Deutsche Bank is the latest organization to predict that world oil demand will fall as greater efficiency of automobiles will effectively end the oil age.
Titled The Peak Oil Market, the bank has issued an analysis that concludes world oil demand will reach a peak in 2016 and then begin to decline due to increased efficiency, and particularly the rapid growth in electric cars.
Transportation is the last major market where oil dominates as a fuel and it is now under threat in its biggest market - the United States. 2016 will mark the end of the 20th Century of Oil while the current century will become known as the 21st Century of Electricity, the bank says.
The report said "disruptive technology" like the hybrid and electric car will likely have a far greater positive impact on oil efficiency than the market currently expects.
Recently, IHS Cambridge Energy Research Associates predicted that emerging markets like China will drive world oil demand recovery as the recession eases but demand from Organization for Economic Co-operation and Development (OECD) countries is unlikely ever to return to its 2005 high.
IHS added that the peak of OECD oil demand does not mean that the end of the oil age in developed economies is imminent. The size of the decline in oil demand from the peak year of 2005 to 2030 is expected to be fairly modest.
A chief economist of the International Energy Agency (IEA) recently said that the demand for oil, gas and coal should peak by 2020, provided there is an agreement reached at the Copenhagen climate change summit later this year.
Deutsche Bank, meanwhile, found that by 2020 the global average mile per gallon (mpg) of newly purchased light vehicles will have increased by a bit more than 50% compared to 2009, from roughly 29 mpg to about 44 mpg. The impact will be concentrated in United States gasoline, the largest single element of global oil demand (12%) and will be dramatic enough to cause the peak of global oil demand around 2016.
As oil supply peaks, so will demand, the report noted. But the fundamental mismatch in elasticities, time cycles and price mechanics of supply and demand will likely require a final upward price spiral that will serve to break U.S. oil consumption short-term and shift it long-term toward greater efficiency.
"U.S. demand is the key," the report stated. "It is the last market-priced, oil inefficient, major oil consumer. We believe (President Barack Obama's) environmental agenda, the bankruptcy of the U.S. auto industry, the war in Iraq and global oil supply challenges have dovetailed to spell the end of the oil era."
After a final price peak implied at $175 per bbl in 2016, Deutsche's forecast oil prices will be under fundamental long-term downward pressure which will be potentially exacerbated by a reversal in OPEC strategy, away from supply limits, towards market share gains.
"We suggest $70 per bbl oil in 2030 in a market that has shrunk eight per cent lower than its current level and 40% below consensus."
On the supply side, Deutsche expects an under-investment cycle will greatly increase the value of oil production that is in low decline and low cost. Oil will remain a premium fuel as long as the price is set by the break point of U.S. demand which is the case until around 2016.
Overall efficiency gains (driven both by technological improvements and a shift in the global fleet towards high efficiency vehicles) overtake growth in the world fleet by the middle of the next decade, probably around 2016-17.
"From that point forward we believe gasoline demand will be on an inexorable and accelerating decline," the report stated.
The U.S. will likely be the key market putting downward pressure on gasoline demand over the next two decades, the report stated. The Obama administration has radically shifted government policy regarding vehicle emissions/efficiency, dramatically increasing fuel economy standards and putting pressure on the U.S. auto industry to accelerate its ramp up of hybrids and electric vehicles.
Stagnant fuel economy standards and persistently low fuel prices created a disincentive for U.S. automakers to develop more efficient vehicles and created an incentive to push higher margin, but low efficiency, sport utility vehicles and cars, the report said.
The powerful trend towards heavier and more powerful trucks was a key contributor, alongside surging Chinese and Middle Eastern demand, of the global oil demand boom that eventually drove oil prices to $147 per bbl and "paradoxically spelled the end of the SUV, the height of concern over oil availability, dependence and volatility, and ultimately triggered the change that started with an SUV sales collapse, the bankruptcy of the U.S. auto industry and now we believe likely the demise of global gasoline demand."
By 2020, hybrids and electrics should account for about 25% of new vehicle sales south of the border and eight to nine per cent of the vehicles on the road.
Over the following decade (2020-2030), the electrified portion of the U.S. vehicle parc will jump to almost 40%.
"We see a continued abundance of natural gas availability globally...and attendant much lower and less volatile prices, per calorie, for natgas," the report stated. "Whereas oil will price towards the break point of marginal demand, beyond $150 per bbl, natgas will be priced by the marginal cost of supply, around $5-$6 per mmBtu or closer to $30-$40 per bbl.
"We expect there to be sustained substitution of (natural gas) for oil in petrochemicals, and to the extent that it is still used, in power generation, particularly, in both cases, in the Middle East. Basically we see the death of the oil feedstock chemical business as approaching, undercut by cheap and abundant natgas."
Deutsche Bank added that refining is "clearly a twilight business" that will struggle mightily in a world of declining gasoline demand. Niche refiners have a future as oil demand is expected to remain a feature of agricultural, heavy transport and shipping markets.
In the future, the bank expects location to be more important that complexity in defining refinery values.
"We expect primary hydrocarbon based industries - refining, petrochemicals - to relocate to the Middle East; global oil product trade will increase, global crude oil trade decline."
Source The Daily Oil Bulletin Subject Electric Cars
Titled The Peak Oil Market, the bank has issued an analysis that concludes world oil demand will reach a peak in 2016 and then begin to decline due to increased efficiency, and particularly the rapid growth in electric cars.
Transportation is the last major market where oil dominates as a fuel and it is now under threat in its biggest market - the United States. 2016 will mark the end of the 20th Century of Oil while the current century will become known as the 21st Century of Electricity, the bank says.
The report said "disruptive technology" like the hybrid and electric car will likely have a far greater positive impact on oil efficiency than the market currently expects.
Recently, IHS Cambridge Energy Research Associates predicted that emerging markets like China will drive world oil demand recovery as the recession eases but demand from Organization for Economic Co-operation and Development (OECD) countries is unlikely ever to return to its 2005 high.
IHS added that the peak of OECD oil demand does not mean that the end of the oil age in developed economies is imminent. The size of the decline in oil demand from the peak year of 2005 to 2030 is expected to be fairly modest.
A chief economist of the International Energy Agency (IEA) recently said that the demand for oil, gas and coal should peak by 2020, provided there is an agreement reached at the Copenhagen climate change summit later this year.
Deutsche Bank, meanwhile, found that by 2020 the global average mile per gallon (mpg) of newly purchased light vehicles will have increased by a bit more than 50% compared to 2009, from roughly 29 mpg to about 44 mpg. The impact will be concentrated in United States gasoline, the largest single element of global oil demand (12%) and will be dramatic enough to cause the peak of global oil demand around 2016.
As oil supply peaks, so will demand, the report noted. But the fundamental mismatch in elasticities, time cycles and price mechanics of supply and demand will likely require a final upward price spiral that will serve to break U.S. oil consumption short-term and shift it long-term toward greater efficiency.
"U.S. demand is the key," the report stated. "It is the last market-priced, oil inefficient, major oil consumer. We believe (President Barack Obama's) environmental agenda, the bankruptcy of the U.S. auto industry, the war in Iraq and global oil supply challenges have dovetailed to spell the end of the oil era."
After a final price peak implied at $175 per bbl in 2016, Deutsche's forecast oil prices will be under fundamental long-term downward pressure which will be potentially exacerbated by a reversal in OPEC strategy, away from supply limits, towards market share gains.
"We suggest $70 per bbl oil in 2030 in a market that has shrunk eight per cent lower than its current level and 40% below consensus."
On the supply side, Deutsche expects an under-investment cycle will greatly increase the value of oil production that is in low decline and low cost. Oil will remain a premium fuel as long as the price is set by the break point of U.S. demand which is the case until around 2016.
Overall efficiency gains (driven both by technological improvements and a shift in the global fleet towards high efficiency vehicles) overtake growth in the world fleet by the middle of the next decade, probably around 2016-17.
"From that point forward we believe gasoline demand will be on an inexorable and accelerating decline," the report stated.
The U.S. will likely be the key market putting downward pressure on gasoline demand over the next two decades, the report stated. The Obama administration has radically shifted government policy regarding vehicle emissions/efficiency, dramatically increasing fuel economy standards and putting pressure on the U.S. auto industry to accelerate its ramp up of hybrids and electric vehicles.
Stagnant fuel economy standards and persistently low fuel prices created a disincentive for U.S. automakers to develop more efficient vehicles and created an incentive to push higher margin, but low efficiency, sport utility vehicles and cars, the report said.
The powerful trend towards heavier and more powerful trucks was a key contributor, alongside surging Chinese and Middle Eastern demand, of the global oil demand boom that eventually drove oil prices to $147 per bbl and "paradoxically spelled the end of the SUV, the height of concern over oil availability, dependence and volatility, and ultimately triggered the change that started with an SUV sales collapse, the bankruptcy of the U.S. auto industry and now we believe likely the demise of global gasoline demand."
By 2020, hybrids and electrics should account for about 25% of new vehicle sales south of the border and eight to nine per cent of the vehicles on the road.
Over the following decade (2020-2030), the electrified portion of the U.S. vehicle parc will jump to almost 40%.
"We see a continued abundance of natural gas availability globally...and attendant much lower and less volatile prices, per calorie, for natgas," the report stated. "Whereas oil will price towards the break point of marginal demand, beyond $150 per bbl, natgas will be priced by the marginal cost of supply, around $5-$6 per mmBtu or closer to $30-$40 per bbl.
"We expect there to be sustained substitution of (natural gas) for oil in petrochemicals, and to the extent that it is still used, in power generation, particularly, in both cases, in the Middle East. Basically we see the death of the oil feedstock chemical business as approaching, undercut by cheap and abundant natgas."
Deutsche Bank added that refining is "clearly a twilight business" that will struggle mightily in a world of declining gasoline demand. Niche refiners have a future as oil demand is expected to remain a feature of agricultural, heavy transport and shipping markets.
In the future, the bank expects location to be more important that complexity in defining refinery values.
"We expect primary hydrocarbon based industries - refining, petrochemicals - to relocate to the Middle East; global oil product trade will increase, global crude oil trade decline."
Source The Daily Oil Bulletin Subject Electric Cars
