The global crude oil market is undergoing a structural transformation.
In its recent Monthly Energy Review, the U.S. Energy Information Administration (EIA) pointed out a sharp decline in United States energy intensity – the energy consumption per unit of gross domestic product (GDP).
In crude oil terms, the contribution of each unit of energy to GDP is much higher than in the past, indicating a lower price or cost for converting energy into GDP.
Manifesting sharp growth in energy efficiency, the EIA review reports that the U.S. energy intensity has dropped by half since 1983. In 2020, U.S. energy intensity reached a new low, down four per cent from the previous year. From 1997 to 2019, the average energy intensity across the United States fell by 36 per cent.
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The EIA report, released on Thursday, said the overall U.S. petroleum consumption declined to 18.1 million barrels per day (bpd) last year, the lowest in 25 years.
The transportation sector is the largest crude consumer in any economy. The report says consumption in the U.S. transportation sector plunged by a record-breaking 15 per cent in 2020 from a year earlier.
During the year, consumption of motor gasoline – the petroleum product with the highest demand in the U.S. – slumped by 14 per cent to eight million bpd. That’s the lowest level of gasoline consumption in the country since 1997, EIA data shows. Gasoline accounted for as much as 44 per cent of total U.S. petroleum consumption last year.
Jet fuel consumption, however, saw the steepest decline – 62 per cent – hitting levels last seen in 1983. Overall, EIA estimates indicate that U.S. consumption of petroleum, natural gas and coal slumped by nine per cent in 2020, reaching the lowest level since 1991 and marking the largest annual decrease in U.S. fossil fuel consumption in both absolute and percentage terms since at least 1949.
Lockdowns and other measures to contain COVID-19 across the United States in 2020 were the key reasons for this lower petroleum consumption, especially in the transportation sector.
But the phenomenon is not altogether new. It has been gaining momentum for some time. And despite some resurgence in economic activity in recent months, the trend seems to be continuing. It’s becoming apparent that the growing threat of Delta and other COVID variants could still wreck crude demand in the U.S. in the coming months.
The report says oil consumption declined in virtually all the sectors of the U.S. economy. And now, with greater emphasis on climate change, electric vehicles and alternative energy sources, the trend is set to gain momentum.
The effort to lower the energy intensity isn’t entirely new. In July 2016, the EIA reported that worldwide energy intensity decreased by nearly one-third between 1990 and 2015. The trend was registered in nearly all regions of the world, with reductions in energy intensity occurring in the more developed economies of the Organization for Economic Co-operation and Development (OECD) and in the emerging, non-OECD nations.
Yet the pace of the ongoing transformation has wavered. Global primary energy intensity improved by just 1.2 per cent in 2018, the slowest rate since the start of this decade, the International Energy Agency – the Paris-based energy watchdog of the OECD – said in its 2019 annual report on energy efficiency.
“The historic slowdown in energy efficiency in 2018 calls for bold action by policy-makers and investors,” Fatih Birol, the IEA’s executive director, said then. “We can improve energy efficiency by three per cent per year (by) simply using existing technologies and cost-effective investments. There is no excuse for inaction: ambitious policies need to be put in place to spur investment and put the necessary technologies to work on a global scale.”
With President Joe Biden in the White House, momentum towards cleaner energy in the U.S. and elsewhere has only picked up. COVID-19 has contributed to making the transformation even more rapid.
In this context, the ongoing rush to monetize global crude oil assets makes perfect sense.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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