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A fuel pump is seen in a car at a gas station in this file photo


This is part of a series exploring climate change regulation and how it affects companies globally.

This is not supposed to happen: a sharp rise in stocks of gasoline in the middle of the summer vacation period. The United States is the world's biggest gas consumer and this is the time when the nation fills up, when every normal American has stuffed his kids and the dog in the back of the car for the long haul to the beach.

Weak consumer demand for road fuel has broken the back of the oil-price recovery. Refineries went hell for leather in the spring, buying cheap shale oil and distilling it into gasoline in anticipation of the great summer sale bonanza. But, this year, strangely, it didn't happen. According to the U.S. Energy Information Administration, gasoline stocks rose by almost half a million barrels last week when most analysts were predicting a sharp fall. Inventories are now 12 per cent higher than they were last year.

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The oil price is back on the skids; after peaking at $53 (U.S.) per barrel in June, West Texas Intermediate is below $42 and looking weak. Anyone planning a late trip to the summer cottage can count on a cheap journey as the oil companies are desperate to shift the product. It's good consumer news to tide us over the geopolitical crises, but it may also be part of a much bigger picture; the world may just need less fossil-fuel energy to get by.

It's not just oil. China appears to have reached peak coal a decade ahead of schedule. For two consecutive years, Chinese coal consumption has shrunk, falling by 2.9 per cent in 2014 and 3.6 per cent in 2015. According to research published in Nature Geoscience, coal usage in China has already reached an inflection point, despite previous estimates that consumption would continue to rise well into the next decade.

The interesting point is that coal usage is falling despite continuing strong growth in the Chinese economy; China's gross domestic product expanded by about 7 per cent per annum in the past two years. The reason is that China is becoming less energy-intensive – it's making more dollars for the same energy output – and a government drive to switch out of coal for health and environmental reasons is working faster than anyone thought possible.

These trends are being felt worldwide. According to statistics from Enerdata, primary energy demand has been almost static for two years among the Group of 20 countries, which includes China, India, Brazil and Russia as well as the United States, the European Union and Japan. Over the same period, the global economy has expanded, albeit modestly, at a rate of 3.4 per cent in 2014 and 2.8 per cent last year. Yet the world achieved that gain by using only 1.1 per cent more energy in 2014 and just 0.5 per cent more energy in 2015.

Could it be possible for the global economy to continue to expand using less energy? In other words, could we all get a little bit richer each year while using less electricity and burning less fuel in our cars.

This phenomenon flies in the face of received wisdom that economic growth depends on an every-increasing supply of cheap fuel. Cheap coal fuelled the first industrial revolution and cheap oil fuelled the second. We like to think that the digital economy will be driven by solar panels and wind turbines, but the bigger question is how many terawatts will be needed to power the third revolution.

The general decline in global energy intensity is very uneven. In the rich countries of Europe, the United States and Japan, primary energy demand is falling or flatlining. India is the dark horse, raising its energy consumption by annual rates of 6 to 7 per cent. But India is undergoing a late, rapid and badly needed industrialization. Building power infrastructure, transport and housing is energy-intensive and the country is at least a decade behind China, where the economy is entering a new phase, shifting away from heavy infrastructure to a consumer-facing economy. Despite its continuing high growth rates, Chinese energy intensity is falling at the same rate as Europe – using almost 6 per cent less energy last year to generate each dollar of GDP.

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Energy is getting cheaper and fossil-fuel energy is the most inexpensive fuel we have. So cheap is American shale gas that U.S. energy companies are now able to export liquefied natural gas to Dubai in the Persian Gulf. Coal remains the cheapest power-generating fuel, but the biggest consumer, China, is using less.

Fossil-fuel demand is proving to be more price-inelastic than we ever thought possible. Public policy – driven by concerns about health and the environment – is skewing the odds against these energy commodities, but consumer behaviour may also be changing: Habits are changing and technology is changing habits. We may not wish to drive no matter what it costs to fill the tank.

The fossil-fuel revolution is peaking. In places where the world is still in rapid industrialization, demand for coal and road fuel will continue to grow strongly, but the inflection point is near if we have not reached it already.

Carl Mortished is a Canadian financial journalist based in London.

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