February 19, 2009 / 12:48 PM / in 9 years

Oil demand may begin to peak soon: report

LONDON (Reuters) - World oil demand could begin to peak over the next decade as worries over security of supply, extreme price swings and climate change force a move towards other forms of energy, consultancy Arthur D. Little said.

In a report entitled “The Beginning of the End for Oil?,” the consultancy’s Peter Hughes suggests the extraordinary price moves over the last year, environmental pressures and concerns that most of the world’s oil is imported from volatile regions has concentrated minds in the big consuming countries.

Oil hit an all-time high of almost $150 per barrel last July but has since tumbled more than 70 percent to around $40.

“The penny has dropped. To varying degrees, governments across the globe are acknowledging publicly, many for the first time, that decreasing reliance on imported oil -- and quickly -- is becoming an energy policy imperative,” the report said.

Oil is particularly vulnerable to a future decrease in demand, it said, because of the dominance of the transportation sector, consuming over 50 percent of oil produced worldwide.

In the past, the lack of alternatives to oil for transportation fuel has underpinned its dominant position, but this is now undermined by new technologies and fuel efficiency across the automotive sector.

“As the number of new policy measures implemented to reduce reliance on hydrocarbons for transportation fuel reaches critical mass over the next five to 10 years, the world could see downward pressure on demand for oil and oil products materialise much sooner than the industry would currently concede,” the report said.

It argues that within both the big developed economies as well as the emerging economies such as China, India, Russia and Brazil, the drive to increase fuel efficiency and reduce oil dependency will lead to a relatively rapid shift to alternative, non-oil-dependent modes of transport.

“Depending upon how quickly the transportation sector begins its migration away from oil dependence, we could find ourselves at a tipping point in which demand for oil peaks much earlier than the industry currently anticipates, before going into long-term decline.”

The report concludes that as peak demand for oil approaches, oil and gas companies should rethink their business models, and consider accelerating moves into other types of energy, such as electricity generated by renewables and nuclear power.

”We encourage companies across the energy sector to build a revised concept of long-term oil demand into their vision of where they want or expect to be in 20 years time.

“It cannot be too soon for companies to begin to re-focus their investment and long term growth strategies to ensure sustainability in the transition to a post-hydrocarbon world.”

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