IEA World Energy Outlook view on the transport sector to 2035; passenger car fleet doubling to almost 1.7B units, driving oil demand up to 99 mb/d; reconfirming the end of cheap oil
|Change in primary oil demand by sector and region in the central New Policies Scenario, 2010-2035. WEO 2011. Click to enlarge.|
The International Energy Agency (IEA) last week launched the 2011 edition of the World Energy Outlook (WEO), the current edition of its annual flagship publication assessing the threats and opportunities facing the global energy system out to 2035. At a high level, the report notes that there are few signs that the urgently needed change in direction in global energy trends is underway.
Under the WEO 2011 central scenario, oil demand rises from 87 million barrels per day (mb/d) in 2010 to 99 mb/d in 2035, with all the net growth coming from the transport sector in emerging economies. The passenger vehicle fleet doubles to almost 1.7 billion in 2035. Alternative technologies, such as hybrid and electric vehicles that use oil more efficiently or not at all, continue to advance but they take time to penetrate markets.
Without a bold change of policy direction, the IEA warned at the launch, the world will lock itself into an insecure, inefficient and high-carbon energy system. While there is still time to act, the window of opportunity is closing.
Although the recovery in the world economy since 2009 has been uneven, and future economic prospects remain uncertain, global primary energy demand rebounded by a remarkable 5% in 2010, pushing CO2 emissions to a new high. Subsidies that encourage wasteful consumption of fossil fuels jumped to over $400 billion. The number of people without access to electricity remained unacceptably high at 1.3 billion, around 20% of the world’s population. Despite the priority in many countries to increase energy efficiency, global energy intensity worsened for the second straight year. Against this unpromising background, events such as those at the Fukushima Daiichi nuclear power plant and the turmoil in parts of the Middle East and North Africa (MENA) have cast doubts on the reliability of energy supply, while concerns about sovereign financial integrity have shifted the focus of government attention away from energy policy and limited their means of policy intervention, boding ill for agreed global climate change objectives.—WEO 2011
The WEO analysis includes three global scenarios and multiple case studies:
The New Policies Scenario—the central scenario for this WEO—assumes recent government policy commitments will be implemented in a cautious manner, even if they are not yet backed up by firm measures.
The Current Policies Scenario assumes no new policies are added to those in place as of mid-2011, and is used as a basis for comparison with the New POlicies Scenario.
The 450 Scenario works back from the international goal of limiting the long-term increase in the global mean temperature to two degrees Celsius (2 °C) above pre-industrial levels, in order to trace a plausible pathway to that goal.
The wide difference in outcomes between these three scenarios underlines the critical role of governments to define the objectives and implement the policies necessary to shape our energy future.—WEO 2011
Under the New Policies Scenario, primary energy demand increases by one-third between 2010 and 2035, with 90% of the growth in non-OECD economies. China consolidates its position as the world’s largest energy consumer: it consumes nearly 70% more energy than the United States by 2035, even though, by then, per capita demand in China is still less than half the level in the United States.
|Under the central New Policies Scenario, automotive sales in non-OECD markets exceed those in the OECD by 2020, with the center of gravity of car manufacturing shifting to non-OECD countries before 2015.|
The share of fossil fuels in global primary energy consumption falls from around 81% today to 75% in 2035. Renewables increase from 13% of the mix today to 18% in 2035; the growth in renewables is underpinned by subsidies that rise from $64 billion in 2010 to $250 billion in 2035, support that in some cases cannot be taken for granted in an age of increasing fiscal austerity. By contrast, subsidies for fossil fuels amounted to $409 billion in 2010.
Short-term pressures on oil markets are easing with the economic slowdown and the expected return of Libyan supply. But the average oil price remains high, approaching $120/barrel (in year-2010 dollars) in 2035. Reliance grows on a small number of producers: the increase in output from Middle East and North Africa (MENA) is over 90% of the required growth in world oil output to 2035. If, between 2011 and 2015, investment in the MENA region runs one-third lower than the $100 billion per year required, consumers could face a near-term rise in the oil price to $150/barrel.
Oil and the Transport Sector: Reconfirming the End of Cheap Oil
|World transportation oil demand by mode in the New Policies Scenario. Click to enlarge.|
Demand. The outlook for oil demand differs sharply between the three scenarios, primarily as a result of the different assumptions about government policies, such as fuel efficiency standards, removal of end-user subsidies and support for alternative fuels, and the extent to which they succeed in curbing oil demand.
The Current Policies Scenario sees oil demand reaching 107 mb/d by 2035, a 24% increase over 2010 levels, or an average annual increase of 0.8%.
The New Policies Scenario sees oil demand reach 99 mb/d by 2035, a 15% increase over year 2010 levels (0.5% per year).
In the 450 Scenario, oil demand falls between 2010 and 2035 as a result of strong policy action to limit carbon-dioxide (CO2) emissions; oil demand peaks before 2020 at just below 90 mb/d and declines to 78 mb/d by the end of the projection period, over 8 mb/d, or almost 10%, below 2010 levels.
The transport sector—which depends almost entirely on oil products, with 93% of all the fuel used in the sector being oil-based in 2010—remains the main driver of global oil demand as economic growth increases demand for personal mobility and freight. Transport oil demand reaches almost 60 mb/d in 2035, a growth of about 14 mb/d over 2010 levels, outweighing a drop in demand in other sectors.
|World PLDV oil demand in the New Policies Scenario. Click to enlarge.|
Road transport. Road transport will continue to dominate total oil demand in the transportation sector. In the New Policies Scenario, road transport is responsible for about 75% of global transport oil demand by 2035, down only slightly from 77% in 2010. Oil demand for road freight grows fastest, by 1.7% per year on average, despite significant fuel-efficiency gains.
Passenger light-duty vehicles (PLDVs) remain the single largest component of transport oil consumption, although shrinking from about 45% share today to 39% by 2035. This trend is driven by major improvements in fuel economy in many countries, especially in the largest car markets in the United States, China, Europe and Japan.
Increased use of alternatives to oil-based transport fuels (gasoline, diesel and LPG) also help to temper oil-demand growth, though to a much smaller degree than efficiency gains in vehicles with internal combustion engines. Biofuels make the biggest such contribution, as use grows from 1.3 million barrels of oil equivalent per day (Mboe/d) today to 4.4 Mboe/d in 2035, an annual rate of increase of 5%. The share of biofuels in total transport fuel demand rises from less than 3% today to just above 6% by 2035. Although biofuels are mainly used in the road transport sector, the aviation industry has recently done several tests on aviation biofuels and, if large-scale projects were successfully implemented, aviation demand could increase strongly.
Natural gas also plays a growing role in the transport sector, its share rising from 3% to 4%. The use of natural gas grows most in road transport, where its share rises from 1% to 3%. Currently the dominant use of gas in the transport sector is in gas compression for pipeline transport and distribution. While the economic case for natural gas vehicles is often promising, for example in the United States, there is often a lack of the policy support needed for a more significant uptake. Electricity use is mainly confined to the railway sector in the New Policies Scenario. Electricity makes only minor contributions to the road transport energy mix, but the share of electricity in total transport fuel demand grows from 1% today to about 2% in 2035.
While theoretically many options exist for replacing oil-based fuels in road transport, for various reasons none of the potential candidates and technologies has so far grown out of niche markets. There are barriers to the uptake of each alternative fuel and vehicle technology, including their applicability to different road transport modes, the need to develop vehicle drive-trains to accommodate the specific properties of the fuel, their cost-competitiveness and their environmental performance relative to oil.
Where the alternative fuel cannot be used directly in existing oil distribution networks and applications, it requires the build-up of a dedicated infrastructure. To compete today, the majority of alternative fuels need government support of one form or another. Where such support is provided, it is often justified by the energy-security or environmental benefits that those fuels can bring...For alternative fuels to grow faster than projected in the New Policies Scenario, stronger and more concerted policy action, improved international co-operation and long-term planning would be needed.—WEO 2011
With limited potential for substitution for oil as a transportation fuel, and with slow penetration of alternative vehicle technologies, the concentration of oil demand in the transport sector makes demand less responsive to changes in the oil price (especially where oil products are subsidized).
|WEO 2011 estimates that investment in manufacturing capacity to deliver the government-targeted number of electric vehicles (assuming the targets will be met) would be approximately $85 billion in the period to 2020.|
|Providing the recharging infrastructure will require roughly an additional $50 billion. Consumers will be required to pay more for EVs, currently at least $15,000 more than an equivalent conventional vehicle.|
|“Assuming that this cost increment could be reduced by 50% by 2020, then the additional spending on electric vehicles until 2020 would be about $230 billion. These costs would need to be carried by the consumers or, to the extent that they are subsidised, by governments. It is still unclear how much more the consumer is willing to pay for an electric vehicle or what is the desired payback period, i.e. the time it takes for the fuel savings to offset the higher upfront purchase price of the vehicle.|
|“Some recent tests of public acceptability by individual car manufacturers have given promising results; but for electric vehicle adoption to become widespread, it is estimated that payback times will need to be reduced by a factor of about three to four, or mitigated by innovative manufacturer-consumer business models.”|
Passenger light-duty vehicles. PLDVs currently use about 20 million barrels of oil each day—about 60% of total road oil consumption—and remain the largest oil-consuming sub-sector over the Outlook period. PLDV demand for oil is based on four factors, according to WEO 2011:
- the rate of expansion of the fleet;
- average fuel economy;
- average vehicle usage; and
- the extent of the displacement of oil by alternative fuels.
For example, in the New Policies Scenario, the projected expansion of the fleet would double PLDV oil consumption between 2010 and 2035 if there were no change in the fuel mix, vehicle fuel efficiencies or average vehicle-kilometers traveled. Instead, the projected increase is limited to about 15%, as a result of switching to alternative fuels and, to a much larger extent, efficiency improvements and the decrease in average vehicle use as non-OECD vehicle markets (where average vehicle use today tends to be lower than in the OECD) become increasingly dominant.
Demand for mobility is strongly correlated with incomes and fuel prices. So as incomes rise—especially in the emerging economies—the size of the global car fleet will inevitably rise in the long term. However, vehicle usage patterns are also affected by incomes and prices. A rise in fuel prices (whether caused by higher prices on international markets or a rise in domestic prices) or a drop in incomes (such as during the global financial crisis) can lead to short-term changes in behaviour. But vehicle-miles travelled usually tend to rebound as consumers become accustomed to the new level of price or as the economy recovers.
The United States, one of the largest car markets in the world, is a good example of this phenomenon, partly because public transport infrastructure is limited and most people rely on cars for commuting. Government policies to promote modal shifts, like the extension of rail and urban transport networks, can change the long-term picture. The growth in oil demand from expanding vehicle fleets in countries with large inter-city travel distances, such as China, will be critically influenced by the availability of non-road travel options. However, we assume little change in vehicle usage patterns over the Outlook period. Efficiency improvements, therefore, remain the main lever to reduce oil demand.—WEO 2011
Supply. Oil companies will be forced to turn to more difficult and costly sources to replace lost capacity and meet rising demand. Production of conventional crude oil—the largest single component of oil supply—remains at current levels before declining slightly to around 68 mb/d by 2035.
|Major changes in liquids supply in the New Policies Scenario, 2010-2035. Click to enlarge.|
To compensate for declining crude oil production at existing fields, 47 mb/d of gross capacity additions are required, twice the current total oil production of all OPEC countries in the Middle East. A growing share of output comes from natural gas liquids (more than 18 mb/d in 2035) and unconventional sources (10 mb/d, largely from Canada and Venezuela). The largest increase in oil production comes from Iraq, followed by Saudi Arabia, Brazil, Kazakhstan and Canada. Biofuels supply triples to the equivalent of more than 4 mb/d, bolstered by $1.4 trillion in subsidies over the projection period.
Oil imports to the United States, currently the world’s biggest importer, drop as efficiency gains reduce demand and new supplies such as light tight oil (e.g., from the Bakken shale) are developed, but increasing reliance on oil imports elsewhere heightens concerns about the cost of imports and supply security.
In non-OECD Asia, some 80% of oil consumed comes from imports in 2035, compared with just over half in 2010. Globally, reliance grows on a relatively small number of producers, mainly in the MENA (Middle East, North Africa) region, with oil shipped along vulnerable supply routes. In aggregate, the increase in production from this region is more than 90% of the required growth in world oil output, pushing the share of OPEC in global production above 50% in 2035.
A shortfall in upstream investment in the MENA region could have far-reaching consequences for global energy markets. Such a shortfall could result from a variety of factors, including higher perceived investment risks, deliberate government policies to develop production capacity more slowly or constraints on upstream domestic capital flows because priority is given to spending on other public programmes. If, between 2011 and 2015, investment in the MENA region runs one-third lower than the $100 billion per year required in the New Policies Scenario, consumers could face a substantial near-term rise in the oil price to $150/barrel (in year-2010 dollars).—WEO 2011
Other Findings from WEO 2011
The use of coal—which met almost half of the increase in global energy demand over the last decade—rises 65% by 2035. Prospects for coal are especially sensitive to energy policies – notably in China, which today accounts for almost half of global demand. More efficient power plants and carbon capture and storage (CCS) technology could boost prospects for coal, but the latter still faces significant regulatory, policy and technical barriers that make its deployment uncertain.
Fukushima Daiichi has raised questions about the future role of nuclear power. In the New Policies Scenario, nuclear output rises by over 70% by 2035, only slightly less than projected last year, as most countries with nuclear programmes have reaffirmed their commitment to them. But given the increased uncertainty, that could change. A special Low Nuclear Case examines what would happen if the anticipated contribution of nuclear to future energy supply were to be halved. While providing a boost to renewables, such a slowdown would increase import bills, heighten energy security concerns and make it harder and more expensive to combat climate change.
The future for natural gas is more certain: its share in the energy mix rises and gas use almost catches up with coal consumption, underscoring key findings from a recent WEO Special Report which examined whether the world is entering a “Golden Age of Gas”. One country set to benefit from increased demand for gas is Russia, which is the subject of a special in-depth study in WEO-2011.
Key challenges for Russia are to finance a new generation of higher-cost oil and gas fields and to improve its energy efficiency. While Russia remains an important supplier to its traditional markets in Europe, a shift in its fossil fuel exports towards China and the Asia-Pacific gathers momentum. If Russia improved its energy efficiency to the levels of comparable OECD countries, it could reduce its primary energy use by almost one-third, an amount similar to the consumption of the United Kingdom. Potential savings of natural gas alone, at 180 bcm, are close to Russia’s net exports in 2010.
In the New Policies Scenario, cumulative CO2 emissions over the next 25 years amount to three-quarters of the total from the past 110 years, leading to a long-term average temperature rise of 3.5 °C. China’s per-capita emissions match the OECD average in 2035. Were the new policies not implemented, we are on an even more dangerous track, to an increase of 6 °C.
As each year passes without clear signals to drive investment in clean energy, the “lock-in” of high-carbon infrastructure is making it harder and more expensive to meet our energy security and climate goals.—Fatih Birol, IEA Chief Economist
Four-fifths of the total energy-related CO2 emissions permitted to 2035 in the 450 Scenario are already locked-in by existing capital stock, including power stations, buildings and factories. Without further action by 2017, the energy-related infrastructure then in place would generate all the CO2 emissions allowed in the 450 Scenario up to 2035. Delaying action is a false economy, the report finds: for every $1 of investment in cleaner technology that is avoided in the power sector before 2020, an additional $4.30 would need to be spent after 2020 to compensate for the increased emissions.