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Monday, December 11, 2017

A multitude of initiatives afoot that can reduce oil consumption

The March report of the International Energy Agency (IEA) highlights changes in the oil market that are not dramatic but which include a multitude of initiatives that can reduce oil consumption.  

In Brazil the number of cars that can use both ethanol and gasoline is increasing; in Indonesia there is a large fall in the consumption of oil after the removal of subsidies; in the U.S. the airline industry is flying higher and reducing the number of empty seats; in Europe there has been a strong increase in the share of diesel cars that are more energy- efficient than gasoline cars. These all contribute to small steps in reducing oil consumption along with a number of other initiatives.  

In 2004 the IEA was continuously upgrading its forward demand estimates. This year it is downgrading the expected oil consumption in 2006. The effect of high oil prices will primarily be seen in the longer run as it takes time to develop and introduce energy-saving technology, as well as technology that can contribute to substituting oil. Oil consumption is therefore likely to continue to increase, although at a lower rate. The challenge is going to be to find sufficient tonne miles to absorb the increasing tanker fleet.  

According to the IEA report, the strongest increases in oil consumption in 2006 will be in the U.S. (0.39 mbd), China (0.39 mbd), and the Middle East (0.30 mbd). The U.S. may take most of its increased consumption from Canada, which is expected to increase production by 0.24 mbd, and Venezuela – not great for tanker tonne-miles. In addition the U.S. will increase production marginally when installations damaged during the hurricane season last year come on stream again. All in all increased oil imports to the U.S. will probably only contribute marginally to the tanker market in 2006 if the U.S. does not continue to build stocks - and U.S. petroleum stocks are already record high. 

It therefore looks as if the market will depend on increased oil imports to China. An increase of 0.4 mbd from the Middle East to China would engage fewer than 10 VLCCs full time. Only 17 will be delivered in 2006 but it is the full impact of the 30 new vessels already delivered in 2005 that may dampen the market this year.  

Contact: Erik Ranheim