Oil Demand Slump Offers Cleantech Opportunity

I just attended my favorite energy conference in Boulder, Colorado held by the International Center for Energy & Economic Development (ICEED) which I have attended since 1990. It brings together the leading energy economists from throughout the world so it is a good primer on what is happening in global oil and gas markets.
There is an emerging consensus that there is a point of no return to business as usual in terms of oil demand in the US, Japan and South Korea. The view is that the collapse in international trade is a long term phenomenon. Some anecdotal evidence from my Japanese friends at the conference is that 50% of small car sales in Japan are now small cars. The Peak Oil crowd will now to eat crow crying out that the sky is not falling. The world has abundant fossil fuels and bottleneck is capital not resources. In fact, I can make the argument that the world is long oil and will never exploit its hydrocarbon resource base as we transition to a more efficient and greener economy.
While long term energy prices may rise to $70 to $90 per barrel (as reflected in the forward oil price curve), the reality is that oil demand is down and will probably trend downward. In 2008, the world produced 86 million b/d, and now analysts are talking about oil demand of may be 79 million b/d. Oil prices will probably trade in the $45 to $55 per barrel range for some time as a bottom is forming in the market. Gasoline demand in the US, one of the global market drivers, is down 4%. What oil companies have been doing is to reduce inventory in the face of anemic growth. Refinery margins are crushed under this environment.
Economists see no economic growth through 2012 and oil demand will continue to decline in the next 3 to 5 years. The recovery in energy demand will be very slow. This is particularly true in developing countries as energy is a large part of foreign trade.
On the bright side, lower oil demand will actually make the transition to a greener economy easier as energy prices trend upward some of the energy efficient and cleantech infrastructure will be in place. Accelerating oil prices will drive the change just that much faster.
My mantra for years is that oil and coal demand will plateau by 2020. People thought I was crazy to talk of using less energy and in a more environmentally benign way. That 2020 time table may have been accelerated due to the financial crisis. I don’t gloat but green means how we use fossil fuels more efficiently as well. That’s real sustainability.

Peter Fusaro