Optimizing oil exploration and production to achieve peak oil supply at reduced costs has always been a concern to the petroleum industry. However, the continued increase in oil consumption has shifted the sector’s attention from peak supply to the need of constraining peak demand. In order to establish new strategies to face this market threat, identifying the drivers and the potential impacts of growing demand is extremely necessary.
As much as 96 million barrels per day (b/d) of oil are consumed worldwide, from which 60 million b/d are directed to the transport sector, according to Wood Mackenzie’s latest analysis, entitled The Rise and Fall of Black Gold. The massive amount of oil covering transportation brings the sector to the spotlight as one of the petroleum industry’s main concerns.
New technologies to improve fuel usage as well as the rise of vehicles running on different sources of energy, such as electric vehicles and renewable energy, are expected to erode oil demand on the upcoming years, as Wood Mackenzie suggested. However, this erosion will happen differently in different parts of the world, varying among developed and emerging economies.
Members of the Organization for Economic Cooperation and Development (OECD), for instance, will see a decline in oil demand by 2020 due to changes in the transport sector, reaching a reduction of as much as 4 million b/d by 2035, according to the analysis. The demand decline in the 2020 decade is projected to happen due to the increase of popularity of electric vehicles, in addition to governmental policies.
Oil demand in non-OECD countries, on the other hand, is expected to increase by around 16 million b/d by 2035. The prospects of oil consumption hike comes as a result of rising income levels and a growing middle class, which lead to the augmentation of fuel demand for transportation. Additionally, greater income results in greater consumption of oil derivatives, such as plastic. Although figures point at the considerable increase, non-OECD demand will slow down by 2030 due to a stall in oil demand in China, Wood Mackenzie pointed out.
Although the petrochemical sector comprises just around 10% of total oil demand, Wood Mackenzie’s analysis highlights a significant growth over the next 20 years. As suggested at the report, feedstocks are expected to lead to a 6 million b/d total demand by 2035, which represents an increase of 50% compared to current figures.
The remaining sectors represent 30% of oil demand. Considering a forecasted decline in demand in the power generation sector, other sectors are set to see modest increases, which results in a flat demand through 2035 within these remaining categories combined.
Although oil demand does not increase as fast as over the past 20 years, peak demand remains as a concern to the petroleum industry. Oil consumption in the transportation sector is projected to flatline from 2030 as gasoline consumption reaches its peak late next decade. Marine bunker fuel demand is likely expected to peak within the next ten years. The analysis of oil consumption fluctuations do not foresee peak oil demand before 2035, according to Wood Mackenzie. Yet, it remains as a concrete threat to the petroleum industry, bringing the real need of getting ready to the challenges ahead.