Light-duty demand to peak before 2020, then start gradual decline

By Alison Gaines

In 2008, only four countries in the world had firm, enforceable fuel-efficiency policies, covering about half of all light-duty fuel demand, said Rob Gardner, manager of the economics and energy division of ExxonMobil’s corporate strategic planning department. In 2014, this grew to about 90% of light-duty fuel demand, he said.

Presenting “ExxonMobil’s Outlook for Energy: A View to 2040” at the 2015 JSAE/SAE Powertrains, Fuels and Lubricants International Meeting in Kyoto, Japan in September, Gardner said “this is a direct challenge to manufacturers.” Policy and increasing regulation have been one of the largest factors in the energy changes of the recent past, he said.

ExxonMobil started including greenhouse gas (GHG) policy actions and initiatives in its energy outlook for almost a decade, and are just now starting to see “the details of how that’s evolved.”

He credits fuel-efficiency policies and the Japanese auto industry with the gains that have been made in vehicle fuel efficiency. He showed that between 2010 and 2040, world light-duty vehicle fuel demand, measured in millions of barrels per day (oil equivalent), will reach a plateau around 2020. Base fuel demand will decrease steadily after reaching its peak in 2010 because of vehicle fuel-efficiency improvements. However, population growth and the rising standard of living keep light-duty fuel demand up. If it were not for these savings from efficiency gains, Gardner said that by 2040, the light-duty vehicle fleet would require an additional 16-17 million barrels of oil per day.

Chart courtesy of ExxonMobil.Between now and 2040, Gardner said that there will be a “re-balancing” of the global economic set-up. Energy demand will not grow at such a fast rate as it has in the past few decades, but demand growth is going to come from different places. What we often refer to as the developing economies will, and already have begun to, represent a larger slice of the pie. China, India and 10 other non-OECD countries have been identified as “key growth” areas[1]* by ExxonMobil and will represent 50% of energy demand by 2040, he said.

Contributing to this growth are urbanisation trends and the growth of the middle class. As people in developing countries increasingly move to urban areas to access better service, jobs and higher pay, demand on the global energy base will shift. The number of people globally that fit into the Brookings Institution’s definition of the middle class will grow from around two billion to almost five billion between 2010 and 2030. While people in OECD countries have not seen growth in the middle class for some time, the middle class is growing in key growth countries, especially in China and India.
Middle-class status is defined not so much by how much income is available to this economic group, but how much they spend daily. A middle-class family, spending between USD 10 and 100 per day, will be able to buy “small luxury items” such as cell phones, leisure time or vehicles. Using this definition of the middle class, China and India’s middle classes are projected to grow to be as large as that of OECD countries’ by 2030.

The same countries that will comprise 50% of energy demand by 2040 will also contribute 75% of new vehicle sales. The higher standard of living in these countries has already begun to cultivate a much larger vehicle-purchasing population. Gardner used China as an example. In 2002, consumers in the top 20% of China’s income bracket were buying most of the cars. Ten years later, in 2012, people across all income levels were buying cars.

Chart courtesy of ExxonMobil.What types of vehicles, then, will make up the fleet? Gardner said that the internal combustion engine will continue to dominate in China through about 2030. The next most popular will be hybrid vehicles, in both China and the U.S. In China especially, hybrid penetration will be a little delayed because so many new internal combustion engine vehicles are being purchased. Late in the outlook, towards 2040, Gardner sees an increase in battery-powered electric vehicle. However, he said, it is unlikely that the cost of such a car will become a viable economic option for most people.

Additionally, while some consumers may believe that moving away from the internal combustion engine is the most earth-conscious choice, one needs to consider the emissions produced in the overall life of the vehicle, he said. In terms of cradle-to-grave emissions, improved gasoline engine technology probably offers the greatest improvement, Gardner said. Second to that is hybrid vehicles, and following that is the battery electric vehicle.

Batteries are “influenced by what fuel is generating the electricity,” and right now, “coal is leaving, but has not left, the electricity grid,” he said.

While urbanisation is helping to create demand for new vehicles, it is also somewhat at odds with this projected demand growth. By 2040, there will be at least twice as many megacities, cities with 10 million people or more. The areas where these cities are growing are also the areas where vehicle demand will be strongest. Congestion quickly becomes an issue. Gardner said that by 2040, China may be so congested with cars that licensing restrictions may put a damper on how many cars can be purchased.

Gardner divides the world’s energy demand into four sectors: electricity generation, industrial, transportation and residential/commercial. Electricity generation, he said, takes up more than half the world’s energy demand, and this will not change by 2040. Industrial energy demand growth slows toward 2040 because China is reaching a plateau of urbanisation and is cutting back on the amount of steel it needs to produce. Residential/commercial demand shows a similar pattern. In the transportation sector, Gardner predicts that demand will increase by about 40% between 2000 and 2040. This encompasses light-duty, heavy-duty, aviation, marine and rail vehicles. Light-duty demand will peak before 2020 and begin a gradual decline. Heavy-duty vehicles will become a larger percentage of transportation demand, which makes sense in the context of growing urbanisation.

Chart courtesy of ExxonMobil.Finally, where will our energy come from in the future? Several new energy sources are becoming more prominent because of GHG policies. Natural gas is the most prominent new player, partly because it burns cleaner than coal and partly because it has become very accessible. Coal, the main target of emissions policies, produces about 40% of today’s energy. By 2040, Gardner said gas will surpass coal’s share of energy contribution. Also by 2040, 40% of energy will come from non-carbon sources such as wind, solar and nuclear power, which are currently the smallest, but fastest-growing, sources of energy. Biomass, which has become more prominent in the industrial, residential/commercial and electrical sectors, is the most expensive option and Gardner does not see it contributing significantly to transportation by 2040. Looking only at transportation, however, oil will remain by far the largest source of energy even in 2040.

ExxonMobil believes that energy supply from oil and gas is growing. Gardner said the company estimates that there are more than 200 years of available gas reserves and 150 years of crude oil supply left, due to significant developments in the ability to explore and produce oil and gas. The greatest advancements in efficiency will come not from unfamiliar or brand-new technology, but mostly from improvements on today’s technology.

[1]* These countries are Mexico, Brazil, Nigeria, South Africa, Egypt, Saudi Arabia, Turkey, Iran, Thailand and Indonesia.

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