Oil: Beyond the Peak
Peak oil demand is close. What should we expect beyond this point? Slow-to-No global growth for GDP, sharp slide for oil.
Most Western oil companies have finally conceded that oil consumption will top out before 2030, and maybe much sooner. That now includes even the historically unbending will of Exxon, who have finally conceded that demand growth will flatten and peak this decade (albeit they are still mired in fantasy when it comes to the world beyond the peak, imagining steady economic growth and a high plateau in demand for fossil fuels out as far as 2050).
In fact, the multiple crises visibly engulfing the globe — in energy, economics, geopolitics, and most importantly, the climate and environment — ensure that the world of 2050 will be nothing like the world of 2024. That much is guaranteed.
While not perhaps guaranteed, it’s highly likely that the decades ahead will see little if any growth in that peculiar, outmoded metric known as GDP, and that this absence of economic growth will be reflected in shrinking, not steadily growing, energy usage. Energy shrinkage will, in turn, make the transition to renewable electricity and electric transit faster and easier. By 2050, fossil fuel use can largely be the thing of the past that current climate goals assume it will be.
The decisive step is the first one: reducing or, better still, halting all economic growth — the cancer that drives everything. For now, governments show no sign of adopting any such approach. But with luck, they won’t have to. Slow-to-no growth will just happen.
High on the list of the myriad factors driving the world towards slow-to-no growth are the climate itself, broader environmental degradation, widespread population decline, trade war, and popular disaffection with the consumption-obsessed way the human world has operated over the last half century.
Whether these factors will unfold quickly enough to keep the planet habitable for humans and most of the plant and animal species alive today is much less clear. Still less evident is whether the process will be equitable enough that money won’t be the sole determinant of who lives beyond the upheaval and who dies in the process — whether that process will be the climate-justice-driven concept adherents call “degrowth.”
Mythical High Plateaus
Reality has pierced the great wall of self-deception that ran rampant for so long through the companies and countries that constitute the oil and gas industry — a wall on which the transition was painted as meaningless and fossil fuel use as a perpetual human necessity.
China did the piercing. As the “world’s factory,” China has been the strongest driver of global fossil fuel demand for a quarter century, and now Chinese consumption is topping out. Not just for now, due to a sputtering economy, but forever, due to the strength and efficiency of its clean-energy manufacturing.
Forecasters linked to the oil industry buy the “now” part of that, but not the “forever” part. They see China’s economy — and with it the global economy — returning to rapid enough economic growth that China’s clean-energy manufacturing output will all be needed just to cover incremental fuel usage. Oil and gas will still be required for “baseline” energy needs, roughly equal to current levels of oil use. In Exxon’s view, that high “plateau” for oil demand extends out to at least 2050. Beyond that, their forecast does not go.
The fundamental assumption here, common among oil industry leaders from Houston to Riyadh, is that the global socio-economic and geopolitical structures are solid, and the world of the future will be much like the world of the past. Nor is this particular form of self-deception exclusive to oil and gas producers and forecasters. The fantasy is pervasive throughout the Western economic, political and foreign policy establishment.
But is it really sensible to suppose that the world’s energy and ground transportation systems can be replaced (in large part or in whole) with new technology, the intricately intertwined US and Chinese economic mass once dubbed “Chimerica” be dismembered, and the heavily globalized German manufacturing sector be cut off from Russian fuels and Chinese components, all without skipping an economic beat?
And that all those soft landings will take place after or amid massive disruptions from pandemic, war involving major powers in Northeastern Europe and the Middle East, and ever-worsening climate craziness?
Slow-to-No Growth
An implicit question underlying these overt questions is how much economic growth can be squeezed out of our crises-ridden ecologically degraded planet over the next decade and beyond. The answer looks to be “not much, if any.”
The case for slow-to-no growth over the medium-term in an already deglobalizing world economy isn’t hard to make. Economic growth in the West was already persistently meager between the 2008 financial crash and the 2020 onset of pandemic. Reasons economists gave for that chronic slowdown, which has intensified since, prominently included aging of the population and declining birth rates.
In much of the over-developed world, the population would be visibly shrinking except for immigration. China’s population is now shrinking, too. India, the world’s most populous country at over 1.4 billion, is registering fewer births per woman that the 2.1 demographers say is needed to reproduce a population. India’s population will probably keep growing for a few more years on past moment, demographers say, but then it seems headed for decline, as well, taking Asia as a whole with it.
Even Africa, which accounts for the bulk of the rise in most demographic forecasts, has witnessed a sharp decline in growth rates this decade. Largely as a result, UN and other estimates for peak global population have been coming down. It’s by no means clear the world will reach even the 10.4 billion peak the UN has been forecasting most recently. It’s not certain it will even reach 9 billion.
Economic growth rates are also declining in Africa, challenging forecasts for major gains in that continent’s economy and energy demand in the 2030s and beyond. In April, the World Bank projected a rebound to a still tepid 3.4% increase in sub-Saharan Africa’s GDP this year, from 2.6% in 2023. Forecasts for several big countries have been lowered since, and even that tepid rebound is in doubt. Acute obstacles include debt burdens, depressed prices for industrial commodities they sell to China, and domestic inflation.
Not To Mention…
Those are the factors economists talk about and include in their forecasts. Then there are the even bigger issues most economic and energy modelers ignore. One is the collapse of the “free-trading” system embedded in what is sometimes known as “the rules-based order.” What Washington built it can destroy, and it has destroyed the post-WWII, post-Soviet trading order quite effectively.
Washington’s most recent blows to the rules-based order are its policy towards China and, increasingly, the restrictive trade practices it is pushing on Europe, India, and others. China’s response to US tariffs and other trade barriers has been destructive of that order, as well.
Liberal economics is clear that tariffs, other trade barriers, and the kind of industrial planning prevalent in China and now emulated in the US and Europe, are inefficient and will stunt economic growth and corporate profits. Globally, they probably have a point. While building new factories adds to GDP in the country where the construction takes place, over time product costs will be higher and corporate profits lower than they would have been had the factories gone wherever corporations wanted to build them. It’s neoliberal economics-101.
Following the whims of multinational corporations also hurt US workers and appeared to favor China, both Trump and Biden administration officials have declared. Nationally, they probably have a point. But that doesn’t mean lower growth won’t result globally. Personally, I think lower growth is fine, even if few politicians much of anywhere agree with me.
What I do mind about recent US policy is that it heavily targets Chinese solar, batteries, EVs and other clean energy equipment when the US doesn’t have plentiful, affordable alternatives (and won’t have any time soon). Washington hasn’t targeted fast fashion or gas-guzzling leaf blowers. It has targeted solar panels and the best EV batteries you can get for whatever amount of money you’re able to pay.
An alternative would be for the US government to pay larger subsidies to the few US factories that do make — or plan to make — solar panels and EVs, in hopes they can compete with the Chinese. But it shouldn’t just turn away renewable gear and EVs that the US desperately needs to limit climate change.
… The Climate
Speaking of the climate, another oft-ignored constraint on economic growth is the unstable, unpredictable climate itself. Floods, droughts, and wildfires cause electric outages and break supply chains. People can’t work as hard for as long outdoors when the air-temperature is over body heat. As oceans rise and wildfires proliferate, property insurance is becoming unaffordable, if not unavailable, in many places, for businesses just as it is for homes.
Agribusiness empires are hanging on by a thread in the face of massive legal penalties for spreading cancer, a requirement for ever-more fertilizer to grow the same amount of food as soil depletion worsens, and ever-more herbicides as “weeds” develop resistance to more of our poisons.
Worse, scientists have observed a rate of melting in glaciers and ice caps in recent years higher than UN consensus climate models indicate at existing accumulations of CO2. That observation is over too short a timeframe to be definitive, but it suggests big upside risk in projected amounts of sea-level rise.
Repeated rebuilding of houses and streets in areas that didn’t used to flood adds to GDP in an immediate sense, but it also adds to greenhouse gas emissions and drains brainpower that is desperately needed to more fundamentally transform the world into a long-term livable place again. The good news, if you call it that, is that the economy can’t grow predictably under such unstable conditions.
Energy Implications
That shaky prognosis for economic growth effectively undermines the notion that oil demand can plateau for years, much less decades. A steep decline in oil use looks like a better bet. Already, the stalling out of oil demand growth evident in China seems likely both to last and to spread.
Within China, fully or largely electric vehicles now account for over half of new car sales. Buses and mid-sized trucks and vans are being electrified rapidly, too. As they become more efficient, batteries are edging even into large trucks. The ground transport sector that accounts for roughly half of China’s oil demand is moving off oil. Latest data indicate that consumption of oil products, especially diesel and gasoline, probably shrank in the first half of 2024, and the economy shows signs of even greater weakness in the second half.
Chinese manufacturers will export much of the renewable generation gear and EVs they can’t sell at home. If the US and Europe won’t take them, somebody else will. The transition is not going away. What that means is that even if China surprises and shifts back into growth mode a couple of years from now, renewable electricity and electric cars will be positioned by then to cover the incremental energy demand. Especially as a shrinking population and unstable climate will cap resurgent growth.
Oil use will not level off, much less rise again, in China — or much of anywhere else. Pretending it will won’t save the oil industry. But will oil’s downward trajectory be steep enough to keep the Earth inhabitable for people and other animals and plants? That, when you strip away the fantasy, truly is the question.
