During the Q&A session following the presentation of BP’s 2009 Statistical Review of World Energy, Tony Hayward was asked whether the volatility seen in the oil market in 2008 was a signal of the much-anticipated peak in global oil supply. His answer was probably not what the questioner was expecting to hear:
”BP is unlikely to sell more gasoline ever in the United States […] than it sold in the first half of 2008. The energy efficiency drive that is going to come through over the next few years will mean that demand in the mature markets of the OECD will continue to decline. I think the real question is what is the projection of future demand?”

PLATFORM’s report “Shifting Sands: How a changing economy could bury the tar sands industry” produced with Greenpeace and Oil Change International argues that different forces including climate change, concerns over security of supply and the undesirability of price volatility are aligning to create a peak in demand for oil. It argues that while much attention in recent years has focused on a predicted peak in oil supply, we have probably inadvertently hit a peak in oil demand that will force a fundamental restructuring of the oil industry.

While risk is nothing new to the oil industry, the kind of structural change being signalled today is unprecedented. Significantly, the implications are particularly salient not only for tar sands projects but also for other ’frontier’ oil projects championed by the IOCs. Ultra-deepwater and offshore arctic resources face a similar challenge as, like tar sands oil, they also represent the ‘marginal barrel’.
The expense of bringing much of this oil to market means that the sustained oil price needed to do so is dangerously close to a ‘break point’ price beyond which oil demand is constrained via changes in consumer behaviour and reduced economic growth.
But surely as economic growth picks up so will demand, and supply constraints caused by depletion and underinvestment will ensure high oil prices in the future? Won’t people just
have to pay the price for oil? It would appear that there are a number of shifts on the horizon that seriously challenge that thinking.
This update highlights the increasingly recognised contention that high oil prices have a short shelf life. The recovery period following the current recession is likely to show that oil demand has been affected not only by recession-induced suppression but also by policy and consumer-driven destruction.
We have also highlighted the growing reliance of the IOCs on marginal resources, which require high oil prices over sustained periods to be profitable.
When an oil company talks about acquiring new resources in the Arctic, or its plans for developing tar sands projects with their complex infrastructure requirements and extended construction periods, it is with a view to a market environment far beyond 2020 that investors will need to judge viability.

Read the full report here.
Shfting Sands is the second update to our Sept 2008 Rising Risks report. The first update was published in March 2009.