When will oil demand peak? Depends on our driving habits
Forecasters debate whether self-driving cars will lead to more vehicle use or less
In the past, forecasters had a relatively simple method of estimating whether demand for oil would increase or decrease and by how much.
For the most part, they simply looked at the economy. If people were making more money, it was safe to assume they would spend more, travel more and head to the car dealership more often.
Now, technologies like electric cars, ride-sharing programs, and autonomous-driving systems are forcing experts to completely rethink their expectations for the future. Their job is becoming a lot more challenging.
What you're seeing is a lot of uncertainty in the transportation sector.- Kevin Birn, IHS
There's still a correlation between oil demand and economic activity, but a number of other factors are also at play, making it exceptionally difficult to project how much oil we'll consume in the future.
That's why some major industry players are presenting multiple alternative models of what could happen with oil prices in the next few decades. Forecasters are obsessed with trying to figure out when global oil demand will peak around the globe. That would be a milestone — the point at which the fossil fuel industry would begin to contract. And it could have drastic implications for a crude oil exporting country like Canada.
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Respected energy forecasters such as the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) both expect oil demand to grow until about 2040. However, the IEA and Norwegian oil giant Statoil have also said that — under certain conditions — global oil demand could crest in the 2020s and then start to fall.
Oil demand will peak in 2020s "then we'll have a shrinking oil industry" as vehicles are electrified, says Statoil boss Eldar Saetre <a href="https://twitter.com/hashtag/OM2016?src=hash">#OM2016</a> <a href="https://t.co/LFAQaPVkzR">pic.twitter.com/LFAQaPVkzR</a>—@andrew_ward1
The stark contrast between those outlooks reflects the unpredictability around the automotive industry.
"What you're seeing is a lot of uncertainty in the transportation sector, a lot of changes undergoing there, and you're seeing that play out with forecasters whose business is trying to model what that may mean for the oil markets," said Kevin Birn, a senior director with IHS, a global business research firm.
Birn says IHS has three different scenarios about future oil demand and that analysis is ongoing. The organization is trying to determine the impact of electric cars, ride-hailing services and autonomous-driving technology.
"We have a large study going on called 'reinventing the wheel.' We're looking a lot at the uncertainties," said Birn.
Companies such as Mercedes and Tesla already offer some semi-autonomous driving technology and just about every automotive company is developing its own system. There's no consensus about how this will impact fuel use.
It was initially assumed that a computer would be more efficient at driving a car than a human, because with its cameras and other technology, it wouldn't brake or accelerate as hard. That would mean fewer trips to the gas pump.
But more recently experts have suggested that autonomous driving could actually boost vehicle use — and therefore gasoline sales — by alleviating the annoyance of being stuck behind the wheel on a lengthy road trip or slow summer weekend commute back from the mountains or lake.
"Maybe a commute from Canmore to Calgary wouldn't be so unbearable if I didn't have to pay attention. I can read the newspaper or do some work," said Birn. "You see scenarios where autonomous vehicles could actually encourage greater fuel consumption."
Forecasters are also grappling with another wildcard — government policy.
Canada and the U.S. are forcing car companies to meet rising fuel efficiency standards, which should lead to lower gasoline demand in both countries. With a change in government south of the border, this policy is up in the air.
"The only thing that can prevent this is if policymakers soften the mandated increase in fuel efficiency standards in new cars sold, which [President Donald] Trump suggested he may do in the U.S.," said the Bank of America Merrill Lynch in its latest research report Global Energy Weekly.
"A change in policy would impact targets only from 2021 to 2025. However, they are now under midterm review, and these are the targets Trump may change," said the report.
In other parts of the world, such as Beijing and Delhi, government policies are in place to curb vehicle use and combat pollution and crippling traffic woes. Restrictions on when people can drive and what types of vehicles they can buy could lower gasoline demand in those markets and others that follow suit.
Forecasters have a considerable amount of homework and guess work to predict how much oil the world will use in the years and decades to come.