Global oil demand: something’s got to give
March 15th, 2010Last week I posted a piece observing that in OECD countries, oil consumption levels have leveled off or even declined a bit. Globally, increases in global oil consumption are coming from developing countries.
James Hamilton at Econbrowser takes a deeper look at this issue in a post that contains a couple of great charts. These charts show OECD demand peaking while non-OECD demand is growing exponentially.
Source: Dargay and Gately (2010)
In the OECD countries, note the disruptions in the ’70s and then the gentler, more recent decline in consumption. Hamilton quotes this observation from a new paper by Dargay and Gately:
[C]ompare two decades in which the price of crude oil has quintupled: 1973-84 and 1998-2008. After the price increases of the 1970′s, per-capita demand fell by 19% for the OECD and by 13% for the world as a whole. In the past decade, with oil price increases similar to those of the 1970′s, per-capita demand fell only 3% in the OECD; worldwide it actually increased, by 4%.
The charts below relate oil consumption to income. In OECD countries, the link between increased income and total oil consumption has been broken. In non-OECD countries, rising incomes still result in increased oil consumption.
Source: Dargay and Gately (2010)
Dargay and Gately think further reducing demand in OECD countries isn’t likely to happen:
The factors most responsible for reducing demand since 1971 cannot be repeated. Almost all the low-hanging fruit has now been picked; it cannot be picked again. The OECD has already done the easy fuel-switching, away from oil used in electricity generation and space heating.
and that the implications of continued rising demand in non-OECD countries are ominous:
If annual per-capita oil demand growth rates to 2030 were assumed to be held zero in the OECD, 1% in the [former Soviet Union], and at its 1971-2008 historical rate (2.54% annually) in the rest of the world, total oil demand will be 138 mbd in 2030– about 30 mbd greater than what is projected by DOE, IEA, and OPEC.
But of course demand cannot ever exceed supply. Decreasing supplies, or even a situation where supplies grow less rapidly than demand, will result in “demand destruction” – somebody, somewhere, will go without. How that plays itself out is bound to be a major driver of the global drama over the next couple of decades.