A former oil minister in Saudi Arabia Sheikh Zaki Yamani once said: “The Stone Age came to an end not for a lack of stones, and the Oil Age will end, but not for a lack of oil.”
Sheikh Mohammed bin Zayed, President of the UAE recently said, “In 50 years, when we might have the last barrel of oil, the question is: when it is shipped abroad, will we be sad?” he asked. “If we are investing today in the right sectors, I can tell you we will celebrate at that moment.”
Peak oil is a term used to describe the point in time when the production of oil reaches its maximum capacity, after which it is expected to decline irreversibly. The concept has been around for decades, but so far, it has never been reached on a global level.
This decade, however peak oil terminology has switched from the supply side to the demand side. For example, the International Energy Agency (IEA) recently announced that peak oil use is in sight this decade as the world switches to renewables. The IEA predicts that the peak will be before the end of the decade, most likely in 2029 or 2030.
OPEC issued a strong-worded statement: “It is an extremely risky and impractical narrative to dismiss fossil fuels, or to suggest that they are at the beginning of their end.”
“In past decades, there were often calls of peak supply, and in more recent ones, peak demand, but evidently neither has materialized. The difference today, and what makes such predictions so dangerous, is that they are often accompanied by calls to stop investing in new oil and gas projects,” the cartel said.
IEA’s analysis is based on the policies of governments as they stand. There is often a chasm between intention and reality. Backlashes of the kind already witnessed in countries including the UK and Germany this summer could easily extend the use of fossil fuels. Global oil demand has hit 103 million barrels a day.
The IEA justifiably believes Chinese demand (the biggest contributor to incremental demand growth in oil) will slow. Global electric vehicle sales are one reason for the IEA’s bullishness. These reached 10 million in 2022, accounting for 14 per cent of total sales. They are forecast to grow this year to 14 million. By 2030, EVs are expected to cut the need for 5 million barrels of oil a day.
It is expected that solar, wind and nuclear power combined with the electrification of transport will further reduce demand growth for fossil fuels in China.
The IEA chief recently said, policymakers had to be nimble to adapt to the energy transition and argued it could be accelerated through stronger climate policies, despite concerns in western capitals about voters’ tolerance for rapid change.
More recently, the Organization for Petroleum Exporting Countries (OPEC) has been pursing supply-demand balancing policies contributing to an oil price heading towards US$ 100 per barrel. High oil prices can have both short-term and long-term effects on demand. In the short term, higher oil prices can lead to higher costs of production, increased inflation, and decreased living standards for consumers of oil. In the long term, higher oil prices can stimulate investment in oil (and alternative energy sources) and also encourage consumers to seek alternatives (e.g. electric cars). The long term ramification is that relatively higher oil prices now will herald in a more rapid transition and accelerated slowdown in oil demand in latter years. In conclusion, it is very difficult to predict when peak oil will happen and whether we really are at the beginning of the end of the fossil fuels era.