Western oil demand may have peaked

By Martin Li, 10 June 2010

BP 's annual statistical review of world energy highlighted the contrasting drivers of global recession and Asia-led recovery. Global energy consumption fell in 2009 for the first time since 1982 as the world economy contracted for the first time since the Second World War. But the impact was very different in developed (OECD) economies, where energy consumption fell faster than GDP, compared with developing (non-OECD) economies where consumption increased faster than GDP.

The hardest hit fuel was natural gas, which saw consumption decline by 2.1 per cent. But a "silent revolution" of technologies, most notably horizontal drilling and hydraulic fracturing to unlock unconventional resources, has transformed the US gas industry. The US has now overtaken Russia to become the world's largest gas producer, although Russia can console itself with the fact that it overtook Saudi Arabia to become the world's largest oil producer.

Last year's consumption decline was rare and data so far in 2010 points to a resumption of rising demand. But the current recovery is taking place against deep structural change as many developing countries aspire to catch up with the income levels of mature economies.

BP's statistics show that global reserves are sufficient to meet 2009 oil production for almost 46 years and 2009 gas production for almost 63 years (and 2009 coal production for 119 years). In terms of consumption, existing oil reserves are good for 52 years of demand at 2009 levels. Add in the potential of bio and synthetic fuels, and any concept of "peak oil", beyond which production reaches terminal decline, appears unfounded.

"Peak demand" appears a more valid concept, particularly in developed economies. OECD oil demand declined last year for the fourth successive year, which suggests that structural as well as short-term economic drivers were responsible. But the strength of Asian demand may yet more than offset this. China's stimulus package in particular is highly energy intensive, which could single-handedly assure growing demand for fossil fuels (coal accounted for the highest proportion of the energy mix since 1970).

You can download the review from BP's website.

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