Black Gold: just black now.

Now the title may seem preposterous, I agree. I mean how could the demand for oil fall when the world’s population is increasing, the number of people owning a vehicle is also increasing, the industries and factories are also expanding at a rapid rate among other factors, so then how can the demand for the most essential fuel of them all decline? Here’s how.

  The dawn of the oil age in its full sense began only in the 1860’s after an oil strike in Pennsylvania. The first barrels of crude oil fetched $18. These were used to make kerosene. Other liquids that were produced in the process were too unstable and were either burned or dumped. However a few years later the combustible engine was developed and the unwanted petrol and diesel did not go to waste.

  Since then the demand for oil has only gone up mainly due to increasing air, sea and road travel and three fifths of oil ends up in fuel tanks. Many believe that growing number of rich Indians and Chinese will only drive the demand for oil to new highs.

   However there is certain evidence that suggests to the contrary and that oil demands are close to their peak after which they will decline. It is not the problem with the supply but to many people’s surprise it’s the demand which will now fall. In the more developed nations of the world the demand for oil has already peaked and has fallen since 2005. Even allowing for the growing number of rich behind the wheel in New Delhi and Beijing two revolutions in technology will dampen the worlds thirst for the black gold.

   The first revolution was led by George Mitchell who championed fracking as a way to release huge supplies of “unconventional” gas from shale beds. This along with vast new innovations of conventional gas has recently helped increase the world’s reserves from fifty to two hundred years. In America where shale gas already billows from the ground, liquefied or compressed fas is finding its way on the roads. Even in India all the metros led by the capital Delhi have adopted Compressed Natural Gas and LPG as an alternative. Public transport in New Delhi which includes a large fleet of buses and auto rickshaws are on compulsory CNG and private vehicles and taxis too are on an increasing basis adopting to CNG. In the not too distant future gas  could also replace oil in ships and aircrafts, thus displacing a few extra million barrels of oil a day by 2020.

The other and often less recognized change is in automotive technology. Rapid advances in engine and vehicle design threaten oils dominance. Petrol and diesel engines are becoming ever more stingy. Vehicles are now becoming lighter which increases their efficiency and also vehicles powered by hydrogen fuel cells and increasing popularity of electric cars will also take its toll on demand for oil.

  A couple of countervailing factors could kick in to increase consumption. Firstly the Saudis who crontol 11% of output and have the most spare capacity, may decide to push out more, lowering prices and thus obviously increasing demand. Secondly if declining demand pushes down the oil price, drivers may turn back to gas guzzling cars as in the 90’s.

  Even if the demand for oil merely stabilizes, it will have important consequences. The environment should be a bit better off as there will be less carbon di oxide. The corporate world will too have dynamic changes. Currently Exon Mobil vies with Apple as the wolrds leading companies. Yet Exon is more vulnerable than it looks as Big Oil will most definitely have a future a s big gas but with not the same amount of profits.

    Many leading economists however think the biggest demand for declining demand could be geopolitical. Oil underpins Vladimir Putin’s kleptocracy. The Kremlin will find it harder to throw its weight if its main source of patronage is diminishing. The Saudi princes have relied on high oil prices to balance their budgets while paying for lavish social programmes to placate the restless youth that has taken to the streets elsewhere. Their large financial reserves can plug the gap for a while but the chances of revolution will be much greater. Most importantly if America is more dependent on gas then it is unlikely to be as indulgent in the future towards Arab allies.  The black gold has caused many a conflict in its rise, it will do so in its fall too, however most people will welcome the change.