A decade’s worth of efforts to cut oil consumption in industrialised countries is at risk of being reversed, as low fuel prices boost demand and send motorists flocking back to larger gas-guzzling cars.
Figures from the International Energy Agency and other forecasters show OECD oil demand, which declined between 2005 and 2014, has been growing rapidly for the last three years after oil prices crashed from above $100 a barrel to about $55 today.
If the trend continues, roughly 62 per cent of the reduction in OECD oil consumption since 2008 will have been reversed by the end of next year, despite governments targeting fuel efficiency, alleviating air pollution and cutting reliance on foreign crude.
Robust oil use in the developed world, which for years had been expected to decline, just as emerging markets consume more, has cast uncertainty around when global demand will peak. Some energy companies, including Royal Dutch Shell, had warned this could happen as soon as next decade.
“This period of lower oil prices has slowed the energy transition, no doubt about it,” said Cuneyt Kazokoglu, head of oil demand at energy consultancy FGE.
“If crude stays around today’s [price] level the structural demand decline that everyone is expecting will be pushed further out.”
The oil demand turnround has been marked. Oil use in the OECD peaked at 50.4m barrels a day in 2005 before falling by almost 10 per cent up to 2014 as higher prices crimped consumption. Since then demand in these wealthier countries has expanded at an average annual pace of about 400,000 b/d, IEA data show, and it is forecast to reach 47.4m b/d next year. This is approaching a level seen a decade ago, before an oil spike to a record level near $150 a barrel led governments to prioritise fuel efficiency.
Michael Cohen, an energy analyst at Barclays in New York, said while demand was growing alongside a broader economic pick-up in North America and Europe, lower prices had played the biggest role in the shift by influencing consumer behaviour.
“The steady improvement we were seeing for a number of years in average vehicle fuel efficiency has largely stopped,” Mr Cohen said.
“While not every motorist is buying a SUV (sport utility vehicle) they’re certainly not choosing the super-efficient vehicles they may have picked when oil was above $100 a barrel.”
While global emissions have flatlined, led by the US because of coal-to-gas switching, rising oil usage could pose a potential threat to this trend. The rise of electric cars and hybrids, from Tesla’s Model X to the Toyota Prius, have generated headlines for their potential to overhaul the relationship between motor cars and oil use. But many analysts say it is overshadowing today’s reality.
FGE says that in the first half of 2017 for every new electric car that came on to the road in the US, Americans bought 60 new fuel-hungry SUVs. In China the ratio was 30 new SUVs to every electric car, and 25 in Europe. In 2009 BP’s then chief executive, Tony Hayward, forecast US gasoline demand would never again top the level seen the previous year before prices hit almost $150. But this August the US energy department estimated it had reached a new record of 9.9m b/d.
For oil producers and refiners, stronger demand has been a boon.
Source: www.ft.com
