Looking down the road at biofuels, coal, gas, and oil
“The short-term picture of a well-supplied oil market should not disguise the challenges that lie ahead as reliance grows on a relatively small number of producers,” warns the International Energy Agency.
Why all the gloom amidst boom times for energy supply? Turns out, right around the corner, rising demand will challenge supply all over again. What does that mean for long-term biofuels demand? The Digest investigates.
Over the past weeks, the International Energy Agency and ExxonMobil both released updates to their long-range forecasts, and BP will reissue its scenario through 2035 on February 17th.
The IEA and ExxonMobil are definitely agreed: despite electrification of the transport fleet, transportation use of liquid fuels is going to rise — sharply, through at least 2035. As Exxon sees it, “Global energy demand seen rising 35 percent from 2010 to 2040…Energy demand shifts strongly to developing nations as middle class expands” and Exoon also points to a 2 billion increase in population.
The IEA agrees, pegging growth at “33 percent by 2035…with China, India and the Middle East accounting for 60% of the increase.”
What happened to energy efficiency?
ExxonMobil sees it playing quite a role. In fact, they write “Without efficiency gains across economies worldwide, energy demand from 2010 to 2040 would be headed toward a 140 percent increase.”
Now, that’s energy overall — which includes the power sector, as well as industrial use of liquids as well as electrons.
What about biofuels?
ExxonMobil is bullish: Though they predict that “carbon-based fuels will continue to meet about three quarters of global energy needs through 2040…the outlook shows a shift toward lower-carbon fuels in the coming decades that, in combination with efficiency gains, will lead to a gradual decline in energy- related carbon dioxide emissions. Wind, solar and biofuels are expected to be the fastest-growing energy sources, increasing about 6 percent a year on average through 2040, when they will be approaching 4 percent of global energy demand.”
The supply story: North America becomes net exporter
Exxon writes: “North America will likely become a net exporter of liquids by 2020 as supplies of so-called tight oil, natural gas liquids and bitumen from oil sands increase. North America unconventional gas production will nearly triple by 2040 and the region is expected to surpass the combined output of Russia and the Caspian region as the largest gas-producing area.”
The bleak greenhouse gas outlook
The IEA warns: “Policy choices and market developments” they project “are not enough to stem the rise in energy-related CO2 emissions, which grow by one-fifth.
“The Intergovernmental Panel on Climate Change estimates that in order to limit this temperature increase to 2 °C – the internationally agreed goal to avert the most severe and widespread implications of climate change – the world cannot emit more than around 1,000 gigatonnes of CO2 from 2014 onwards. This entire budget will be used up by 2040 in our central scenario.
“Since emissions are not going to drop suddenly to zero once this point is reached, it is clear that the 2 °C objective requires urgent action to steer the energy system on to a safer path.”
It’s Chindia, that’s the demand story
The source of the optimism for biofuels? It’s a bullish outlook overall for liquid transportation fuels. But not one that ignores the trend towards fuel efficiency and electrification seen in the OECD countries. What Exxon sees as the driver is the rise of India and China.
“From 2010 to 2040, transportation energy needs in OECD32 countries are projected to fall about 10 percent, while in the rest of the world these needs are expected to double. China and India will together account for about half of the global increase.”
The staggering capital cost
Think $10 billion a year invested in renewables infrastructure is a ton of money? Think again. The IEA writes: “ Investment of some $900 billion per year in upstream oil and gas development is needed by the 2030s to meet projected demand, but there are many uncertainties over whether this investment will be forthcoming in time – especially once United States tight oil output levels off in the early 2020s and its total production eventually starts to fall back.”
Subsidies rule…but for fossil fuels, not renewables
Despite the huge negative publicity around subsidies for renewables, the IEA points out that the staggering subsidy load is actually on fossil fuels.
“Fossil-fuel subsidies totalled $550 billion in 2013” they write, “more than four-times those to renewable energy – and are holding back investment in efficiency and renewables. In the Middle East, nearly 2 mb/d of crude oil and oil products are used to generate electricity when, in the absence of subsidies, the main renewable energy technologies would be competitive with oil-fired power plants. Reforming energy subsidies is not easy and there is no single formula for success.”
Subsidies are not shrinking for fossil fuels; they are still on the rise. ““Despite the growth in lowcarbon sources of energy,” The IEA writes, “fossil fuels remain dominant in the global energy mix, supported by subsidies that amounted to $523 billion in 2011, up almost 30% on 2010 and six times more than subsidies to renewables.”
Oil supply rises to 104 million barrel per day
The IEA forecasts: “Increased oil use for transport and petrochemicals drives demand higher, from 90 million barrels per day (mb/d) in 2013 to 104 mb/d in 2040, although high prices and new policy measures gradually constrain the pace of overall consumption growth, bringing it towards a plateau.
Where’s the growth supplied from? The US, Canada? Nope, the good old Middle East. The IEA foresees: “As tight oil output in the United States levels off, and non-OPEC supply falls back in the 2020s, the Middle East becomes the major source of supply growth. Growth in world oil demand slows to a near halt by 2040: demand in many of today’s largest consumers either already being in long-term decline by 2040 (the United States, European Union and Japan) or having essentially reached a plateau (China, Russia and Brazil).”
Coal, oil plateau around 2040
The IEA projects: “The scenario shows that world demand for two out of the three fossil fuels – coal and oil – essentially reaches a plateau by 2040. At the same time, renewable energy technologies gain ground rapidly, helped by falling costs and subsidies (estimated at $120 billion in 2013). By 2040, world energy supply is divided into four almost equal parts: low-carbon sources (nuclear and renewables), oil, natural gas and coal.
Light-duty vehicles: flat demand at 23 million barrels per day
For light-duty vehicles, Exxon writes, though there will be “Twice as many cars” they see “little change to fuel demand.” They project the number of cars will rise to 1.7 billion in 2040 vs 825 million in 2010 — but sharp gains in fuel efficiency will offset the rise, and “fLight-duty is the only major transportation subsector in which energy demand is not expected to increase significantly through 2040. We see global light-duty demand peaking around 2020, at about 23 million oil-equivalent barrels per day (MBDOE).”
The sources: an increase in global averaged fuel economy to 45 miles per gallon in 2040, up 60% from 2010.They point especially to the rise of turbocharged technologies, and Exxon notes that “these boosted vehicles are entering the new-car market far more rapidly than hybrids because of their cost/benefit advantages today.”
Plus, hybrids are expected to jump from 1% marklet share in 2010 to “close to 50 percent of sales by 2040, making up about one-third of the global fleet at that time.” They surmise that “hybrid cars can provide about a 30 percent fuel economy benefit compared to conventional gasoline cars and are expected to become cost-competitive by 2025.”
The IEA agrees: “With more than three-quarters of global car sales now subject to efficiency standards, oil transport demand is expected to rise by only one-quarter despite the number of cars and trucks on the world’s roads more than doubling by 2040. New efficiency efforts have the effect of suppressing total oil demand growth by an estimated 23 mb/d in 2040 – more than current oil production of Saudi Arabia and Russia combined.”
The number of cars is staggering, even if demand for fuels will be flat. 400 million in China alone — that’s 4X the US fleet.
The “driver” is commercial transportation
Exxon observes: “Driving the growth in energy for transportation – in every region – is commercial transportation: heavy-duty vehicles, marine, aviation and rail. As global GDP increases about 140 percent from 2010 to 2040, energy needs in these four subsectors are likely to grow about 70 percent.”
Will heavy-duty beat out light-duty? Exxon thinks so. “Around 2025,” they project “heavy-duty vehicles are likely to surpass light-duty vehicles as the largest energy-consuming segment of the transportation sector. Total energy demand for heavy-duty vehicles is expected to rise by about 65 percent from 2010 to 2040, as economic expansion and the associated increased movement of goods more than outweighs significant improvements in fuel economy.”
Again, demand will shift to Asia. “The largest demand center today is the U.S. However, by 2040, China is expected to be the largest…Together, China and India likely will account for about 30 percent of the global growth in demand for energy for heavy-duty vehicles, while the U.S. and Europe combine to account for only about 10 percent.”
Natural gas vs diesel in the heavy-duty sector
The world will not shift towards natural gas for heavy-duty, says Exxon. Despite the fact that “natural gas is emerging as an alternative fuel in the heavy-duty transportation sector…driven by potential economic benefits…Diesel’s share is likely to increase marginally through 2040, as it accounts for about 80 percent of the growth in heavy-duty transportation fuel demand. The vast majority of this demand increase will support rapidly growing non-OECD economies.
It’s not all-diesel, everywhere. Exxon predicts that “in some markets, prices of natural gas relative to diesel over time may provide significant cost savings on fuel. In addition, natural gas can provide benefits in reducing emissions. By 2040, natural gas is expected to account for about 15 percent of the heavy-duty transportation sector in both China and India…and10 percent of the U.S. heavy-duty sector by 2040.
Aviation, marine and rail – the fastest-growing subsectors
The big growth? Air, marine, rail. Today it accounts for more than 20 percent of transportation fuel demand, but Exxon projects that share will grow to “30 percent, as energy demand for aviation, marine and rail grows by an average of about 75 percent, and by 2040 energy demand from aviation, marine and rail is expected to reach about 90 percent of light-duty vehicle demand,” compared to around half in 2010.
Oil will dominate these sectors, Exxon believes: “Most of the energy demand growth in these three sectors is expected to be met by oil, representing a projected combined increase of about 7 MBDOE.