Oil Demand in Developed Nations Peaked in 2005, and It's Not Coming Back

Demand for oil in the world’s 30 developed countries probably peaked in 2005 — long before the recession — and will continue to fall even as the economy recovers, according to a report released Tuesday from consulting firm, IHS Cambridge Energy Research Associates.

To put that in perspective, consider this: The 30 developed countries that make up the Organization for Economic Cooperation and Development accounts for 54 percent of all oil demand.

Global oil demand is still expected to rise in 2010. But it will be emerging countries, like China, that will drive the oil consumption engine, not developed countries like the United States.

Oil demand is expected to increase from 83.8 million barrels a day in 2009 to 89.1 mbd in 2014, according to IHS CERA’s most recent World Oil Watch report.  Most of that demand — a whopping 83 percent — will come from non-OECD countries.

“The economic downturn has been masking a larger trend in the oil demand of developed countries,” said IHS CERA Chairman Daniel Yergin. “The fact is that OECD oil demand has been falling since late 2005, well before the great recession began.”

Why is this happening?

In short, folks in developed countries are using less fuel for their cars and trucks than before. And that’s important, considering the consumption of transportation fuel accounts for 60 percent of petroleum demand in OECD countries.

There are a number of factors at work here, CERA says.

Namely these three: Fuel economy standards have improved, thanks to a push from consumers and government mandates; more alternative fuels and electric cars; and maxed out vehicle ownership that will only stagnant as the population ages.

“Petroleum for transportation has been the single driving force behind OECD oil demand for the past two decades,” Aaron Brady, director of global oil at CERA, said in a statement. “After the oil crisis of the early 1980s, the non-transportation sector turned to readily available substitutes like coal, gas or nuclear power. Now we are seeing the tempering of the last significant driver of oil demand in developed countries — petroleum for transportation.”

Don’t expect oil consumption in developed countries to take a sudden dive, however. The decline in demand from the peak year of 2005 to 2030 is expected to be fairly modest, said Brady, assuming some demand rebounds over the next few years.

This falling demand has impacted the growth of alternative fuels as well, CERA said in its report.  Meaning, petroleum is not going anywhere – for now.

Brady sums up the future of petroleum here:

“Petroleum will still be the dominant fuel for transportation 25 years from now, although other sources of energy will likely have captured a growing foothold in transportation.”