September 24, 2010
Oil Demand Shifting To Less Price Sensitive Markets

A February 2010 paper by by Joyce M. Dargay (Institute for Transport Studies, University of Leeds) and Dermot Gately (Dept. of Economics, NYU) makes its argument in its title: World oil demand’s shift toward faster growing and less price-responsive products and regions

Two liters a day – that’s what per-capita world oil demand has been for forty years. Yet this constancy conceals dramatic changes. While per-capita demand in the OECD and the FSU have been reduced – primarily due to fuel-switching away from oil in electricity generation and space heating, and by economic collapse in the FSU – per-capita oil demand in the rest of the world has nearly tripled, to more than 1 liter/day. In addition, the rest of the world’s population has grown much faster than in the OECD and FSU (1.85% v. 0.74% annually). As a result, the rest of the world’s total oil consumption has grown seven times faster (4.4% annually, versus 0.6% in the OECD and FSU) – increasing from 14% of the world total in 1971, to 39% today. Strangely, however, recent projections by DOE, IEA, and OPEC project a sharp deceleration of per-capita oil demand growth through 2030 in the rest of the world – from 2.54% annually since 1971 to 0.6% annually (DOE) or 1% annually (IEA, OPEC).

As someone who thinks Peak Oil is close I obviously do not expect world oil consumption to rise anywhere near as much as these researchers project demand will rise. Rather, due to geological limitations I expect production at best will rise very slowly and then plateau. After that comes world oil production decline. Therefore this rising demand will push up prices and those high prices will destroy demand elsewhere and I agree with them that demand is shifting toward less price-responsive customers.

The marginal utility of another barrel of oil is far higher when the oil is sold to a large number of scooter drivers in India or across a large number of small car drivers in China who are experiencing rising living standards (contrasted with the median income decline in the United States). So it seems inevitable that oil consumption will decline in the West faster than it does in the most rapidly developing markets in Asia.

The big rise in gasoline prices in 2007 and 2008 started a decline in vehicle miles driven in the United States that went even deeper as the recession started to bite. The result was the biggest decline in vehicle miles driven in at least 25 years. The current rate of vehicle miles driven is about equal to what it was 5 years ago - in spite of about 5% population growth since then.

A good overview of the shift in demand can be seen in Rembrandt Koppelaar's August 2010 Oil Watch Monthly (PDF). It has useful charts of world, regional, and national rates of oil consumption starting on page 8. The OECD oil consumption chart 20 on page 8 shows the Western countries and Japan on a downhill trend in their oil consumption while chart 23 on page 9 shows US oil consumption down as well. By contrast, the oil consumption charts for India and China on page 13 show their growing demand which is effectively displacing a portion of Western demand. The relatively high oil prices of today are made possible rising demand in India, China, and the oil exporting countries. They can afford to grow their consumption in the face of rising prices.

Share |      Randall Parker, 2010 September 24 07:29 PM  Energy Peak Oil Adaptations

Doug said at September 26, 2010 9:25 PM:

"While per-capita demand in the OECD and the FSU have been reduced...."

I am mystified. OECD we all know. Florida State University? Admittedly the football team is not what it once was, but the demand for oil at FSU has collapsed also? Must be those dratted PC Greenies.

Randall Parker said at September 26, 2010 11:09 PM:

FSU: Former Soviet Union.

Nick G said at September 29, 2010 1:37 PM:

I see the shift in oil consumption from OECD to developing countries as good for the OECD, and bad for the developing countries.

Countries that keep oil and fuel prices too low are using oil for low-value consumption: SUVs, home heating, etc.

On the other hand, the US and Japan are putting EVs on a path of rising economies of scale. EREV/EV costs are already below the costs of ICE vehicles, and soon the difference will be dramatic.

US oil imports are falling back below 50%, while Chines imports are reaching 60%.

These trends will slow down the pace at which China gains on the US.

th said at September 29, 2010 4:13 PM:

Parker, OPEC spare capacity is about 7% of worldwide daily production, that's about what it was in 1990 when world oil demand was probably in the 65mmbbls/d range, some 20 more mmbbls/d ago, is peak oil here yet?

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