Why oil demand will rise even if we all buy Teslas
Updated: Jul 07, 2017, 08.40 AM IST
When looking at oil demand, oil market analysts focus overwhelmingly on passenger vehicles. One of the hottest debates today is over the prospect of peak oil demand: whether or not electric vehicles along with general trends towards more fuel efficiency will ultimately lead to a peak and decline of total oil demand worldwide.
No doubt the upcoming release of Tesla's Model 3 will spark more than a few columns on how it could be the beginning of the end for oil.
But the conversation often overlooks the role that heavy trucks and freight play in driving demand. The International Energy Agency just published a report arguing that the world needs to get a handle on fuel efficiency for freight, or else oil demand will continue to rise, regardless of how many Tesla's are on the road.
Freight transit is crucial for economic growth, and indeed, it tends to be correlated with GDP.The IEA says that only four countries Canada, the US, China and Japan have fuel efficiency standards for heavy trucks, one-tenth of the 40 countries that have rules for passenger vehicles.
“For far too long there has been a lack of policy focus on truck fuel efficiency. Given they are now the dominant driver of global oil demand, the issue can no longer be ignored if we are to meet our energy and environ mental objectives“ Dr Fatih Birol, the IEA's Executive Director, said in a press release.
Since 2000, heavy trucks have accounted for 40 per cent of the total growth in oil demand, on par with the share for passenger vehicles.Trucks burn about 17 million barrels of oil per day (mbd), or about one-fifth of total global demand.
Crucially , demand is still growing ... rapidly. By 2040, road freight will be responsible for 5 mbd of demand growth, or about 40 per cent of total additional demand over that timeframe. If that occurs, any chance at putting a dent in global greenhouse gas emissions would be significantly undercut by the large increase in emissions from trucking.
Even in industrialised countries like the US and Europe, where oil consumption in passenger vehicles has plateaued, the freight sector is still seeing increasing demand. But most of the growth will come from China and India, where 90 per cent of the additional bar rels for freight will be consumed.
The IEA urges governments to make progress on restraining demand growth. It cites three possible areas for improvement.
The first area is logistics and operations, which means using things like GPS to “optimize truck routing,“ improve supply chain efficiencies so that trucks are carrying heavier loads and making fewer empty trips.
Big Data, the "internet of things," and autonomous trucks fall into this category.
Second, there is plenty of room for hardware improvements. The IEA says that the trucking fleet could use aerodynamic retrofits to reduce drag. Lighter materials, better engines, transmissions and drivetrains can all boost fuel economy. There is also potential for hybrid and even zero-emissions trucks.
Third, there could be a large payoff from the use of alternative fuels, which encompasses biofuels, natural gas, electricity and even hydrogen.
If the sector adopts a range of these improvements, the IEA says it is possible to reduce oil demand by nearly 16 mbd by 2050, relative to a business-as-usual scenario.Some areas will be much more difficult to achieve than others, but the IEA says that governments need to focus on several areas: Fuel economy standards; support for the improved use of data for supply chain management; and policies to promote alternative fuels, including R&D, market uptake and refueling infrastructure.