OPEC’s Last Chart: The Curse of Thermodynamics

Oil demand has backed itself into a corner; OPEC’s last hope of growth lies in road transport, but history and thermodynamics both point toward rapid EV dominance.

Oil’s Road Model

Latest forecasts of oil demand by industry analysts and government agencies remain bullish.

The International Energy Agency (IEA) announced this month that in its central New Policies Scenario oil consumption will grow at a steady pace through 2040 by over 10% to 105million barrels/d.

Road transport will stay the largest consumer at over 40% of the total.

In a similar vein the latest International Energy Outlook from the US energy agency, the EIA, sees no change in the way the transport energy world works either: by 2040 over 95% of road transportation energy will still be dominated by fossil fuels.

These are two examples of the standard model of future oil demand the industry favours:

Whilst acknowledging alternative technologies are emerging, and that developed world (OECD) demand has likely peaked, the growth of oil is assured by a continued spurt of growth in developing markets for motor fuels (50% of the overall increase).

Result: in all central projections oil demand grows slowly (ca 0.5% pa), but positively over the next 24 years.

OPEC’s Last Chart

Further support for this orthodoxy comes from the world oil producer club OPEC via its long-term view (WOO 2017) which develops these themes further (for a clear-eyed overview of this long report, see this summary from Liam Denning).

In it they predict the following:

“Most of the demand for oil is used for transportation purposes (road, aviation, marine, rail and domestic waterways). It is the sector where oil continues to face the weakest competition from alternative fuels. Between 2016 and 2040, the transportation sector accounts for two out of every three additional barrels consumed.”

The bottom of these two plots is significant – it represents OPEC’s last growth chart, the one remaining slice of world oil demand in which it can point to robust growth.

Fossils fuels dominate road transport today for sure, but if this final corner of oil demand declines, oil’s global energy supremacy disappears too.

History and Thermodynamics

The history of energy (and other industries) indicates that the point of major risk for a dominant technology is when it is growing – but only slowly – and is faced with a high-growth substitute.

This is because the dominant industry can continue to tell itself plausible narratives about long-term progress, even as the derided competitor quietly consumes all the incremental demand.

OPEC’s belief in the “weak competition of alternative fuels” for road transport is the present example.

But the universal scalable technologies of wind, solar and electric vehicle powertrains are not weak: they are a totally different form of energy.

Globally available, their costs and performance are improving through manufacturing learning curves: as unit costs plummet they are being widely deployed in a positive reinforcing loop.

The following data from energy strategist Kingsmill Bond, presented at this month’s COP23 conference, summarises the issue using UK historical data.

Demand for the dominant (but slow-growing) energy source falls into permanent decline often when the challenger technologies are only a very small percentage of the total market.

A chart provided by  Gregor Macdonald, author of Terrajoule, shows the same effect more recently in the UK power generation market.

And we have already proposed the exact same effect in the UK road transport market this year with fossil fuels peaking even though EVs and hybrids form only 1% of the fleet.

Even so, OPEC has invested a large part of its future efforts in the belief that road transport in developing countries such as China and India, will follow the orthodox pattern of fossil fuel dominance.

But a far more likely scenario is that the future of road transport will succumb to the forces of scalable technology and experience-curve economics.

China and India are already deploying alternative fuel vehicles far faster than the slow-growth OECD nations: their import-dependency on fossil fuels has suddenly pivoted towards cleaner, home-grown electricity and EV manufacture.

Latest figures from BNEF show the global growth of EV sales – 63% year on year – is being dominated by the Chinese fleet.

By 2020, China has set a target average fleet fuel efficiency of 47 miles per gallon, or 5 litres per 100km, about 40% lower than today – impossible without a major influx of EVs.

All of which indicates that those block area charts of the EIA and OPEC are likely missing the actual shape of road transport fuel consumption in the 21st century.

If today, in a Harry Potteresque touch with a magic wand of holly, we could transform every one of the world’s 900 million passenger cars from gasoline to battery, here is what the what the energy profile would look like, assuming they were all just as efficient as today’s Chevrolet Bolt (17kWh/100km – about 10% higher than the Tesla 3).

Every year, the world’s car fleet uses 20 million barrels/d of gasoline to move each of its 900 million vehicles 15,000km – or about 43 million vehicles per 1 million barrels/d.

On an equivalent basis, only 4 million barrels per day would be needed to power those 900 million EVs – or 225 million EVs per 1 million barrels/d (in electrical terms 6TWh/day, adding only 9% to the world’s electricity demand.)

This highlights the curse of thermodynamics: internal combustion engines (ICE), even after 100 years of massive development, can only process 25% of gasoline’s latent energy into motion. And the hard laws of thermodynamics do not allow this limit to be breached.

ICE cars are doomed today to be at least five times less efficient, tank to wheels, than batteries, before emission costs are considered. And this gap will only increase over time.

So 21st century road transport will look more and more like the enchanted EV model as prices drop, and consumers quickly adopt a new cost-effective option. Policies may support or hinder this, but manufacturing cost reductions and economic self-interest will be the dominant forces.

OPEC’s last chart hangs tight to the hope of long-term gasoline dominance for vehicle mobility – but this seems increasingly like magical thinking.

History and technology are telling a very different down-to-earth story: with EVs plus hybrids at close to 1% of the global fleet already, oil’s peak transport demand may well be behind us.

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The Energy Transition is Amongst Us: UK Road Fuel Demand Peaks

 

The energy transition is accelerating: as predicted, the use of fossil fuels in UK transport has reached a peak, and is now in permanent decline. The forecast here indicates a decrease of 1 billion litres per year through 2025, and 2 billion litres per year thereafter.

UK fuel taxation policy needs to quickly adapt.

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A Victory for Arithmetic

In January we posted the prediction that 2016 would mark the historic high point in UK gasoline / diesel demand, with 2017 beginning a permanent decline in consumption.

In a victory for arithmetic, what actually occurred is – exactly that.

According to the London Times this week, citing a report from the UK Automobile Association (AA):

“In the first eight months of this year 31,164 million litres of petrol and diesel were sold, down from 31,172 million litres in the same period in 2016.”

Importantly, the AA identified that for the first time this was a structural trend – occurring even as traffic numbers and vehicle miles travelled (VMT) grew (vehicles covered a record 325 billion miles to the year ending in June)

“Traffic is increasing but consumption of petrol and diesel has fallen for the first time…There have been falls in demand for road fuel before but only when the total number of miles driven by all vehicles was declining or static because of recession, strikes or sharp increases in pump prices.”

More succinctly, from Edmund King, president of the AA;

“It appears that we have reached a tipping point in the UK when it comes to the consumption of fossil fuels for transport. Our analysis shows that this point has emerged more quickly than most have predicted.”

Well, not on this site.

But anyway, let’s take a minute to review the cornerstones of the analysis we made:
The prediction was based on the fact that UK 2017 car sales were forecast to fall 5% pa overall from 2016’s highs, while Hybrid / EV sales were still likely to grow fast, with increases of 30-40%pa almost certain to continue (albeit from a lowish base.)

In a triumph for near-term predictions, this is more or less what has happened – see here.

Details aside, let’s take a step back to see what has just taken place: in the UK, the consumption of fossil fuels for road transport has peaked.

As the Times put it in their article:

“…vehicles powered by fossil fuel are en route to “joining steam and horse transport in the history books”.”

However, in a twist the UK AA also noted that:

“..there would be a long and slow decline in fossil fuel use in road transport and that it expected it to remain in use in some vehicles until about 2060.”

Here is another prediction: that comment is only half right

Sure, fossil fuels will likely remain dominant in a niche of vehicles in 2060 (you can still buy vinyl records too, we hear) – but the broad use of fossil fuels in the UK will follow a short and sharp decline, not a gentle slope.

Because life is rarely linear.

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Gradually, then Suddenly: The Two Ways Oil and Gas Will Go Bankrupt


“How did you go bankrupt?”
Two ways. Gradually, then suddenly.”

Ernest Hemingway, The Sun Also Rises 

The oil and gas industry believes itself immortal – we’re about to see

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Dominance vs Growth: The Battle for 21st Century Energy

The energy transition ahead is unlikely to be a straight-line substitution of one fuel source by another.

It’s more likely a vast disruption, globally, as solar and wind smoothly capture power growth, and  incumbents can only downscale via a succession of large retirements.

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In 2016, global energy demand grew just 1%, 50% less than in the previous decade.

Yet, in the single month of July 2017, China installed 10.5GW of PV solar power capacity, and began connecting it to the sprawling Chinese grid.

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The EV Transition: The Quick and The Dead


The transition from the internal combustion engine (ICE) to EVs is now more post-event rationale than prediction.

Roadkill

A new Economist leader – Roadkill – outlines the inevitability and accelerating pace of the switch to electric vehicles (EVs), suggesting the era of the dominant ICE is now effectively over.

We agree.

This blog adheres to the hypothesis that the EV transition will follow a typical new technology S curve, not simple linear growth. And it believes most analysts are still under-estimating how quickly the EV transition is taking place.

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