November 14, 2007
Welcome to a world of runaway energy demand
By Martin Wolf
“The increase in China’s energy demand between 2002 and 2005 was equivalent to Japan’s current annual energy use.” This nugget of information, buried in the International Energy Agency’s latest World Energy Outlook, tells one almost all one needs to know about what is happening to the world’s energy economy.
Neoclassical economics analysed economic growth in terms of capital, labour and technical progress. But, I now think, it is more enlightening to view the fundamental drivers as energy and ideas. Institutions and incentives provide the framework within which the development and application of useful knowledge transforms the fossilised sunlight on which we depend into the stream of goods and services we enjoy.
This is the world of abundance that China and India are now joining. Nothing short of a catastrophe will stop them. For the pessimists, however, particularly climate-change pessimists, catastrophe will follow. What is certain is that the challenges ahead are huge.
The remainder of this column can be read here. Debate from our guest economists appears below.
Robert Starbuck (guest commenter): I am a Columbia University BA and MBA with 30 years of investment experience and have been following the energy sector for most of the past 23 years. I am Director of Research for Schroders Investment Mgmt North America.
One interesting analysis that I have never seen done is an analysis of the cause of the decline in oil demand in the early 1980s… the last (only?) time of meaningful oil demand reduction.
Posted by: Robert Starbuck | November 16th, 2007 at 12:36 pm | Report this commentAn interesting chart I saw a month ago sparked me to try to better understand that decline…
From 1980 until 1985, residual fuel demand declined from about 17M barrels per day to about 12M bpd (rough numbers as I was going off a chart), accounting for the entire decline in oil consumption.
Other oil uses were flat to up (despite CAFE auto standards, recession, the 10x increase in oil prices in the prior decade which caused increased spending on energy conservation, etc.)
It sparked the question in my mind.. Why did residual fuel decline?
I know that resid is often used as boiler fuel for utilities, so what was going on?
I decided to pull out the BP Statistical Review of World Energy (available on their web site) which is put out each year for a clue.
The answer I came up with:
From 1980 through 1985, nuclear energy consumption about doubled, increasing (in oil terms) by about 4M barrels per day, with the largest increase being in Europe, the very geography that saw the lasrgest decrease in oil consumption. Hydro and Natural gas continued to increase as well, by the equivalent of 1M and 4M boepd.
So… that analysis begs the question… what could possibly cause oil demand to decline over the next 5 years, especially with many of the easy savings having already been done in the ’80s and with new nuclear plants and other alternatives on the drawing board, but not likely to have an effect for the next 7-10 years?
Not a pretty picture for those of us who like low oil prices.