Energy demand is another building block of conventional energy wisdom that from the very start on this blog has appeared shaky.
The CW says rising economic growth inevitably means rising energy use. Cutting energy use is therefore per se anti-growth, and similarly renewable and efficiency measures are seen in some quarters as some sort of anti-capitalist cabal.
The Energy/Economy escalator is a keystone of Peak Oil Theory, the strange movement that seems to relish the thought of civilisation's collapse. In fact they deliberately appear not to offer any ways to avoid it. Their cult like behaviour – covering themselves in arcane and obscure theories, shooting the messenger of any good energy news and belief in some sort of negative energy rapture, makes the them the survivalist cult of energy. Peak Oil, like other Malthusian theories, assumes that the future will be a simple rerun of the past, and confuses the rear view mirror with a crystal ball.
Past experience shows that the death of energy has been predicted with boring regularity for years, and the experience shows that energy responds to price signals. Shale gas is only one case of higher prices leading to new ways of extracting old resources.
What's different this time is that not only is supply increasing but demand is falling. But energy buyers must understand why it is falling, at the risk of being led to higher long term prices. Demand actually peaked in 2005 for oil, and there are signs that gas use in the UK peaked as long ago as 2003. Electricity demand is another key indicator and it appears that electricity demand also peaked in the UK in 2006.
What's different this time is the combination of carbon awareness, high prices and technology. As we've noted before, energy obesity is falling. The old paradigm that if a home is better insulated the inhabitants simply turn up the heat and take off their clothes eventually hits a brick wall. LED lighting is only one coming example: No one is going to replace one 60 watt light bulb with 40 1.5 watt bulbs that provide the same lumen level. Similarly, any refrigerator, TV, computer, central heating that is bought today is more efficient than the one it replaced even where it may be physically bigger or more powerful. This is what we call the great impact of small things.
Barclays Capital have picked up on this in warning how the energy and natural gas markets are betting on increased demand that won't show up independent of the onset or not of any economic recovery.
The accelerating rise in commodities prices may leave energy behind. Even if the economy recovers next year as expected, energy consumption in the industrialized world fell so far, so fast, that it will struggle just to meet 2007 levels.The economy that does come back may be different than the one that collapsed. A huge increase in wind power will trim natural gas demand, says Barclays analyst Biliana Pehlivanova, as utilities shut down more expensive gas-fired plants to accommodate the new supply. She’s forecasting an increase of industrial demand of 0.8 billion cubic feet a day, not enough to overcome the 1.3bcf decline in 2009.
Adding to the woes of natural gas producers, the new supply of shale gas, obtained by drilling horizontally through shale rock, is proving to be larger and longer-lived than many expected. Supply is holding up even after the number of drilling rigs in service has plunged 31% to around 1750, the lowest levels since 2002.