If Demand for Oil Stops Growing, What Does It Mean for Texas and Everyone Else?

And how would Texas, which produces more oil than any other state in the country, fare if demand peaks?

By Mose BucheleNovember 7, 2016 9:15 am, , , ,

From KUT:

As soon as five years from now, global demand for oil might stop growing. That prediction may not seem surprising if it came from an environmental group, but when oil giant Shell said as much in a recent conference call, it caused a stir. Oil companies don’t usually talk publicly about people losing interest in their product.

So, if demand really does stop growing, what would that mean and how could it happen?

Jim Krane at Rice University’s Center for Energy Studies is reminded of a quote from former Saudi Arabian Oil Minister Ahmed Zaki Yamani: “The stone age didn’t end for lack of stones.”

That’s to say, demand doesn’t end because supply ends. It ends because people start using other sources of energy. What would they use to replace the world’s most popular transportation fuel?  Many people hope renewables, but fossils fuels are also likely, says Frank Wolak, director of Stanford’s Program of Energy and Sustainable Development.

“Right now, the cheap energy BTUs, as I’m sure you’re aware, is natural gas and coal,” he said. “So the fact that you see a peak demand in oil – it’s not a surprise.”

How would Texas, which produces more oil than any other state in the country, fare if demand peaks?

“Texas will do just fine,” Wolak said. “Because, basically, Texas produces a lot of natural gas.”

Michael Webber is deputy director of the Energy Institute at UT Austin, agrees.

“The other thing is in Texas is we make a lot of money downstream, meaning we use cheap oil and cheap natural gas to make chemicals and fertilizers and other products,” he said. “And, if there’s declining demand, perhaps, that means there will be maybe declining prices for those feedstocks, which means our chemicals companies maybe they’ll be more competitive.”

Declining oil prices would also make it cheaper to fill up your car.

“The price pressures would be to the downside more likely,”  said Denton Cinquegrana from the Oil Price Information Service.

Though Standford’s Wolak says he’s not so sure.

“In order to produce even the same amount of oil, you’ve got to continually find more oil in the ground,” he said. “So, that’s a dynamic that would say price may need to rise even though demand is staying steady.”

Even if it’s not good news for your pocketbook, Rice University’s Jim Krane thinks it may be good for the environment. He says a shift away from oil towards natural gas as a transportation fuel may reduce greenhouse gas emissions.  But, like others, he was not convinced that Shell’s peak demand prediction was correct.

“Our own models here at the Baker Institute show that demand will continue to grow for a while,” he said.

In the model he’s referring to increasing demand will be driven by economic growth in Asian countries, and that’s a belief held by big oil companies other than Shell.