Saudi Arabia, Other Oil Producers Brace for Peak Oil Demand in Developed Nations
Posted by Josh Garrett on February 16, 2010 at 12:39 pm
Saudi oil adviser Mohammad al-Sabban called falling oil demand in the developed world an “alarm.” (image: iisd.ca)
Saudi oil adviser Mohammad al-Sabban called falling oil demand in the developed world an “alarm.” (image: iisd.ca)
Bloomberg News reported on Monday that a Saudi oil adviser called declining oil demand in developed nations a serious “alarm” that should push Saudi Arabia to diversify its economy and reduce its reliance on oil exports.
Oil demand has been on the decline in some industrialized nations since before 2008, when a sharp downturn first gripped the global economy. Since then, the downturn has continued and the trend of falling oil demand has expanded to the US, the world’s top oil consumer. Currently, the economic crisis is seen as the foremost driver of declining oil demand. But some expect longer-lasting influences, such as a new emphasis on conserving fuel and energy in the US, to carry the downward trend decades into the future.
In its monthly report released on Thursday, the International Energy Agency noted that the economic recovery could very well come without a recovery in oil demand in the OECD (the Organization for Economic Cooperation and Development, a group of wealthy nations that includes the US) nations, and warned it could “potentially [support] the argument that OECD demand has peaked.” If oil demand has peaked in the developed world, oil producers have a lot to worry about—OECD nations will account for 53 percent of world demand in 2010, according to EIA estimates reported by Reuters on Thursday. Although the OECD will account for more than half of the world’s crude demand this year, the IEA estimate also notes a full 1 percent decline in that demand since last year—a substantial drop.
Outside the OECD, oil demand in developing nations is still showing robust growth. In the medium- to long-term, oil producers will have no shortage of customers. But the effect of plunging OECD demand is basically a postponement of strains on oil supplies for a few years. In the meantime, however, as French oil giant Total’s CEO Christophe de Margerie told Reuters, “some tough decisions will have to be made.” One of those tough decisions, the scaling back or shutting down of refineries, has already been made many times over. Squeezed by high crude prices and extremely weak demand for refined products, the refining sector has been forced to scale back operations significantly in the last year, but still reported massive losses in the fourth quarter of 2009.
For oil producers, the question remains: how long until demand from developing nations outweighs falling demand from OECD countries? Until that time, Saudi Arabia, the rest of OPEC, and the large multinationals will continue to weather the storm of a fragile economic recovery, related demand weakness, and unstable and unpredictable crude prices. Looking beyond the moment that the developing world’s demand overtakes that of the OECD, some believe that energy conservation programs and development of alternative energy sources could expand to the developing world more quickly than expected, bringing about sinking oil demand worldwide. When that eventuality is combined with the controversial specter of peak oil production, oil producers face a rather bleak long-term outlook.
For its part, it appears that Saudi Arabia has already begun to heed the “alarm” of OECD demand decline, and “is making a push into renewable energy and is starting its first carbon-capture project,” the Saudi oil adviser told Bloomberg.
For consumers of heating oil and other petroleum products, the future of prices is uncertain. Falling demand in the US, for example, has managed to keep heating oil and gasoline prices relatively steady for the last year or so, but when demand for crude ramps up in developing nations, the resulting spike in crude oil prices could make for some huge increases in retail fuel prices. The best protection for consumers against those increases is to seek out and being using alternative fuels like biofuel heating oil as soon as possible. The more renewable fuel in your gas tank or heating oil tank, the less you will be subject to the movements of global crude prices.
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