The dawn of the oil age was fairly recent. Although the stuff was used to waterproof boats in the Middle East 6,000 years ago, extracting it in earnest began only in 1859 after an oil strike in Pennsylvania. The first barrels of crude fetched $18 (about $450 at today's prices). It was used to make kerosene, the main fuel for artificial lighting after overfishing led to a shortage of whale blubber. Other liquids produced in the refining process, too unstable or smoky for lamplight, were burned or dumped. But the unwanted petrol and diesel did not go to waste for long, thanks to the development of the internal-combustion engine a few years later.
Since then demand for oil has, with a couple of blips in the 1970s and 1980s, risen steadily alongside ever-increasing travel by car, plane and ship. Three-fifths of it ends up in fuel tanks. With billions of Chinese and Indians growing richer and itching to get behind the wheel of a car, the big oil companies, the International Energy Agency (IEA) and America's Energy Information Administration all predict that demand will keep on rising. One of the oil giants, Britain's BP, reckons it will grow from 89 million barrels per day (b/d) now to 104 million b/d by 2030.
We believe that they are wrong, and that oil is close to a peak. We believe that demand, not supply, could decline. In the rich world, oil demand has already peaked: It has fallen since 2005. Even allowing for all those new drivers in Beijing and Delhi, two revolutions in technology will dampen the world's thirst for the black stuff.
The first revolution was led by a Texan who has just died. George Mitchell championed "fracking" as a way to release huge supplies of "unconventional" gas from shale beds. This, along with vast new discoveries of conventional gas, has recently helped increase the world's reserves from 50 to 200 years. In America, where thanks to Mitchell shale gas already billows from the ground, liquefied or compressed gas is finding its way into the tanks of trucks, buses and local-delivery vehicles.
The other great change is in automotive technology. Foremost is the efficiency of the internal-combustion engine itself. Petrol and diesel engines are becoming ever more frugal. The materials used to make cars are getting lighter and stronger. The growing popularity of electric and hybrid cars, as well as vehicles powered by natural gas or hydrogen fuel cells, will also affect demand for oil.
Not surprisingly, the oil "supermajors" and the IEA disagree. They point out that most of the emerging world has a long way to go before it owns as many cars, or drives as many miles per head, as America.
But it would be foolish to extrapolate from the rich world's past to booming Asia's future. The sort of environmental policies that are reducing the thirst for fuel in Europe and America are also being adopted in the emerging economies. China recently introduced its own set of fuel-economy measures.
A couple of countervailing factors could kick in to increase consumption. First, the Saudis, who control 11 percent of output and have the most spare capacity, may decide to push out more, lowering prices and thus increasing demand. Then again, they might cut production to try to raise prices, thereby lowering demand. Second, if declining demand pushes down the oil price, drivers may turn back to gas-guzzling cars, as they did when oil was cheap in the 1990s.
If the demand for oil merely stabilizes, it will have important consequences. The environment should fare a little better. Gas vehicles emit less carbon dioxide than equivalent petrol-powered ones.
The corporate pecking order will change, too. Currently, Exxon Mobil vies with Apple as the world's biggest listed company. Yet Exxon and the other oil supermajors are more vulnerable than they look. Bernstein, a research firm, reckons that new barrels of oil from the Arctic or other technologically (or politically) demanding environments now cost $100 to extract. Big Oil can still have a decent future as Big Gas, but that will not prove as profitable.
The biggest effect of declining demand could be geopolitical. Oil underpins Vladimir Putin's kleptocracy. The Kremlin will find it more difficult to impose its will on the country if its main source of patronage is diminished. The Saudi princes have relied on a high oil price to balance their budgets while paying for lavish social programs to placate the restless young generation that has taken to the streets elsewhere.
And if America is heading toward shale-powered energy self-sufficiency, it is unlikely to be as indulgent in future toward the Arab allies it propped up in the past. In its rise, oil has fueled many conflicts. It may continue to do so as it falls. For all that, most people will welcome the change.
