Brighton, England – The global demand for oil may peak before 2020, falling back to levels lower than 2010 by 2035, according to a new study by Ricardo Strategic Consulting.

“The world is nearing a paradigm shift in oil demand,” said Peter Hughes, managing director of Ricardo’s energy practice. “The predominant role of oil in the global energy mix is facing an ever-greater challenge from a number of emerging trends. Over the past few years, a near ‘perfect storm’ for oil demand has been forming and gathering strength, created by a preoccupation in many quarters about the availability of future supplies. As a result, the drivers working against oil demand growth are increasing in number and intensity, with the world’s consuming nations increasingly focused on their need to reduce their dependency on oil, supported by an ever stronger legislative framework.”

The key findings of the research project include:

– There is a strong chance of oil demand reaching its peak before 2020, at no more than about 4 per cent above 2010 levels, before falling into a long-term recline trend with demand in 2035 down to 3 per cent below 2010 levels. Following a greater take-up of first-generation biofuels, demand for hydrocarbon oil by 2035 may actually be more than 10 per cent below its 2010 level.

– Oil demand growth will have its limits in every country. Ricardo believes there has been a general underestimation of the future impact of government policies to improve fuel efficiency and promote alternatives to oil. This will be the case everywhere, including China, where demand is projected to grow by nearly 60 per cent but reach a peak as early as 2027 before starting to fall back.

– Evolutionary change in the automotive sector will bring about a revolutionary change in fuel demand, with engine efficiency improvements more than offsetting the rise in fuel demand resulting from an increase in the number of vehicles. New technologies such as electric vehicles will have an increasing impact over time, but the projected reduction in oil demand does not primarily derive from the rapid penetration of such technologies.

– The food-versus-fuel argument on biofuel may be poorly supported, as the agricultural sector has been constrained more by under-investment than by supply for much of the last three decades. If crop yields increase at historic rates, there will be enough surplus conventional fuel crops to displace a significant amount of fossil fuel. Higher current selling prices will drive investment in production and research and as a result, the study projects that the production of first-generation biofuels may increase by five to six times over today’s levels, without allowing for any additional contribution from advanced biofuels, whose prospects remain uncertain.

– An improved supply outlook for natural gas, with the potential for the surge in shale gas production in North America to be replicated elsewhere over time, is likely to drive an increasing disconnect of the gas price from the oil price. Diesel and gasoline demand disparity will have to be addressed to balance gasoline and distillate production.

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