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.

————-  ————-

This entry was posted in Energy Technology, Oil and Gas and tagged , , , , , , . Bookmark the permalink.

Leave a Reply