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The dooms day of crude oil
When crude oil price was rising during the years 2003 to 2008, oil-theorists were busy with their doom’s day predictions.

First in 1956 and later in 1975, Shell’s geologist M K Hubert correctly predicted that the US oil will peak. Prompted by this, starting from late 1990s, influenced by Hubert’s model, oil theorists used to argue that either peak oil has happened or would happen soon.

When they were shown the facts which were contrary to their predictions, some continued to argue by saying the date might have moved by few years, but that the decline was around the corner. Now the US shale revolution has conclusively proved the theorists wrong.

One of the problems of Hubert’s model was that it failed to anticipate the game changing technological developments like fracking and horizontal drilling to produce oil and gas from shale reserves.

An often quoted Harvard University study of 2012 argued that oil supply capacity is growing worldwide at such an unprecedented level that it might outpace consumption. Not only it debunked the peak oil concept, it showed that there are plenty of oil reserves to meet the increasing oil demand.

Some floated the theory of peak oil demand. Their often mentioned aphorism was that the Stone Age did not come to an end because we ran out of stones! A recent study by Stanford University has tried to show that the world oil demand may peak even before 2035.

Is it possible that the peak oil demand theorists may turn out to be wrong like the peak oil theorists?

Factors supporting peak demand are: potential to replace petrol by compressed natural gas, abundance of shale gas, improving car fuel efficiency, replacement of petrol and diesel cars by plug-in and hybrid cars, power generators in the Middle East replacing oil by natural gas, demographic trends influencing car ownership and car use peak in developed countries.


The fault in peak oil demand prediction

While these are compelling reasons to convince the sceptics of the conclusions of the peak oil demand, the proponents seem to ignore the unmet needs of the developing country. Just like the peak oil theorists failed to consider how technological breakthroughs can add to oil reserves, peak demand proponents may be proven wrong regarding the insatiable appetite of developing countries to consume oil.

Like the developed countries, the developing countries will consume increasing quantity of oil to improve their standard of living when their per capita income increases in the future. China and India are good examples of this scenario. Stanford model might have underestimated the oil consumption to explore different alternatives to meet the climate change requirements of reducing green house gas emissions.

The way India is showering energy sector subsidies especially in oil sector,  (currently more than Rs 100,000 crores annually) it seems to dismiss peak oil concept while accepting peak demand theory. Implicitly they are assuming that India will have access to cheap and affordable oil and they need not take politically difficult decision of liberalising energy market.

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