Peak oil demand is still a decade away

The world’s demand for oil is expected by Goldman Sachs Research to grow for the next decade. Lackluster electric vehicle sales and rising incomes around the globe are increasing the appetite for energy supplies that will be met primarily with more fossil fuels.

While some prominent forecasters have predicted oil demand will peak by 2030, our researchers expect oil usage will increase through 2034. That’s in part because of demand for oil from emerging markets in Asia and demand for petrochemicals, according to a report by Goldman Sachs Research.

“We think peak demand is another decade away, and more importantly, after the decade it takes to peak, it plateaus, rather than sharply declines, for another few years,” write Nikhil Bhandari, co-head of Asia-Pacific Natural Resources and Clean Energy Research, and analyst Amber Cai in the team’s report.

Goldman Sachs Research forecasts, in its base case, oil demand to peak at 110 million barrels a day by 2034. In a scenario with slower EV adoption, oil demand could keep increasing towards 113 million barrels a day by 2040.

When will demand for gasoline peak?

The thirst for oil will be driven by increased demand for petrochemicals and specialized refined products such as jet fuel, rather than gasoline for automobiles. Petrochemicals are produced from petroleum or natural gas and are used in everything from plastics to soaps.

“Among oil products, we expect gasoline demand to peak around 2028, but petrochemical demand growth could more than offset the gasoline demand decline through 2040,” Bhandari and Cai write.

Once oil demand peaks in about 2034, it will probably begin a moderate decline with a CAGR of 0.3% till 2040. Our researchers predict that China will see growing demand for oil until late 2020s.

The longer horizon to peak oil demand in part reflects a slower adoption rate for EVs. European countries have cut subsidies, and price competition has put pressure on automaker profits, slowing EV investment on the continent. Technical issues, affordability, charging infrastructure, resale value, and policy uncertainty around elections in the US and Europe are all contributing to sluggish EV sales.

“The slow adoption makes a difference, not just in terms of the year when it peaks, but the level where we will be in year 2040,” Bhandari and Cai write.

The impact of slowing EV penetration

Even if it happens more slowly, the shift to EVs will eventually erode global demand for gasoline. India, for example, is rapidly electrifying its two-wheelers, which account for about 50% of the country’s gasoline consumption.

“The threat to gasoline demand, as the global passenger fleet continues to expand, mainly comes from EVs reducing the fossil fuel-usage intensity of the fleet,” according to the report.

EV usage, in our analysts’ base case, will in 2028 have expanded to the point that it’s expected to offset the incremental demand for gasoline from the world’s still-growing fleet of passenger cars. However, appetite for other fuels, such as diesel, will continue to rise, peaking in about 2034, because medium- and heavy-duty trucks are more difficult to electrify than passenger vehicles. Right now batteries are simply too big, too heavy, and too expensive to justify heavy-duty truck fleet conversions.

In the late 2030s, however, hydrogen may begin competing with diesel for large fleet vehicles, according to Goldman Sachs Research, which will contribute to waning diesel demand.

Jet fuel will likely take longer to peak, with demand growing towards 2040. As average global incomes continue to rise, so will demand for air travel — growth that will more than offset fuel savings from more efficient aircraft engines. China will account for more than half of the increased demand as its GDP per capita growth rises and it becomes a high-income economy. Towards 2040, our researchers have built in more disruptions to jet fuel demand, such as biofuels, fuel efficiency, and other decarbonization efforts.

Even if gasoline peaks as forecast around 2028, petrochemical demand growth could more than offset the decline in gasoline demand through 2040. As the world’s GDP per capita rises, consumers will want more products such as plastics that are derived from oil, increasing the need for petrochemical production. 

In the meantime, as capital expenditures for oil production slows, that may lead to supply shortages.

“While peak oil demand is still a decade away, capital is slowing for the production of crude oil and oil products, contributing to constrained supply in the medium term,” Bhandari and Cai write.

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