Peak oil demand has become the media flavor of the day, with numerous consultants and research groups rushing onto the bandwagon, the latest being a warning that "Oil prices are poised to crash to just $10 per barrel over the next six to eight years as alternative energy fuels continue to attract more and more investors." Similarly, Bloomberg New Energy Finance has said, "We found that electric vehicles could displace oil demand of 2 million barrels a day as early as 2023. That would create a glut of oil equivalent to what triggered the 2014 oil crisis."
The punditry frenzy resembles the peak oil supply arguments of a decade and more ago, which were not based on solid research but seized upon by many pundits who had absolutely no doubts about the imminent peak of oil production and the possible end of civilization. Thinkprogress' Joe Romm, who now predicts peak oil demand, remarked in 2009: "on the painfully obvious reality that we are at or near the peak." (Oil production has risen over 10 million barrels a day since then.)
Oddly enough, nearly a decade ago there were already those who suggested oil demand had or would soon peak, including Greenpeace which in 2009 said "...that alongside the cyclical fall in the oil price there are more fundamental structural changes taking place. These are driven by advances in energy efficiency and alternative energy, cleaner vehicles, government policies on climate change and concerns over energy security... A peak in oil demand was barely discussed even a year ago, but now it is a viable idea. When it happens, I wouldn't want to guess, but it will happen sooner than we thought."
Energy maven Amory Lovins published Winning the Oil Endgame in 2005, which described how the ultra-efficient Hypercar he designed, along with cellulosic ethanol, would end the world's dependence on oil. On a more realistic note, Exxon CEO Rex Tillerson stated in 2009 that U.S. gasoline consumption had peaked in 2007. (Whatever happened to him?) Which was true, until the price of gasoline dropped, and now we read headlines like "Thirst for Oil Returns in Wealthy Nations" (Financial Times 9/27/2017) or "Ford to Spend Less on Passenger Cars as Customers' Tastes Change." (Hint: They're not buying Smart cars.)
As in the peak oil supply story, many embrace peak oil demand arguments with little or no skepticism. When discussing the role of electric vehicles in reducing demand, the standard platitude is "progress" which is a rate not a level. The pertinent question is not whether electric vehicles are better than the EV1, which Time magazine labeled one of the fifty worst vehicles of all time, but whether they are better than current internal combustion engine vehicles, or when will they be?
The EV1 is also instructive about the steadiness of government policy. California, and many Northeastern states, had adopted a plan in the 1990s to require automakers to meet aggressive electric vehicle sales targets, but quietly abandoned them when the technology proved inadequate. The intentions of French, Chinese and other governments to phase out ICE vehicles should be seen in that light: aspirational but far from firm.
The typical answer is that when battery costs reach a certain level (see table), consumers will find them just as desirable as ICE vehicles. Except that this ignores the question of performance, where BEVs have a serious disadvantage (range and recharge time), as well as the fairly optimistic projection of battery costs. Given that solar power installations have stalled whenever subsidies have been reduced, despite advocates' insistence that solar is cheaper than coal, the phasing out of electric vehicle subsidies in the U.S. in the next few years will be the acid test for electric vehicles and there is a good chance they will fail it.
But the other side of the coin concerns the impact of lower oil demand on oil prices. Most groups forecast of oil demand show growth of 0.7 mb/d/yr to 1.5 mb/d/yr and the likely reduction in that level of .15 to .25 mb/d/yr is significant but hardly overwhelming. After all, during the first oil crises in the 1970s, annual growth went from 3 mb/d/yr to roughly zero, for more than five years before prices came down. (See figure below.) By the time the price crashed in 1986, demand was about 40 mb/d lower than the previous trend.
The second problem is the static nature of the assumptions about the oil market balance. A change of 2-4 mb/d in the oil market over a decade occurs fairly regularly: After the 1998 ruble devaluation, Russia's oil production rose by 3.8 mbd in a decade; Iraq's production is up 2.5 mb/d in the past ten years; and OECD oil demand declined by 4 mb/d from 2007 to 2012, due to high prices and recession. Arguably, none of these caused an oil price collapse.
Partly this attitude reflects the Hollywood 'magic bullet' approach to problems, where a massive space invasion/giant monster is defeated not by hordes of soldiers but by a lone scientist (always bespectacled and with a buxom assistant) who finds the elixir/radio frequency/raygun. But what brought prices down in 1986 and 2014 was not any given technological advance or government policy, but a combination of conservation, fuel-switching and investment in new supply coupled with cost-saving innovations in production. High prices are the solution to high prices, as the saying goes.
Then again, maybe there is a magic bullet: the market.
