Peak oil: Short-term oil use to rise and peak mid-century

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  Quantumrun Foresight
• August 3, 2022

During the 2007-8 oil shock, news and energy commentators reintroduced the term peak oil to the public, warning of a time when demand for oil would exceed supply, leading to an era of permanent energy shortages and conflict. The great recession of 2008-9 briefly bore out these warnings—that is, until oil prices tanked during the 2010s, especially in 2014. These days, peak oil has been reframed as a future date when demand for oil peaks and enters into terminal decline due to the rise of alternative energy sources.

Peak oil context

In December 2021, Anglo-Dutch oil and gas firm Shell stated that it anticipated its oil output to fall by 1 to 2 percent per year, having peaked in 2019. The carbon emissions produced by the company were believed to have also peaked in 2018. In September 2021, the company announced plans to become a net-zero emissions company by 2050, including emissions produced from the commodities it extracts and sells. British Petroleum and Total have since joined Shell and other European oil and gas companies in committing to the transition to sustainable energy. These commitments will lead to these companies writing off billions of dollars in assets, fueled by predictions that global oil consumption would never return to pre-COVID-19 pandemic levels. According to Shell's projections, the company's oil output may drop by 18 percent by 2030 and 45 percent by 2050.

Conversely, China's oil consumption is predicted to rise between 2022 and 2030 due to resilient chemical and energy industry demand, reaching a peak of almost 780 million tons per year by 2030. However, according to the CNPC Economics & Technology Research Institute, overall oil demand will likely decline after 2030 as transportation consumption drops due to the increased use of electric vehicles. Demand for oil from the chemical industry is expected to stay consistent throughout this period.

Disruptive impact

Declining oil use levels can positively affect humanity's drive to reduce the effects of climate change since this primary source of carbon emissions will be gradually removed from the global economy and supply chains. Meanwhile, by the 2030s, green transport technologies, such as electric cars, and renewable fuels, such as green hydrogen, will become widely adopted and more economical than oil. The global renewable energy sector will also expand dramatically during the 2030s (as will downstream technologies and sectors such as electric cabling and battery storage). 

However, the reduced consumption of oil should be carefully managed and modeled since abrupt declines in oil supply will cause dramatic, near-term price increases, with implications for oil-dependent businesses, such as those operating in the logistics and agricultural industries. Higher prices in these industries could increase global famine levels and the cost of most imported products.

Implications of peak oil

Wider implications of oil production entering into terminal decline may include:

• Decreased environmental and climate damage through reduced carbon emissions.
• Countries dependent on oil and gas exports experiencing significant declines in revenues, potentially pushing these nations into economic recessions and political instability.
• Countries with abundant solar energy harvesting potential (e.g., Morocco and Australia) may become green energy exporters in solar and green hydrogen energy.
• Developed nations decoupling their economies from autocratic energy exporting nations. In one scenario, this may lead to fewer wars over energy exports; in a counter scenario, this may lead to a freer hand for nations to fight wars over ideology and human rights.
• Billions in government energy subsidies directed to carbon extraction being redirected to green energy infrastructure or social programs.
• Increased construction of solar and wind power facilities in viable regions and transitioning national grids to support these energy sources.

Questions to comment on

• Should governments outright ban the use of oil in certain sectors, or should the free market transition towards renewable energy be allowed to progress naturally, or something in between?
• How else might the reduction in oil use impact global politics and economies?