By Luis Fierro Carrión
(A Spanish version of this article was written for Revista Gestión of Ecuador)
For several decades, some environmentalists and critics of the oil industry have warned that oil production could reach a "peak", due to - supposedly - its over-exploitation and decrease in reserves. This "peak oil" phenomenon, however, has never materialized, and production has been increasing steadily, from 15 million barrels per day (mbd) in 1950, to about 60 mbd in 1980, and 89 mbd today. The increase in the supply has taken place at the same time that the international price of crude oil has risen, reaching historical records in recent years.
In recent months, however, some analysts and institutions have begun to warn that, to the contrary, what we seem to be approaching is a "peak demand" for oil, as the global use of hydrocarbons seems to have reached a maximum. Citi, for example, estimates that the demand could reach a maximum of 92 mbd within a few years, an analysis that coincides with the auto parts manufacturer Ricardo, and with the British magazine The Economist. Even BP, one of the main oil multinationals, estimates that demand growth will decelerate, and reach a maximum of 104 mbd towards 2030. The OECD and the World Bank also foresee an eventual reduction in the demand, and, consequently, a fall in the price of oil.
The fall in oil demand responds to several trends. One of them is the development of new sources of energy, including shale oil and gas in North America and other regions; the expansion in renewable energy, especially in Europe, Japan, and North America; and even investment in nuclear energy in China and the Middle East. The production of shale gas in the United States and Canada, in particular, could enable North America to become self-sufficient within a few years.
Another important factor is the increase in energy efficiency, in areas such as transportation (hybrid vehicles, electric cars, and other technologies); in industry, at home, etc.
Growth is also slowing down in the emerging markets, particularly among some of the BRICS (in China, India, and Brasil), and these countries are also investing in energy efficiency, renewable energy, and in reducing greenhouse gas emissions.
The fall in demand and the increase in supply (both from crude oil and other energy sources) will probably lead to a substantial reduction in the international price of oil.
What can oil-exporting countries do to adapt to this scenario? In general, they should have been investing the windfall revenues from the current high prices, through a sovereign investment fund (such as those in Norway or Kuwait), or directly in the generation of hydroelectric energy and other forms of renewable energy; as well as in the development of other sources of income. Another option is to expand the exploitation of natural gas, liquified petroleum gas, shale oil and gas, sand oil, and other sources of energy.
Some oil exporters have very high subsidies on internal gasoline and gas consumption, which should be eliminated, or even reverted into a "carbon tax" (so as to discourage the over use of hydrocarbons, reduce greenhouse gas emissions, and promote energy efficiency); these energy subsidies also tend to be very regressive.