Coming soon: "oil-less" economic growth
By Christopher Johnson
LONDON (Reuters) - The world may soon achieve something long dreamed of
by governments and policymakers: higher economic growth without using
more oil.
Rising efficiency, conservation and substitution are steadily reducing
the amount of oil needed to fuel an increase in the goods and services
produced around the world.
Oil demand in the rich, industrialised countries of the West already
appears to have peaked and the trend in developing economies is toward
an ever-smaller increase in the amount of oil consumed for every extra
unit of economic growth.
Global oil intensity -- oil demand growth divided by economic growth --
has fallen by about 2 percent a year over the last decade and the
decline is now accelerating, spurred by high oil prices, moves to
alternative fuels and measures to curb global warming.
This does not yet mean that absolute oil consumption is falling because
population growth and rising wealth in poorer parts of the world will
push up oil consumption for some time.
But it does mean global oil use will eventually peak and start declining
-- and "oil-less growth" may not be far away.
"The rate of decline of oil intensity will accelerate," said Eduardo
Lopez, oil demand analyst at the International Energy Agency (IEA) in
Paris, which advises industrialised countries.
"There is a structural change -- difficult to measure admittedly, but
clear -- that demand for burning fuels is no longer what it used to be."
DECLINING
David Fyfe, head of the IEA's oil industry and markets division, says
price controls and subsidies as well as economic stimulus packages in
China and elsewhere, will help prop up oil demand short-term, but
longer-term the trend is downwards.
"Globally speaking, oil intensity has been declining by around 2 percent
annually over the past decade," Fyfe said.
"Our working assumption is that with fuel economy standards, fuel
diversification and substitution ... oil intensity lessens by just under
2.5 percent over the next five or six years."
This acceleration is probably partly due to prices: crude oil hit a
record high of almost $150 per barrel in 2008 and are now fairly high
historically at around $80.
Estimates of when global oil consumption will stop rising vary but many
analysts see it happening over the next 15 years.
BP Chief Executive Tony Hayward said last month world oil demand would
peak sometime after 2020 at between 95 million and 110 million barrels
per day (bpd), compared with current oil demand of around 85 million
bpd.
The trend toward better fuel economy for cars and other vehicles has
been clear for some time and it is no surprise that developed economies
are using less oil for power generation.
But data from the IEA shows it is not just the richer parts of
the world that are weaning themselves off oil.
Although fuel intensity in the developed countries of the Organisation
for Economic Co-operation and Development (OECD) has consistently been
far lower than in non-OECD countries, the rate of decline has been very
similar, IEA figures show.
For a graphic showing declining oil intensity in the OECD and non-OECD
economies, based on IEA data, click here
"MARKET AT WORK"
The top energy forecasters, the IEA, the U.S. Energy Information
Administration (EIA) and the Organization of the Petroleum Exporting
Countries all make different assumptions of oil demand, economic growth
and the ratio between them.
The IEA says 1 percent of global economic growth now needs about 0.47
percent more oil, the EIA says it needs 0.51 percent, while OPEC
suggests it needs only about 0.31 percent more oil.
The lower OPEC estimate may reflect a policy bias, analysts say, since
the 12-country grouping represents oil producers who take a cautious,
conservative approach to demand for their oil.
A Deutsche Bank analysis of oil intensity shows over the last 30 years
the annual percentage change in oil demand has equalled 0.9 percent of
global economic growth minus 2 percentage points.
But all the big forecasters expect the decline in oil intensity
to pick up speed over the next decade.
The trend in the biggest oil consumer, the United States, is relatively
easy to assess. Mary Novak, director of energy services at Global
Insight, which offers the EIA estimates for oil demand growth, says jobs
and income are the key indicators.
"We have based our model on jobs ... Oil is a transport fuel (in the
United States). It is not used for much more," she said.
The EIA uses Global Insight's macroeconomic data to come up with the
agency's own oil demand forecast.
In non-OECD countries, including China, it is more difficult to estimate
since detailed oil data is not available. But it is becoming clear that
oil intensity is declining everywhere.
"This is the market at work," said Mike Wittner, global head of oil
research at Societe Generale. "The very high prices we have seen
recently are driving consumers away from oil."
(Additional reporting by Tom Doggett in Washington; editing by Sue
Thomas and Lisa Shumaker)
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