While OPEC is
spending lot of energy at the supply side of oil, it is time worth exploring
drivers at the demand/Client side. Without understanding these ‘Demand Side
Forces’, the ‘levers’ of business which OPEC understands may not be the
‘Levers’ anymore.
The U.S Shale
output and the future of battery cars are a lot discussed by now. Apart from
this there are other major drivers pulling down the oil demand.
They can be
broadly categorized into four as below.
1) The Digital
Ecosystem (DE) and the DE enabled apps and lifestyle changes.
Vastly improved
‘Commuting Efficiency’: There is a fall in Per
Destination consumed fuel compared to half a decade before. How many of
us get our routes wrong these days while driving to new places? Google Earth
ensures the right directions while driving. And even while commuting daily to
work places it helps to discover the routes with less traffic.
Travel Apps:
Better client discovery and service discovery due to the travel apps like
Uber/Didi/OLa ensures per commuter optimum number of vehicles on road. Earlier
if a vehicle picks a person for dropping from airport or a railway station to
his home, on return the vehicle used to run empty. Today this doesn’t happen.
GPS enabled city
transport apps helps commuter with real-time locations of the buses and the
passenger load factor at the city busses are at a high. (This has huge
possibility to implement/improve and even reduce a lot of traffic on road)
With online
banking and online purchases there is less number of physical travel for
fulfilling the needs and wants.
2) Newer Modes
of Mass transportation in Cities:
New Oil-less
Mass Transport Systems in Cities: In India and China metro trains are becoming
mass public transport mediums. And they don’t run on oil, they run on electric
power. The cost per unit of power has been falling due to the ever increasing
renewable and thermal power. This means a huge drop in consumption of oil per
commuter.
3) Technology
led optimization of input-resources in other important sectors like
agriculture:
Reducing
Fertilizer Consumption: Natural Gas or Naphta is used for making nitrogenous
fertilizers like Urea. Technology is
even playing its part in agriculture. Digital
tools are making field fertilizer application to be SMART. Data analytics and
automation is starting to make the farming into Smart-Agriculture. Means less
and less of Nitrogenous fertilizers and less use of Natural Gas and Naptha.
4)
Democratization of Energy Markets:
Leveraging the
Fracking technology to unlock energy reserves in various forms: The shale
fracking technology delivered the big blow to OPEC. This technology helped in
making US a net exporter of energy from a net importer of energy.
But more than
competition from the increased shale out put from the US fields, there is
another major damage which this technology has dealt to OPEC. Indian public
sector explorers and RIL which is major private player and several Chinese
firms gained access to this technology through partnerships with the US
companies. Today fracking or horizontal drilling is used to unlock beds of
energy everywhere. Several blocks of Caol Bed Methane (CBM) is coming to
production soon in India drilled by RIL. In other countries such as Argentina,
China and many other places exploration is underway. This has largely led to
the ‘democratization of energy’. Previously which was only with a handful of
countries is now available with more nations. Prices will be more a reflection
of market forces than guided by cartels.
All of these
points Oil Markets and the nations depending on them will be under sustained
pressure for more years to come….
Yeah, Crude
derivatives will be still a growing market, but, yes, even plastics are being
replaced by natural substitutes.
Please talk back indussprouts@gmail.com twitter @indussprouts
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