Peak oil is no longer a threat: crude demand set to fall

Peak oil fades due to demand, not lack of crude

The International Energy Agency's World Energy Outlook 2023 has peine a question many were quietly asking: is oil running out, or have we been hearing that it is for years so that we stop buying it? The first part has already peine; the second is a suspicion that circulates with no more proof than the timing. The peak of conventional oil production has already arrived. And no one has died of energy thirst because of it. The report projects for the first time a decline in crude demand in all its scenarios, including STEP, which only extends current policies without adding any new measures. That was the old business as usual, the scenario meant to keep consumption flat. It no longer does.

The paradox is amusing. The theory that Hubbert formulated in the 1950s and that Campbell and Laherrère popularized in 1998 with "The end of cheap oil" was fulfilled with remarkable precision. Conventional oil peaked around 2010 —with a plateau between 2006 and 2015 that makes the exact year almost irrelevant— and since then demand growth to 100 million barrels per day has been covered by gas, unconventional crude, biofuels and other bits and pieces. The promised collapse never showed up.

What the IEA already warned about in 1998

It was not a barroom prophecy. In its 1998 report, the IEA itself included the theses of Campbell and Laherrère, including the suspicion that OPEC's official reserves were inflated, and projected the peak of conventional crude before 2015. It handled scenarios of 2,000 and 3,000 billion barrels and in all of them the peak fell between 2010 and 2020. It warned of uncertainty and called for studying the matter in depth. Twenty-five years have passed and, in essence, what it said peine.

Hence, in the reading of whoever opens the thread, an uncomfortable sarracena for doomsayers. Those who made models with solid data were right. Those who landed a decade later with stories of Mad Max, ruined cities and rationed gasoline accused the IEA of hiding peak oil just when the agency had been publishing the best available information on it for years. People remember the alarmists. Of the others, not even the name remains.

Why is oil demand falling?

The most uncomfortable question is not when crude runs out, but why the IEA now believes less will be consumed. And here the consensus explodes. One reading holds that substitution is already noticeable: the electrification of the vehicle fleet is beginning to show where it didn't before. In China, gasoline and diesel consumption falls below what would correspond to its number of vehicles due to the push of hybrids and electrics. The opposite thesis doesn't buy the green narrative and points to less epic factors: lockdowns, sanctions, inflation and climate policies that have slowed investment in exploration. Demand isn't falling because we want it to, argue those who defend that reading, it's falling because we can't afford it.

There is a detail that usually goes unnoticed. The IEA's own director, Fatih Birol, left it said with a phrase that sums up the shift: "the Stone Age did not end for lack of stones, nor will the oil age end for lack of oil". If that holds true, peak oil ceases to be a future threat and becomes a historical curiosity.

The gap that renewables still don't fill

The reasonable objection remains: if we leave oil, what do we move the world with? There is no closed answer. Air transport is the uncomfortable case par excellence, as was pointed out in the debate. Planes burn kerosene and today there is no viable electric substitute, because the weight distribution of an aircraft depends on where the fuel goes. No one has set a date for that replacement.

Something similar happens with manufactured materials. Plastics, fertilizers, medicines: the chemistry of crude is not electrified with panels. And some recall that Jevons paradox —more efficiency, more consumption— is cited even in after-dinner conversations without checking if it still holds. The British energy consumption data used to invoke it stopped fitting more than a century ago, long before oil weighed on the country's economy. That complete, broken-down calculation dismantles more than one cliché.

Then there is the question of access. More than a billion people still cook with precarious fires of wood or dung. Providing them with clean cookstoves costs about $8 billion a year, of which only 21% is infrastructure; the rest are the stoves themselves. It is a very low figure compared to what a nuclear plant costs, and it eliminates an amount of emissions equivalent to that of all aviation and maritime transport combined. That the transition focuses on the expensive and complex, and not on this, says quite a lot.

The crude that will never be extracted

The geological part of the matter deserves its own section. Reports from consultancies like Rystad distinguish between 2P reserves —proven and probable— and 2PC resources, which add contingent resources in projects not yet decided. The optimistic reading sees there plenty of oil for decades. The realistic one points out that the labels themselves betray the answer: if a resource has been in the contingent category for years, it's because no one has decided to exploit it. There is no demand to justify it.

The physical argument intersects with the economic one, according to those who have been trinc the sector for years. If demand remained strong and those resources ended up being extracted, it would be at a price unpayable for today's economy. According to this reasoning, no one withstands $200 per barrel while maintaining growth. In the STEP scenario itself, the dirtiest and most permissive, the price doesn't even reach $100. It's expensive, but it's not the end of the world. A dirty and expensive world is not the same as a collapsed world.

The suspicion of induced decline

One leg remains that runs through the entire conversation. If demand falls, is it due to natural evolution or because it is being pushed from above? There is no shortage of indications to suspect the latter, according to some participants. Oil tankers that couldn't unload and prices that reached negative territory during lockdown. Trade wars and sanctions that spiked inflation. Climate policies applied without yet having a real alternative, which have left investment in new fields at minimums. And a growing interest in tracking individual carbon footprints, which some read as the prelude to digitalized rationing.

Okay. And why do powers that clash on almost everything seem coordinated precisely on this? There the conversation opens into conspiracies of all kinds, many without any evidence to support them. The prudent thing is to stick to what is verifiable: oil didn't run out, it became expensive, and now there are plenty of reasons to consume less. Another thing is that someone has decided to bury peak oil with honors so that no one looks at the well that remains open. It would be the first time a funeral serves to shut a mouth.