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Context: Speculative concerns about peak oil have affected the oil industry from both supply and demand perspectives. From the 1950s to the early 2000s, the primary focus was on peak oil supply, with worries about depleting oil reserves shaping long-term market outlooks. However, around the turn of the century, as renewable energy and alternatives gained traction, attention shifted toward peak oil demand. While peak oil demand doesn't imply the total replacement of oil by alternative energy sources, it does signal a decline in oil's dominance as a global energy resource and could negatively impact its price premiums.
Diagnosis: The ongoing debate about peak oil demand centers on identifying which assumptions most accurately capture energy market trends and their broader implications for future oil consumption. OPEC’s recent WOO is underpinned by one fundamental assumption that creates a 20-year gap between its expectation of peak oil demand and those of other international energy organizations, such as the IEA and BP. This assumption relates to the trajectory of the transport industry. OPEC posits that internal combustion engine (ICE) vehicles will continue to dominate until 2050, citing challenges related to electricity grids, battery capacity, and access to critical minerals as market inhibitors. In contrast, organizations like BP and the IEA anticipate that the share of electric vehicles (EVs) in global light transport will grow from less than 2% in 2022 to between 50% and 85% by 2050, significantly reducing oil demand from the transport sector.
Fig 1. Light Duty Vehicle Demand by Technology and Region (Emerging and Developed Nations)
Source - bp Energy Outlook: 2024 Edition
They argue that the growth of ICE vehicles is primarily driven by emerging countries, where economic growth is substantial. However, the growth of ICE vehicles is expected to be offset by the replacement of ICE vehicles with EVs in developed economies, ultimately leading to a point where EV adoption overtakes the growth of ICE vehicle demand by 2050 (see Fig 1.). Another reason behind the slowdown of oil demand in the road transport sector relates to enhanced energy efficiency in new vehicle fleets, primarily for medium and heavy-duty vehicles. Figure 2 demonstrates the forecasted decline in energy efficiency alongside the growing share of electrified and clean hydrogen-based medium and heavy vehicles by 2050 given the current market trajectory and the net zero case.
Figure 2. Medium and Heavy-Duty Vehicles: Energy Utilization by Fuel
Source - bp Energy Outlook: 2024 Edition
Conclusion: OPEC’s expectation that internal combustion engine vehicles will continue to dominate is one major factor that prompts them to project peak-oil demand roughly around 2050. This contrasts sharply with projections by BP and the IEA, which forecast a peak closer to 2030, driven mainly by a rapid rise of EVs. Due to uncertainties surrounding the pace of energy efficiency improvements, the expansion of renewable energy capacity, cost competitiveness, and shifting energy policies, both perspectives have merit. Regardless of which scenario unfolds, the energy industry must be ready to adapt to any of these competing realities.
What's Next: Given the uncertainties surrounding peak-oil demand, we plan to discuss this topic in greater detail over the coming weeks, highlighting the key points of this ongoing debate. These points include, but are not limited to, the following:
1- Performance of the global transport sector.
2- The role of energy efficiency in the energy transition.
3- Electrification across heavily oil-dependent industries.
4- China’s demand growth slowdown.
5- India’s growing role in driving oil demand.
