Why peak oil demand is already a major problem

Oil demand has to do with how much oil we can afford, Tverberg writes, and many of the developed nations are not able to outbid the developing nations when it comes to the world?s limited oil supply.

By Gail Tverberg,?Guest blogger / April 14, 2013

Oil rigs are seen near the banks of a snow covered lake in Daqing in northeastern China's Heilongjiang province. Peak oil demand has a significant impact world populations and economies.

AP/File

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We in the United States, the Euro-zone, and Japan are already past peak oil demand.?Oil demand has to do with how much oil we can?afford. Many of the developed nations are not able to outbid the developing nations when it comes to the world?s limited oil supply. A chart of oil consumption shows that oil consumption peaked for the combination of the United States, EU-27, and Japan in 2005 (Figure 1).

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Gail Tverberg, an actuary with a background in math, analyzes energy and financial matters from a perspective that the world has limited resources. For more of Gail's posts, click?here.

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We can see an even more pronounced version of this pattern if we look at the oil consumption of the five countries known as the PIIGS in Europe: Portugal, Italy, Ireland, Greece, and Spain. All of these countries have had serious declines in oil consumption in recent years, as high oil prices have impeded their economies.

Oil consumption for the PIIGS in total hit its highest level in 2004, before the decline began. Peak oil consumption by country varied a bit: Portugal, 2002; Italy, declining since 1995; Ireland, peak in 2007; Spain, peak in 2007; Greece, peak in 2006.

Peak demand is very much related to jobs.?Peak oil demand occurs when a country is not competitive in the world market-place, and because of this, loses industry and jobs. One reason this happens is because the country?s energy cost structure is not competitive in the world market-place. With the run-up in oil prices starting about 2003, oil is by far the most expensive of the traditional energy sources we have available today. Countries that use a large percentage of oil in their energy mix can be expected to have a hard time competing, because of oil?s higher cost.?

Anything else that is done which raises costs for businesses will also have an impact. This would include ?carbon taxes,? if competitors do not have them, and if there is no tariff on imported goods to reflect carbon inputs.

High-cost renewables can also have an adverse impact, regardless of whether the cost is borne by businesses, consumers or the government.

• If the cost is borne by businesses, those businesses must raise their prices to keep the same profit margins, and because of this become less competitive.
• If the cost is borne by consumers, those consumers will cut back on discretionary expenditures, in order to balance their budgets. This is likely to mean ?a cutback in demand for discretionary goods by local consumers.
• If the government bears the cost, it still must pass the cost back to businesses or consumers, and thus reduce competitiveness because of higher tax costs.

This importance of competitiveness holds, no matter how worthy a given approach is. If costs were ?externalized? before, and are now borne by the local system, it makes the local system less competitive. For example, putting in proper pollution controls will make local industry less competitive, if the competition is Chinese industry, acting without such ?controls.

One issue in competitiveness is wage levels.?Wages in turn are related to standards of living. In a global economy, countries with higher wage levels for workers, and higher benefit levels for workers (such as health insurance and pensions) will be at a competitive disadvantage. Countries that use coal as their prime source of energy will be at an advantage, because workers? wages will tend to ?go farther? in heating their homes and buying electricity.

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Source: http://rss.csmonitor.com/~r/feeds/csm/~3/gPHhabqATvk/Why-peak-oil-demand-is-already-a-major-problem

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