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Peak Oil update: peak demand predicted before peak supply
Extracting 'unconventional' oil and gas from shale rock by fracking is highly controversial, and often meets stiff opposition from local residents, as at Balcombe in Sussex. Image ©Rezac/Greenpeace.
The term Peak Oil has traditionally referred to the time when world oil production peaks, otherwise known as 'the end of cheap oil'. The oil industry took comfort from the fact that a declining supply with continuing demand meant that prices would rise. However, recently 'peak oil' has conjured up a far more disturbing prospect for industry bosses - one in which demand for oil peaks well before production, meaning that the oil price remains low into the future, profits slump, and oil reserves remain untapped.
Tighter emission standards and greater fuel economy for vehicles plus accelerating sales of electric vehicles are already having an impact on the oil industry. In 2017 both the UK and France announced bans on sales of new petrol and diesel vehicles by 2040, and car manufacturers are investing heavily in low-emission hybrid and electric vehicles. Many think that transport infrastructure will be transformed completely within 10-15 years, with petrol stations disused or turned into electric charging stations.
Bob Dudley, chief executive officer for BP, has even given a precise date when demand for oil will peak. Speaking at an industry forum in June 2017 he only half jocularly gave the date as 2 June 2042, according to modelling done for his company. Other market analysts say it could be much sooner, depending on the pace of adoption of renewable energy technologies and electric cars.
Oil industry hedges
However, the fossil fuel industry has shown great tenacity, and is adept at discovering new markets for its product as well as new sources of oil and gas. There has been a recent boom in exploiting 'unconventional' reserves, of which the exploitation of shale oil and gas in North America and elsewhere is just one instance. Now oil companies are looking at the Arctic region as a new untapped resource, ironically made feasible largely by global warming resulting from fossil fuel use.
As a hedge against this 'peak demand' scenario, companies such as Exxon Mobil and Shell have invested heavily in liquefied natural gas, for which demand is expected to grow well into the future. Others are turning to solar power and other renewables in a big way. And petrochemicals remains a massive source of revenue. The big losers are said to be Middle East nations such as Saudi Arabia and Kuwait, which have huge oil reserves and depend heavily on oil revenues to prop up their 'petromonarchies'.
Time of transition
Of course, the travails of the oil industry pale alongside the overriding need to wean ourselves off fossil fuels as quickly as possible to avoid climate disaster. But the oil industry is an immensely powerful player in the global economy, and will not give up without a fight. Most developed societies still rely on oil and gas to function, and yet the switch to renewable forms of energy is speeding up.
How this transition period will play out is uncertain. For a recent comprehensive survey of the oil industry, and its future in a world attempting to mitigate the effects of climate change, see The future of oil supply by Richard Miller and Steven Sorrell. This is the free introduction to a special 2013 edition of The Philosophical Transactions of the Royal Society.