Skip to main content
subscribers only

ROB Insight is a premium commentary product offering rapid analysis of business and economic news, corporate strategy and policy, published throughout the business day. Visit the ROB Insight homepage for analysis available only to subscribers.

It's not that oil is running out; we just don't want it anymore. It was former Saudi Oil Minister Sheik Yamani whofamously quipped that the stone age did not end for lack of stones, implying that we would find better alternatives to oil long before the wells ran dry. His prediction that demand would eclipse before supply has been ignored in the steady escalation in global demand for more barrels. The problem has been that no alternative fuel has offered as much mileage per dollar.

Until now, say analysts at Citi, who reckon that natural gas is the game changer that will bring an end to the oil age. It is the shale gas revolution which has created an abundant source of cheaper and cleaner fuel to market. A combination of cheap natural gas, gas-to-liquids technology, better fuel economy in vehicles and the switch from oil to natural gas power generation in the Middle East will depress demand for crude oil. Better fuel efficiency in vehicles could by itself lop 3.8 million barrels a day (b/d) from growth in oil demand by 2020. Add to that a switch to natural gas, not only in power generation but in shipping and commercial vehicles and you take a further 3.5 million b/d from oil demand. Together, the twin effects of better vehicle technology and the natural gas alternative remove the entire projected growth in oil demand over the rest of the decade.

Oil demand growth is already nil or negative in North America and Europe, thanks to improved fuel economy in cars and trucks as well as natural gas's increasing use in heating and power. What keeps oil demand going is its continuing use in power generation in Asia and the need for liquid fuels worldwide in cars, trucks and ships. Until now, gasoline and diesel have been the most efficient transport fuels – easy to carry in a tank and lots of mileage in each gallon. But technology is changing the equation: Shell is investing $300-million in developing LNG fuel for trucks in the U.S. . There are similar plans in Australia, and LNG is the obvious solution to replace marine bunker fuel, a stinking, sulphurous brew that has been the benchmark for global shipping for generations and a monumental environmental disgrace. Compressed natural gas is already widely used in taxi and bus fleets across Asia.

If Citi is right, there will be huge consequences – not only for the global oil refining industry, which will need to become ever more efficient, but for geopolitics, too. Gas reserves are widely distributed around the world; the trade in LNG is only just beginning. No one will corner the market in gas, and as Sheik Yamani explained, there will be plenty of oil left in the ground. The demise of OPEC has been predicted too many times, but perhaps a gentle slide into obscurity is the most likely scenario for the oil cartel.

Carl Mortished is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights.

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe