'Oil-less' economic growth is coming

Rising efficiency, conservation and substitution are steadily reducing the amount of oil needed to fuel an increase in the goods and services produced around the world.

Oil demand in the rich, industrialized countries of the West already appears to have peaked and the trend in developing economies is towards an ever-smaller increase in the amount of oil consumed for every extra unit of economic growth.

Global oil intensity — oil demand growth divided by economic growth — has fallen by about 2 percent a year over the last decade and the decline is now accelerating, spurred by high oil prices, moves to alternative fuels and measures to curb global warming.

This does not yet mean that absolute oil consumption is falling because population growth and rising wealth in poorer parts of the world will push up oil consumption for some time.

But it does mean global oil use will eventually peak and start declining — and “oil-less growth” may not be far away.

“The rate of decline of oil intensity will accelerate,” said Eduardo Lopez, oil demand analyst at the International Energy Agency (IEA) in Paris, which advises industrialized countries.

“There is a structural change — difficult to measure admittedly, but clear — that demand for burning fuels is no longer what it used to be.”

David Fyfe, head of the IEA's oil industry and markets division, says price controls and subsidies as well as economic stimulus packages in China and elsewhere, will help prop up oil demand short-term, but longer-term the trend is downwards.

“Globally speaking, oil intensity has been declining by around 2 percent annually over the past decade,” Fyfe said.

“Our working assumption is that with fuel economy standards, fuel diversification and substitution ... oil intensity lessens by just under 2.5 percent over the next five or six years.”

This acceleration is probably partly due to prices: crude oil hit a record high of almost US$150 per barrel in 2008 and are now fairly high historically at around US$80.

Estimates of when global oil consumption will stop rising vary but many analysts see it happening over the next 15 years.

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