Demand for Oil May Stabilize

For years, people connected with the energy industry have predicted that the global demand for oil will soar in the future.  They base such predictions on the continued growth in the world’s population and the modernization of countries in emerging markets.  Some people even warn of an economic crisis tied to “Peak Oil,” the anticipated point at which worldwide production begins to decline even as demand continues to rise.

But recent trends raise doubt about the accuracy of these predictions.  First, and most importantly, developments in technology have caused an explosion in the amount of accessible natural gas around the world.  Hydraulic fracturing and other drilling techniques now allow the energy industry to produce huge amounts of natural gas from “shales” around the United States.  In addition, many other countries have natural gas shales that currently are not developed but will likely be in the next few years.  Even with a recent rebound in natural gas prices in the first quarter of 2013, natural gas remains cheaper than oil.  The cheaper price of natural gas, along with environmental benefits, has companies such as transportation giant UPS focusing on the development of vehicles that run on liquefied natural gas.

A second reason to believe that oil demand will not soar in the future has to do with fuel economy.  A significant chunk of the global demand for oil is attributable to automobile drivers.  Most developed countries have increasingly-demanding guidelines for fuel economy.  For example, in 2012 the United States set forth an average fuel economy standard of 54.5 miles by 2025.  Whether that standard will actually be met is not certain, but it is probable that fuel economy will improve over the years, and that will dampen demand for oil.

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