World oil demand seems to have reached a turning point. Data for the first nine months of this year indicate that demand growth has almost completely ground to a halt in the OECD, while in the rest of the world high oil prices are prompting consumers to switch to other fuels wherever there are economically viable substitutes. The current round of substitution is taking place mainly in the emerging economies, where coal and natural gas are becoming more attractive options after the steep increases in oil prices during the last two years. Oil accounted for just 36% of total primary energy demand last year, the lowest percentage since the pre-1960s. In the non-OECD countries, oil’s share has fallen to just 31%, down from 34% in 2000, and this year’s decline in global fuel oil demand will reduce the percentage even further.
Oil demand data for the first eight months of this year show a slowdown in growth to a mere 0.4%. While demand for oil in the emerging economies grew by 4.2 %, up from 2.1% in 2005, there was a decline in oil consumption in the developed countries — the first since 2002. Gasoline and diesel, having no readily available or economic alternatives, continue to drive growth, with an increase of 500,000 bpd this year. However, fuel oil demand is falling sharply. In the US and Japan, deliveries of residual fuel oil in the third quarter were close to their lowest recorded levels and in Asia and Latin America governments are encouraging consumers to switch to natural gas and coal as high oil prices inflate import bills.
The recent growth in LNG trade, particularly in Asia, is accelerating the move away from oil, because natural gas is rendered more widely available without requiring heavy expenditure on long-distance pipelines. Japan and South Korea, already substantial consumers of LNG, are expanding imports to replace oil in power stations and in urban retail networks. Now China and India are also looking to LNG to reduce their dependence on imported oil.
