all that familiar with petroleum economics, or you would know that prices ran up in 1979/80, and that didn’t prove to be confirmation of peak oil. Regarding EIA, you are confusing price forecasts with resource analysis. Big difference.
    Also, show me someone whose price forecasts have been good in the last 10 years? 20 years? 30 years. Peak oil people are generally ignorant of the history of oil market forecasting.

  • lupe wadosy lupe wadosy 8 months ago

    the EIA has been making bad predictions about price and production… it’s so bad that they seem to be part of the peak oil denial mechanism…

    then, they’ve made it harder to find data, they’ve eliminated reports because of “budget cuts”…


    the price spikes previously were due to oil wars and boycotts, and israeli was right in the middle of all of it…

    would you hazard a guess as to the premium we’re paying for oil now because of israel’s belligerence?

    would you like to predict the price of oil if israel attacks iran and the strait of hormuz is closed?

    and finally, please explain why, in the 70s and 80s, right after US oil production peaked, we were exploring for oil and gas in the arctic islands… when anything we found would be inaccessible because of the ice?

    what the hell was that about?

  • forbes2010 forbes2010 8 months ago

    The world goes through over 30 billion barrels a year. Over 30 billion a year and an extra 350 billion is not small or temporary? I guess for a man your age. Your grandchildren probably have a different opinion.

  • Michael Lynch Michael Lynch, Contributor 8 months ago

    350 billion here, 350 billion there and pretty soon your talking real oil (with apologies to Everett Dirksen).
    When you add 350 billion to the other additions to reserves, we have been seeing rising, not shrinking, reserves, and faster than we are consuming them.

  • lupe wadosy lupe wadosy 8 months ago

    the EIA is saying the world’s technically recoverable shale oil increased from 32 billion barrels in 2011 to 350 billion barrels in 2013…

    first, the EIA is part of the peak oil denial machinery, so they’re not to be trusted

    second, their estimates of price and production have been wildly optimistic in the past… their estimates of reserves should not be trusted

    third, they are estimating “tchenically recoverable reserves”… stuff that could be recoved without regard for cost… how much of that oil can be produced for less than …say, $200 a barrel?

    so that 350 billion barrels is pretty shaky, and even if it pans out, it would only last the world for ten years….


  • forbes2010 forbes2010 8 months ago

    If Dirksen was smart he would have replied, “350 billion here, 350 billion there and pretty soon you’ve discovered enough oil to sustain the world for 22 years, 33 years if you can come up with another 350 billion. Good luck with that.”

  • forbes2010 forbes2010 8 months ago

    “prices ran up in 1979/80, and that didn’t prove to be confirmation of peak oil”

    Prices went up in the 1979 energy crisis, but then they came back down. Can we expect these prices to come down from current levels? If not, doesn’t that show a change in supply/demand?

  • paeng paeng 7 months ago

    Shale has lower energy returns and steeper decline curves. A growing global middle class needs high energy returns and sustained production.

  • paeng paeng 7 months ago

    You need to look at expected production rates vs. demand instead of reserves, and then see how energy returns and decline curves affect those rates.

  • Michael Lynch Michael Lynch, Contributor 7 months ago

    Yes, I think we can expect prices to come back down.

  • Randall Smith Randall Smith 8 months ago

    Shale oil delusions of grandeur. Look at the picture of Spindletop. The oil gushed out. Shale oil has to be pressured out.
    There is 1.2 trillion barrels of oil AT MOST. The world uses 32 Billion Barrels of oil a year. That’s about 40 years of oil left. That include the unproved Tar Sands synthetic oils north of Edmondton, Canada and Venezeula. The Tar Sands oil has to have prices above 100/Barrel to be profitable.

  • Michael Lynch Michael Lynch, Contributor 8 months ago

    No, 1.2 trillion is the minimum. That’s how much oil has been discovered and can be produced with current technology and economics. There’s another 2-3 trillion barrels of conventional oil that should become available in the future, plus trillions more of unconventional oil.

  • lupe wadosy lupe wadosy 8 months ago

    what’s gonna happen to the temperature if we put another couple hundred ppm of co2 in the atmosphere?

    when is the methane gonna get loose?

    or am i forgetting a basic tenet of neocon dogma here… which is, global warming is a hoax?

    why do you guys need to deny peak oil and global warming? …could it have something to do with PNAC’s need for anew pearl harbor?

  • Michael Lynch Michael Lynch, Contributor 8 months ago

    Excuse me, but who are “you guys?” You mean the Irish? Southerners? Hillbillies? I am guilty of all those associations. That sort of comment suggests you are informed more by conspiracy theories than facts or analysis.
    Yes, burning all of that oil, ceteris paribus, would have devastating consequences for the environment–depending on the rate, of course.

  • lupe wadosy lupe wadosy 8 months ago

    well, it’s nice to see you admit that burning the remaining oil will lead to a climate catastrophe…

    is global warming becoming too obvious for even neocons to deny?

    as far as conspiracy theories go… it’s no conspiracy theory that PNAC said they needed a new pearl harbor… they said that in september of 2000, just before they werre installed into some of the highest offices in the US government… people like cheney and rumsfeld

    they were installed in those positions after an election recount in a state governed by another PNAC signatory, jeb bush

    it’s no conspiracy theory that the dancing israelis were thrilled by the spectacle of airplanes hitting the toweres, and it’s no conspiracy theory that netanyahu thought 9/11 was “very good”

    it’s no conspiracy theory that everything that’s happened since 9/11 was spelled out int he same PNAC document that mentioned the need for a new pearl harbor…

    it’s no conspiracy theory that the people who said they needed a new pearl harbor have a history of alliance with the likud party of israel

    anyhow, when you take all the above into account, and combine it with peak oil, you come up with a scenario that makes more sense than the official conspiracy theory…


  • paeng paeng 7 months ago

    Even crude oil is abundant, and yet we are now resorting to unconventional oil. That’s because even with trillions of barrels of oil underground, we are still affected by physical limitations, including energy returns and decline curves.

  • Randall Smith Randall Smith 8 months ago

    The UK Defense Ministry did an analysis of the price of oil in 2040 and they estimated that it would be $500/barrel.
    The Royal Navy is over a thousand years old and the sun never sets on the British Empire. They may know what they are talking about.
    $500/barrel oil means an END TO OIL. We’ll move to CNG before totally going to fuel cells/wind/solar/hydro/geothermal/wave energy