Inspired by @RayLongDC's thread about Peak Oil, I have been thinking about peak supply and peak demand. (Thread) 1/
Oil production and consumption are essentially the same, give or take the change in inventories, which is generally no more than ~2% of total supply. 2/
So in that sense, it is true that Peak Oil (supply) is the same as Peak Demand. When we hit a peak in consumption, it won't be immediately obvious whether it is supply-led or demand-led. 3/
And of course supply and demand together will determine production and consumption. 4/
But as Spencer Dale and and Bassam Fattouh point out, the difference between demand-led and supply-led peaks is in their implications for prices. oxfordenergy.org/publications/p… 5/
A peak driven by a shift in the demand curve - because of falling costs for electric vehicles, say - would mean lower prices than a peak driven by shift in the supply curve. 6/
People who made the running in the Peak Oil debate in the 2000s generally seemed not to have much to say about pricing, apart from "up up up!" 7/
Possibly because they often had backgrounds in geology and other "hard" sciences, and were scornful of economics. 8/
When economists said "well, as prices rise we will see a response on the supply side and the demand side, and the market will adjust", that seemed like magical thinking. 9/
But as it turned out, that was exactly what happened. 10/
So what I wonder in the debate over Peak Demand is what will be the analogous adjustment mechanisms if prices are on their way down. 11/
One example is something we have already seen in the US: People stop looking for fuel economy when they buy new cars. umich.edu/~umtriswt/EDI_… 12/
Other possibilities: People who couldn't previously afford petrol and diesel cars and trucks can get hold of them, or drive the ones they have more often. Oil-fired power generation picks up. Others? 13/
There is potential oil consumption out there that will be as hard for us to predict today as shale oil production was in 2007. 14/
The fact that cars account for only ~1/4 of global oil consumption has been widely discussed as one reason why we can expect demand to remain resilient even if the EV fleet keeps growing rapidly. 15/
But the effect of low prices displacing oil consumption to other uses may be even more important. 16/
If we care about oil consumption for reasons of climate policy or energy security, this seems like an important issue to address. What do other people think? (Ends) 17/17
It's worth noting, incidentally, that although the Peak Oil supply pessimists may have been fundamentally wrong, they were more useful for predicting the market of 1999-2013 than many people who were fundamentally right. 18/17
