CERAWeek 2014 - Downstream Plenary: Is a Peak in Oil Demand on the Horizon?

James Burkhard, IHS Vice President, chaired the Tuesday afternoon Downstream Plenary "Is a Peak in Oil Demand on the Horizon?" The panelists discussed the dynamic interplay between the resurgence in the US refining industry and capacity growth in refining markets in the Middle East and Asia. They also addressed market forces contributing to this interplay, including growing demand from the manufacturing and transportation sectors, the effects of trade, and energy's role in economic competitiveness.

Bill Kleese, Chairman of the Board and CEO of Valero Energy Corporation, shared his view that peak oil demand is not on the horizon for non-OECD countries. He said that although the OECD has reached peak oil demand, demand growth for oil in the rest of the world will continue to increase by at least 1 million barrels per day annually for the next 10 years. He discussed some of the strategic opportunities that energy plays in economic competitiveness through the creation of manufacturing jobs and the export of refined products. Abdallah Al-Saadan, Senior Vice President of Finance, Strategy & Development at Saudi Aramco, agreed that world oil demand growth is unlikely to peak or decline over the long term. Although economic downturns and efficiency measures may result in a short-term tapering of demand, Mr. Al-Saadan maintained that population growth and the desire for higher living standards in developing countries such as China and India will continue to drive demand for oil, particularly through consumption for transport. He noted that policy-driven attempts to move oil demand to alternative fuels will be difficult for countries to sustain on an economic basis. Until better alternatives are developed, he believes demand for oil as a transport fuel will continue to grow. He also stated that US crude oil production does not affect Saudi Aramco's position on meeting global demand. Mr. Al-Saadan noted that US supplies may change trade flows, but in terms of global supply, US shale oil will help cover the decline in some conventional resources.

Philip Rinaldi, Chief Executive Officer of Philadelphia Energy Solutions, said that although US demand for transportation fuel may be declining due to efficiency measures, the rest of the world is in growth mode. He also focused on the growth of the US manufacturing base and noted that new demand for refined petroleum products will likely come from technologies that have yet to be conceived. He also stated that his company's crude oil supply strategy is based on market flexibility. Specifically, Mr. Rinaldi noted that his business currently refines 25% of North Dakota's crude oil, which is delivered by rail rather than pipeline. He also stressed the importance of the US refining business and said that exporting value-added commodities rather than crude oil will add important jobs and businesses to the economic base in the United States.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.