A long-term decline in the demand for oil
could undermine the huge investments in Canadian tar sands, which have
been heavily opposed by environmentalists, according to a report
The report, by Greenpeace,
will make uncomfortable reading for the companies that are investing
tens of billions of pounds to exploit the hard-to-extract oil in the
belief that demand and the price would climb inexorably as countries
such as China and India industrialise.
Citing projections from
the oil producers' cartel Opec and the International Energy Agency, as
well as various oil experts, the report casts doubt on the conventional
assumption that consumption and prices will begin gathering pace once
the world pulls itself out of recession.
It argues that alongside
the cyclical fall in the oil price there are more fundamental
structural changes taking place. These are driven by advances in energy efficiency
and alternative energy, cleaner vehicles, government policies on
climate change and concerns over energy security. Greenpeace has posted
the report to 200 shareholders in Shell and BP, including pension
funds, in an effort to put pressure on the companies to think again. BP
reports quarterly results tomorrow and Shell on Thursday.
Stockman, the author of the report, said: "A peak in oil demand was
barely discussed even a year ago, but now it is a viable idea. When it
happens, I wouldn't want to guess, but it will happen sooner than we
thought. There has been lots of talk about a supply peak, but it is
good to start talking about a demand peak, and that has huge
implications for these companies.
"All of the international oil
companies as you look beyond 2020 need a high oil price to be
profitable, because they are increasingly being pushed to develop
expensive resources in not just the tar sands, but in deep water and
offshore Arctic sites.
"But there is something more structural
going on," he added. "Governments are beginning to act, and not just
the Obama administration. In the EU, the policy driver is climate
change, and in China and the US, it is about energy security and the
vulnerability of the economy to volatility in the oil price."
rush to exploit the tar sands in Canada has been described as a modern
day gold rush that has led to a huge boom in once sleepy towns in the
province of Alberta. The oil was once considered too difficult and
expensive to extract as it is a mixture of clay, water and bitumen.
Many of the projects have been mothballed until the oil price recovers. It has fallen from a peak of $147 a barrel
and is currently at about $68. Merrill Lynch estimates that the price
would need to settle at about $80 to make further investment viable.
Critics argue that tar sands extraction is disastrous to the
environment, causing deforestation, requiring huge amounts of water and
greenhouse emissions three to five times greater than conventional
The report notes that Opec and the IEA have been revising
projections for oil demand downwards since 2006, with by far the
sharpest revision this year. Opec has revised its 2025 oil forecast
down by 12% within the past four years.
Peter Hughes, who spent
much of his career at BP and BG, and is now director for global energy
at consultancy firm Arthur D Little, recently wrote a report titled
'The Beginning of the End for Oil?' He supports the Greenpeace view and
said the correlation between oil demand and GDP growth has been
weakened. "It is widely accepted that demand in OECD countries has
plateaued and is going into decline but it has also been thought that
would be massively outweighed by growth in China. But the Chinese think
long-term and identified some time ago that the biggest threat to their
economic growth was an increasing dependency on imported energy, which
is anathema to them. The conclusion is clear - to reduce the reliance
on hydrocarbons through energy efficiency and fundamental technology
change. I think we will reach peak oil demand in the middle of the next
About 50% of oil demand in the US fuels cars and the
report takes hope from the Obama administration having tied recent
bailouts for the industry to the development of cleaner vehicles. But
it notes the US is far behind China, where government mandates mean new
Chinese cars are 56% more fuel-efficient than those built in Detroit.
Fuel-efficient cars in China attract 1% sales tax and sports utility
Greenpeace also contends that a high oil price is
simply unsustainable. It cites research from Cambridge Energy Research
Associates, which suggests that economies become constrained when the
price moves into a band between $100 and $120 a barrel, causing the
price to fall back. Another report from energy business analysts
Douglas Westwood puts the "recession threshold" even lower, at $80 a
Shell, which has delayed a number of tar sands projects,
argues that energy supply will struggle to keep up with the demands of
a growing global population and that in the long term there will be
upward pressures on energy prices that justify investing in the
Canadian tar sands. "Our first oil sands operation, the Athabasca Oil
Sands Project (60% Shell share) was built between 1999 and 2003, when
the oil price was considerably lower," a spokeswoman said. Shell has
the highest exposure of the majors to the tar sands and is most at risk
from a decline in demand.
There are contrary views. The Saudi oil
minister warned in May that the world could be facing another oil
shock, with prices above $150 within two to three years through a lack
of investment in new capacity. The International Monetary Fund has
expressed similar concerns. Even Greenpeace does not suggest that there
will not be temporary squeezes on demand and price spikes. But it
believes that the world might fast be approaching a tipping pointthat
could have profound implications.