When will oil demand peak? Depends on our driving habits

In the past, forecasters had a relatively simple method of estimating whether demand for oil would increase or decrease and by how much.

For the most part, they simplylooked at the economy. If people were making more money, it wassafe to assume they wouldspend more, travel more and head to the car dealership more often.

Now, technologies like electric cars, ride-sharing programs, and autonomous-driving systems are forcing experts to completely rethink their expectations for the future. Their job is becoming a lot more challenging.

What you're seeing is a lot of uncertainty in the transportation sector.- Kevin Birn, IHS

There's still a correlation between oil demand and economic activity, but a number of otherfactors are also at play, making it exceptionally difficult to project how much oil we'll consumein the future.

That's why some major industry playersare presenting multiple alternative models of what could happen with oil prices in the next few decades.Forecasters are obsessed with trying to figure out when global oil demand will peak around the globe.That would be a milestone thepoint at which the fossil fuel industry would begin to contract. And itcould have drastic implications for a crude oil exporting country like Canada.

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Respectedenergy forecasters such as the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) both expect oil demand to grow until about 2040. However,the IEAand Norwegian oil giant Statoilhave also said that under certain conditions global oil demand could crest in the 2020s and then start to fall.

The stark contrast between thoseoutlooks reflectsthe unpredictability around theautomotive industry.

"What you're seeing is a lot of uncertainty in the transportation sector, a lot of changes undergoing there, and you're seeing that play out with forecasters whose business is trying to model what that may mean for the oil markets," said Kevin Birn, a senior director with IHS, a global business research firm.

Birn says IHShas three different scenarios about future oil demand and that analysis is ongoing. The organization istrying to determine the impact of electric cars, ride-hailing services and autonomous-driving technology.

"We have a large study going on called 'reinventing the wheel.' We're looking a lot at the uncertainties," said Birn.

Kevin Birn explains the three global oil demand scenarios of IHS

8 years ago

Duration 0:44

The research firm says the future of the car -- and the sources of energy that propel it -- is not predetermined.

Autonomous impact

Companies such as Mercedes and Tesla already offer some semi-autonomous driving technology and just about every automotive company is developing its own system. There's no consensus about how this will impactfuel use.

It was initially assumedthat a computer would be more efficient at driving a car than a human, because with its cameras and other technology, it wouldn't brakeor accelerate as hard. That would meanfewer trips to the gas pump.

But more recently experts have suggested thatautonomous driving could actually boost vehicle use and therefore gasoline sales by alleviatingthe annoyance of being stuck behind the wheel on a lengthy road trip or slow summer weekend commute back from the mountains or lake.

"Maybe a commute from Canmore to Calgary wouldn't be so unbearable if I didn't have to pay attention. I can read the newspaper or do some work," said Birn."You see scenarios where autonomous vehicles could actually encourage greater fuel consumption."

Forecasters are also grappling with another wildcard governmentpolicy.

Canada and the U.S. are forcing car companies to meet rising fuel efficiency standards, which should lead to lower gasoline demand in both countries. With a change in government south of the border, this policy is up in the air.

"The only thing that can prevent this is if policymakers soften the mandated increase in fuel efficiency standards in new cars sold, which [President Donald] Trump suggested he may do in the U.S.," said the Bank of America Merrill Lynch in its latest research report Global Energy Weekly.

"A change in policy would impact targets only from 2021 to 2025. However, they are now under midterm review, and these are the targets Trump may change," said the report.

In other parts of the world, such as Beijing and Delhi, government policies are in place to curb vehicle use and combat pollution and crippling traffic woes. Restrictions onwhen people can drive and what types of vehicles they canbuycould lower gasoline demand in those markets and others that follow suit.

Forecastershave a considerable amount of homework and guess workto predict how much oil the world will use in the years and decades to come.

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