Contributed by Robert Lyman © 2019
Robert Lyman is an Ottawa energy policy consultant. He was a public servant for 27 years and a diplomat for 10 years prior.
Updated Mar. 16, 2019
On March 12, 2019, Maclean’s Magazine published an article by Jen Gerson entitled What Happens When the Demand for Alberta Oil Goes Away?
In it, she commented on the forthcoming Alberta provincial election and wrote that carbon taxes and culture wars are not the real long-term concern. It is that “the demand for oil is going to go way”. She went on to explain that this may not happen in the next five to fifteen years, but that “it’s a pretty safe bet that the global demand for oil is going to abate within my lifetime, as climate policies, decarbonization efforts, and new technologies come to the fore”. She speculated that her child, now a toddler, “will probably drive an electric car”.
I have always thought that the job of managing editors at major newspapers and magazines was to ensure that writers exercise at least a minimal level of fact-checking before they publish their work, even when it concerns future developments. One hour of on-line research of the authoritative sources of information about global oil supply and demand would have demonstrated to Ms. Gerson that her speculations are completely at odds with present trends and with the views of the experts that project oil supply and demand well into the future.
Oil is now and has been for over 60 years the most important source of energy for the global economy, and the trends in its use have long been linked to increasing incomes. Global demand grew from 61 million barrels of oil per day (Mb/d) in 1980 to 77 Mb/d in 2000 and 100 M/d in 2018. Over the past 33 years, annual oil demand has only failed to increase three times, during periods of severe economic recession.
Further, over the past decade the pace of oil demand growth has accelerated. Annual oil demand growth has been over one Mb/d since 2012. It was over 1.5 Mb/d in 2017 and 1.4 Mb/d in 2018. The period since 2012 has witnessed the fastest sustained period of demand growth in history. Demand is at its highest level ever. This is confirmed by all major authorities, including the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA).
Both the IEA and EIA produce regular reports on current oil market trends. In its most recent report, Oil 2018, the IEA noted that a strong world economy, with projected global economic growth of 3.9% in the next few years and all regions expected to perform well, means that oil demand will continue to surge ahead at an average annual rate of 1.2 Mb/d. By 2023, the IEA projects global oil demand to reach 104.7 Mb/d. China and India together will account for nearly 50% of global demand growth. The IEA goes further, and states that “there is no peak oil demand in sight.”
While the transportation sector will constitute the largest source of demand as usual, the fastest growing source of demand growth is petrochemicals, particularly in the United States and China.
Only a few years ago, many voices were claiming that the world was headed for a period of peak oil supply. Instead, even with OPEC oil production capacity growing slowly, and socialist Venezuela steadily reducing production from its enormous resources, the almost doubling of U.S. oil production since 2010 and supply growth in Brazil, Norway, Canada and others is assuring adequate supply and moderate prices. The IEA projects U.S. oil production to increase by 3.7 Mb/d from 2018 to 2023.
The Outlook to 2040 and Beyond
Over the longer term, the demand for oil will be determined by several factors including notably the rate of economic growth, technological change, the growth of middle classes in developing countries, and the effects of government policies, regulations and subsidies designed to promote increased fuel efficiency, alternative fuel vehicles and electrification of the economy. In this regard, it is important to note that, for most transportation uses, there simply are no technologically and commercially viable alternatives to oil fuels, especially for freight movement and aviation.
Four organizations are recognized as the premier sources of analysis of long-term energy supply and demand: the IEA the EIA, Exxon, and British Petroleum. In their most recent projections of supply and demand to 2040, none of them project a reduction in oil demand.
The Role of Electric Vehicles and Hybrids
Ms. Gerson’s speculations appear to be driven in part by her belief that electric vehicles will soon (i.e. within a generation) replace internal combustion engines.
Let us examine this thesis. Today, electric vehicles enjoy the benefits of billions of dollars in government subsidies in Europe, North America and China, which has led to their steady growth in sales. They benefit also from virtually endless hype in the media. According to JATO, a well-regarded automotive market research firm, in 2017 there were 3.8 million personal electric vehicles (i.e. cars and SUVs) sold globally. Most of them were hybrids, that continue to rely on oil as a fuel part of the time. 668,000 were battery electric vehicles.
For context, one can read the reports of the International Organization of Motor Vehicle Manufacturers (OICA), which publishes statistics on annual sales of personal cars, commercial vehicles and all vehicles globally. Table 1, drawn from OICA data, shows global personal car sales for selected years:
Global Sales of Personal Cars (million)
These figures illustrate a number of points.
- Total personal car sales were almost 71 million in 2017. Battery electric vehicles were 0.9% of global sales.
- Total personal car sales grew by an annual average rate of 2.2% over the period 2010 to 2017.
- Despite all the rhetoric about Europeans giving up cars, sales rose over the period.
- The Americas is the only region in which annual car sales fell. The USA and Canada, combined, represent only 9.4% of global sales.
- The growth in car sales, like the growth in energy use, is occurring overwhelmingly in Asia, the Middle East and Oceania.
- China’s growth in cars sales from 2010 to 2017 exceeded total USA car sales in 2010.
The figures for commercial vehicles are comparable, except that the number of battery-powered commercial vehicles sold is negligible. There are no authoritative estimates of the current global car fleet; some estimates put it in the range of 1.1 to 1.3 billion. As the average lifetime of a car in use is about 10 years, it will take many, many decades before most people drive battery-powered electric cars, if ever.
The economics of car ownership reinforce these points. For most of history, car ownership per thousand people (i.e. the “motorization rate”) showed profound differences between the wealthier countries of the OECD and the poorer ones in Asia and elsewhere. Even today, the motorization rate in the United States is 821, compared to a world average of 182. That, however, is changing rapidly, as the middle classes of China, India and Southeast Asia increase sharply in numbers and incomes. A decade ago, China’s motorization rate was under 50; today it is 118. India’s rate is 22; when its population of 1.2 billion becomes able to afford motorized transport, the effect on car sales will be dramatic. Consumers will be looking for the most economical choices and that is almost certainly not electric.
Ms. Gerson reportedly has an excellent reputation as a journalist, but she made a serious error in accepting the aspirational goals of climate alarmists as credible substitutes for evidence-based analysis of energy markets. Demand for oil from Alberta and many other places is not coming to an end for a very long time, if ever. Government policies based on the presumption that they were would do immense harm to the public interest.