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Oil is the largest primary fuel, and the trajectory of oil consumption is of great concern and consequence for economic, political, and, not least, for climate change reasons. Anticipating oil prices and production from year to year is not easy; identifying even basic ingredients of aggregate demand and supply schedules, such as price or income elasticities, is notoriously difficult. It’s an additional challenge to model the structure of a market that sometimes appears to be highly cartelized, and at other times populated by a large flock of peaceful price takers.
But a remarkably steady metric—and possible tool for projecting consumption into the future—has been identified in this paper: oil intensity. Oil intensity is the volume of oil consumed per unit of gross domestic product (GDP). Measured simply in barrels per dollar, it is often viewed as a broad measure of oil efficiency; it certainly demonstrates the importance of oil in a society.
The efficiency of oil use has improved, in other words oil intensity has declined, over the years and decades. In 1973, for example, when oil intensity was at its zenith, the world used a little less than one barrel of oil to produce $1,000 worth of GDP (2015 prices). By 2019 (the last data set before Covid) global oil intensity was 0.43 barrel per $1,000 of global GDP—a 56% decline. Oil has become a lot less important and humanity has become more efficient in making use of it.
What is worth a closer look, and is the focus of this paper reporting on oil and gas related research at Columbia University’s Center on Global Energy Policy, is the pattern by which this progress has been achieved. Since 1984, oil intensity has fallen every year in an almost perfectly linear fashion: the amount of oil used per dollar of global GDP has dropped by roughly the same amount each year. Wars and revolutions, booms and busts, OPEC successes and failures, and every other monumental event in the last 35 years left their imprint on oil markets but didn’t alter oil intensity’s steady, downward crawl. This kind of regularity is very rare in any long-time trend, in economics or in energy.
Although oil intensity isn’t a new topic, an attempt to explain its curiously consistent downward progress—or even any discussion about it—is hard to find in the literature. For this paper, the authors explain the trend and cross-validate its predictive potential before delving into possible reasons behind the linear decline in oil intensity. It finally extrapolates what such a continuing trend might mean for oil consumption and policies around it going forward. Key findings of this research include the following:
As the world races to transition to cleaner energy sources, there exists a substantial gap between the financing required for this transition and the actual investments being made.
Today, Qatar is among the world’s wealthiest countries. Its rich hydrocarbon resources have transformed this small Gulf state into an energy powerhouse, funded its outsized global ambitions, and allowed it to forge an identity separate from those of its large and powerful neighbors.Purchase Book
Earlier this month, OPEC+ leaders Saudi Arabia and Russia announced further voluntary production and export cuts, with the former alone accounting for nearly half of the OPEC+ aggregate.