Peak Oil or Peak Demand?

Mar 06, 2018

We are experiencing an “Energy Renaissance” that few would have believed possible even five years ago, and it will present a fantastic array of new opportunities. Take oil, for instance:

   Until recently, our greatest energy concern was that the world’s supply of oil would soon “peak” and then decline; consigning us to an economic abyss in which affordable oil – the “mother’s milk” of economic growth – would become less accessible and far costlier.  

    The focus is now rapidly shifting from “peak oil” to “peak demand.” What’s the difference? Peak oil, a supply-side issue, is subject to the immutable laws of geology; we have only a finite supply of oil. Once it is gone, it’s gone. Peak demand, however is driven by the marketplace.

    Major forces – climate change, new technologies, and the marketplace – are reshaping the energy equation in remarkable ways; an energy renaissance is now in the making. The role of oil, the primo fuel for over 90% of our transportation systems, will grudgingly lessen.

    Our global addiction to oil is powerful, and the withdrawal pains will be long and bumpy. As the oil glut of the past four years dissipates, the supply and demand curve – expected to get “rebalanced” later this year – will create new ripples. Prices will again rise as oil supply tightens and global demand continues to grow by about a million barrels per day, per annum.

    Now, here’s where things could change; Rising oil prices in the past were often the prelude to a recession. Without a replacement for oil, we had little choice but to pay the going price at the pump. Historically, it often took an economic downturn to reduce demand and lower the prices, but the new Energy Renaissance will gradually change the equation. What’s happened?

    Among other things, climate change and the recent Paris Accord were catalysts for triggering mandates in China, India and several European nations to curtail, or ban, the production of gasoline and diesel-powered cars on or before 2040. The mandates will spark a growth in the production of electric vehicles (EVs), and other alternatives; automakers will either follow the market or go out of business, and the demand for oil will subside as the market gains traction.

     In essence, climate change is transforming the market, and exciting new technologies will accelerate that transformation. As technologies and infrastructures improve and price-points fall, a new fleet of cleaner cars will emerge. With less dependence on oil, our transportation sector will become more resilient and robust; no longer held hostage by oil – its Achilles Heel – as the predominant fuel driving it.

     But, the Energy Renaissance goes well beyond transportation. As we migrate toward electrified power, and as the baseload fuels generating the electrical power shift away from coal toward a larger mix of natural gas and renewable energy – particularly the latter – our energy future will look brighter, cleaner, and certainly more sustainable.

     As in any renaissance, there will be winners and losers. The shock waves in the geopolitical and global oil markets will be profound, but here’s the real point:  Regardless of what occurs first – peak oil or peak demand – the end game will still result in a transition to new energy systems. Peak demand offers a transition based on choice rather than a chaotic collapse in oil supply.

     Though challenging, the energy renaissance will create new engines of economic growth and jobs galore in the areas of clean energy, demand reduction, and conservation. It will also leave a cleaner carbon footprint for those following us, and that’s a real win-win.

     Countries like China get it; let’s hope that the folks in Washington awaken to the bonanza this new energy renaissance could create for a tech-savvy country like ours.
                                                                                                                                                   Mike Conley
 
For more information, please visit our website at: www.WeatheringtheStorm.net

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