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Why peak oil demand is already a major problem

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We are dealing with is close to a zero-sum game, when it comes to oil supply. The amount of oil that is extracted from the ground is almost constant (very slightly increasing for the world in total). If prices stayed at the low level they were in the past (say $20 barrel), there would not be enough to go around. Instead, higher prices redistribute oil to countries that can use it manufacture goods at low overall cost. Workers in factories making these goods are then able to afford to buy goods that use oil, such as a motor scooter.

Citigroup recently released a report titled, “Global Oil Demand Growth, – the End is Nigh.” Its subtitle says,

The substitution of natural gas for oil combined with increasing fuel economy means oil demand is approaching a tipping point.

This is out-and-out baloney, for a number of reasons:

1. There are way too many of “them” compared to the number of “us,” for energy efficiency to make even a dent in our problem.

2. When we look at past oil consumption, changes in vehicle energy efficiency did not make a big difference.

3. Substituting natural gas for oil still leaves cost levels for the US, Europe, and Japan very high, compared to those for the rest of the world, where little energy is used.

4. There are really separate markets in many parts of the globe. Our market is collapsing because of high price. Perhaps increased efficiency and natural gas substitution will help low-cost producers until they reach a different limit of some sort.

Let’s look at these issues separately.

There are way too many of “them” relative to us, for energy efficiency to even make a dent in our problem.

If we look at world population, this is what we see:

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