Was February '20 Peak Oil Demand? Petroleum might never Recover From
Covid-19 and EVs
JUAN COLE
07/06/2020
Ann Arbor (Informed Comment) - Julien Mieville at AFP asks the big question:
Has global demand for petroleum peaked?
The meme of "peak oil" once referred to the notion that production would at
some point peak and then fall, driving prices sky high, but that theory
developed before the fracking revolution and was never very plausible. It
isn't the way primary commodity markets operate - they are a price roller
coaster over time.
But now a new conception has arisen, of peak oil demand. Before the pandemic
hit in earnest, the global was using a little over 100 million barrels a day
of petroleum. In the second quarter, it was 83.8 million b/d. Boom.
Earlier projections of a rebound depended on the US market getting back to
normal after the coronavirus curve was flattened. That is not going to
happen because the flattening was temporary and Trump rushed governors to
reopen too soon while failing to provide a national strategy for testing and
contact tracing. The likelihood of an even bigger fall second wave now seems
high, and it could hit other countries besides the US.
Air travel profits this year are likely to be off nearly half a trillion
dollars, down by half from 2019. A lot of people are not going to be flying
until there is a vaccine.
The coronavirus depression will depress petroleum sales this year because of
less driving and less flying. Some analysts expect a snap back to the status
quo at some point, but it is unclear why the status quo ante would suddenly
return until there is an effective vaccine. Less petroleum use could
continue for years.
The problems for the largest petroleum corporations go beyond lagging
demand. Their fields and bids are worth much less than this time last year,
so they have having to take roughly $20 billion in write-downs each.
Financing exploration and fracking have gotten much harder. Smaller
companies are going bankrupt in droves.
On top of the reduced value of their assets and problems in financing, the
looming threat of the EV could be the coup de grace.
Europe's carbon restrictions have driven its automakers to go into electric
vehicles with both feet this year. Volkswagen's Vickau plant, where millions
of internal combustion cars have been made over the decades, just produced
its very last one. After a little retooling this summer, the plant will only
produce electric vehicles this fall. Its annual production of six lines of
EVs will reach 330,000. One of the lines will be the new all-electric ID.3.
In June, 8.4% of automobiles sold were either battery electric cars or
plug-in hybrids. That percentage will skyrocket as European automakers phase
out gasoline cars and introduce many more models of EVs, and as EVs fall in
price and increase their range.
Indeed, in Europe over all, EV sales were up 23% in June year on year,
though admittedly sales fell (as did automobile sales generally) in the rest
of the world.
Germany doubled its incentives for consumers to buy EVs, and mandated that
all gas stations have electric chargers as well.
Moreover, the tech gets better and better. Tesla and GM are now doing heavy
duty research on iron phosphate batteries that will allow vehicles to go 400
miles on a charge and which will last a million miles, but cost no more that
the more limited lithium ion batteries now in use.
By the time the Covid-19 crisis begins subsiding and consumers are ready to
get back on the road, EVs will be more available, cheaper, and desirable.
Europe will actively push them on consumers, as will China, two of the
largest petroleum-importing regions.
Hence, Mieville raises the possibility, at least, that the world will never
again want 100 million barrels of petroleum a day. And even if we get back
to that benchmark, how long will it be before demand again spirals down, as
people fuel their EVs off solar panels and wind turbines that produce ever
cheaper electricity?
Admittedly, the US market will take longer to come around, but in the end
technological improvements and price drops over the next decade are already
baked in to the system, and oil will decline rapidly over the next ten to
fifteen years. That decline will help save the planet from the worst of the
coming climate emergency, and the faster it comes the less severe will be
the emergency.
