Study predicts oil demand will peak well before supplies run out

Management consultancy Arthur D Little has turned peak oil fears on their head with a report suggesting that the global economy will have begun to abandon oil well before supplies peak.

The Beginning of the End for Oil?, written by Peter Hughes a former executive at natural gas giant BG Group, address the prospect of falling demand for oil, rather than fears over dwindling supplies. It suggests that a mixture of drivers is forcing a broad policy change that will continue to reduce consumption. Fears over climate change, security of supply, and price volatility, will form a holy trinity to drive policy redirection, he said.

"It's that focus that is stimuating the change that is going to take place," said Hughes, now director of Arthur D Little's global energy & utilities practice. "These drivers are totally aligned, all pushing in the same direction, and they make policy redirection a no-brainer."

Hughes also points to the Energy Information Administration's (EIA) reduction of long-term oil consumption forecasts last year. It said the world would be using 10m barrels less per day in 2030 than it had predicted previously.

Oil industry experts have predicted that any decline in oil demand in developed economies will be more than compensated by increased consumption in China and other BRIC countries as disposable income rises.

But Hughes argues that these emerging economies would be driven by the same desire to cut oil demand that is already being felt in developed economies. " The Chinese think very coherently and very long term," he said. "They have identified the threat to the long-term sustainability of their growth path by relying increasingly on imported energy."

The report has little in the way of numbers, and insiders admit it is more an opinion piece by Hughes based on almost 30 years in the energy business.

But Hughes is not alone in predicting that fears over peaking oil supplies are largely unfounded, on the grounds that economies will find replacement sources of energy at a faster rate than the oil industry expects.

Amory Lovins, co-founder of the Rocky Mountain Institute, has been similarly outspoken on the subject of oil demand. "Oil is going to become, and has already become, uncompetitive, even at low prices, before it becomes unavailable even at high prices," he said in a 2007 Newsweek interview. "So we will leave it in the ground. It's very good for holding up the ground, but it won't be worth extracting."

Official estimate, however, continue to predict that oil and other fossil fuels will continue to make up a seizable component of the glovbal energy mix for at least the next two decades.

The EIA's Annual Energy Outlook still predicts fossil fuels will make up 79 per cent of US energy consumption in 2030, but liquid fossil fuel consumption will be flat, it predicts, as demand for biofuels grows. Renewable power will make up a third of generation growth between now and 2030, it said, adding that reliance on imported oil to the US is likely to fall dramatically.