Monday, February 15, 2010

Saudis Worry About Peak Oil Demand

Seems like I'm not the only one who watches what is going on in oil. Back in December 2009, I wrote on US Oil Demand is Falling. The statistics show this for the USA, when oil demand peaked in 2005 and has been steadily decreasing since (see Figure 1 below). Now the Saudis are on record (see this link) stating that they believe the world demand for oil will peak in the next decade. Interesting.

Figure 1 - US Gross Inputs into Refineries
(click image for larger view in new window)

One never knows with the Saudis. They are long-time masters of hiding their true intentions and playing the western media. This could be just another pronouncement with no real import. But it is interesting (to me) that their assessment mirrors my own.

In a world where oil is of paramount importance (see The Prize by Daniel Yergin), there is at least one struggle ongoing, and more likely many more. One struggle is for the oil producers to keep the price of oil low and thereby remove any incentive for oil consuming nations to reduce consumption, or to conserve. On the other hand, the oil producers want to maximize their oil revenues for as long as they are able. Opposite the oil producers in this struggle are the geeks, the engineers, the scientists, and technologists. In short, the men and women who seek to make a car that is economical, and uses much less gasoline or diesel fuel than traditional cars. There is some success in this area, as smaller cars, lighter weight cars, more aerodynamic cars, better lubrication technology for less friction, turbo-charged engines, super-charged engines, hybrid-electric cars, cars that run on propane, that run on natural gas, that run on bio-diesel, that run on bio-ethanol, all contribute to using less oil. And of course, the oil that is not used is imported, thus affecting OPEC.

Not just the United States, but all countries can and do participate in this technology revolution.

Yet another player in the game is the government, with the US having federal mandates for car mileage (the CAFE standards). Other countries have similar standards. Now, the U.S. has an ambitious CAFE standard of 35 miles per gallon in only a few years' time, by 2016. California has more ambitious standards, of 42 miles per gallon.

It would be interesting to know what trends the Saudis see that lead them to their conclusion that oil demand will peak within a decade. Is it hybrid cars, like the Toyota Prius that achieves 50 mpg? Or is it the Chevy Volt, a plug-in hybrid that (supposedly) can achieve 100 mpg or more (depending on how far it is driven on batteries each day)? Or, is it a worldwide economic decline in the next decade? Mass transit suddenly catching on? A new, colder, ice-age-like world where nobody can drive except for a few months of each year? Are we going to have transit-mobiles, with 10 passengers per vehicle, such as a super-sized Prius? Or, have the Saudis figured out that gridlock will choke the roads, forcing people out of cars and into trains or subways? (this is not too far in the future for Los Angeles, and it already happened in New York). Or, is there a technology breakthrough in the works for converting coal to gasoline, or to diesel? There certainly is technology to convert natural gas to diesel. Have the Saudis blown their one big chance at wealth, by allowing the price of oil to rise enough for the geeks to win?

Any way this plays out, one thing is certain: there is not going to be a problem with Peak Oil. With the Iraqi oil fields about to be pumping significant amounts of oil very soon, measured in the millions of barrels per day, the world is about to be glutted once again with oil. The price should drop substantially, perhaps to $20 per barrel again. At that price, the economic incentive for hybrids disappears, but the government mandates for high mpg will remain.

Remember that phrase: Peak Oil Demand. Everything will be affected by it. And it already occurred in the U.S.

Roger E. Sowell, Esq.
Marina del Rey, California

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