EIA raises projections for oil use in 2040, lowers potential for alternative vehicles

Source: Julia Pyper, E&E reporter • Posted: Thursday, September 11, 2014

Global liquid fuels use is projected to increase 38 percent by 2040, driven by growth in demand from emerging economies and new oil supplies from shale resources, according to new long-term projections by the Energy Information Administration (EIA).

“The growth outlook for liquid fuels use will be largely driven by demand in the developing world, especially in Asia and the Middle East,” said EIA Administrator Adam Sieminski in a statement. “Those two regions combined account for 85 percent of the total increase in liquid fuels used worldwide over that period.”

The “International Energy Outlook 2014” (IEO2014) report projects liquid fuel use to grow from 87 million barrels per day (bpd) in 2010 to 119 million bpd in 2040. This marks a small but significant increase from EIA’s 2013 report, which projected an increase to 115 million bpd in 2040.

Since the transportation sector is the primary consumer of liquid fuels worldwide, these figures suggest that conventional gasoline- and diesel-powered vehicles will continue to dominate the market for the foreseeable future and that fuel-efficient and alternative-fuel vehicles will make only modest gains in international markets in the coming decades.

The report notes that sustained high oil prices, efficiency gains and fuel switching have already reduced or slowed liquid fuel use among mature oil-consuming countries like members of the European Union and the United States. But while the United States will remain a large fuel consumer for years to come, it is no longer the epicenter of global demand.

According to Sam Ori, executive vice president for Securing America’s Future Energy, EIA’s reference case doesn’t offer a very optimistic view on the uptake of efficient and alternative vehicle technologies in emerging markets.

“There’s a lot more work to do in terms of getting these technologies moved along the development timeline and making these technologies commercially viable and attractive, particularly in countries like China and places that are the epicenter of demand growth,” he said.

‘An energy security challenge’

The EIA report sees a significant number of alternative-fueled vehicles coming into certain markets (notably natural gas vehicles in developing Asia), according to Linda Doman, lead analyst for the IEO2014 report. “But the lower reference case oil price path relative to our last year’s IEO in the reference case, combined with increased fuel efficiency and more abundant supplies, lowers the economic potential for alternatives in the IEO2014 projection,” she wrote in an email.

While EIA did not update its greenhouse gas calculations in the most recent report, Doman added that the projected increase in petroleum consumption would certainly make the emissions from oil combustion higher than in previous reports. In its 2013 forecast, EIA estimated carbon dioxide emissions from liquid fuels would amount to nearly 15 billion metric tons in 2040.

According to Chris Malins, fuel program lead at the International Council on Clean Transportation, growth in fossil fuel use doesn’t necessarily mean that the rollout of fuel-efficient technologies, electric vehicles and other transportation alternatives won’t be successful. “There’s an awful lot of room in the market for a lot of progress,” he said.

However, it is troubling from a climate change perspective, which is why governments need to act on ambitious fuel reduction policies, Malins added.

“In terms of meeting climate change objectives, we’d like the EIA projections to be an overestimate compared to what we’ll actually see,” he said.

The IEO2014 report only looked at current policies and did not anticipate any new policy implementations beyond what already exists. It did not offer a fuel consumption scenario factoring in policy pledges, such as proposed regulations on heavy-duty trucks in the United States and China’s goal to put 500,000 electric vehicles on the road by 2015.

In the business-as-usual case, increased fuel consumption could not only fuel the climate crisis, but also increase economic and national security risks.

“Nearly 120 million barrels per day is a huge increase in demand from 93 million barrels per day today,” said Ori. “Match that up with the supply picture that says we get some good contributions from the U.S., but in fact the heaviest load has to be carried by OPEC and OPEC Middle East, that’s an energy security challenge.”

OPEC and high prices will continue to rule

EIA anticipates oil prices will drop from $113 per barrel in 2011 to $92 per barrel in 2017 and then steadily rise to $141 per barrel in 2040.

Increased U.S. oil production stemming from new shale resources will help to lower costs in the near term. A separate report on EIA’s short-term energy outlook released yesterday revised up previous estimates on U.S. oil production by 250,000 bpd to nearly 10 million bpd in late 2015. If realized, the 2015 forecast would mark the highest annual average crude oil output since 1970.

In the longer term, significant new sources of liquid fuel supplies are also expected from Canada, Mexico, Russia, Argentina and China. However, EIA assumes that OPEC oil producers will continue to be the largest liquid fuel producers in 2040.

New investments will allow OPEC countries to maintain a 39 to 44 percent share of total world liquid fuels production. Middle East countries alone are expected to account for 90 percent of total growth.

In light of ongoing conflicts and rising tensions in the Middle East, Ori said he expects oil prices could be much higher than EIA predicts.

“This says to me it’s imperative not only do we follow through on many of the commitments people have started talking about making in terms of policies to promote efficiency and alternative fuels, but we have to do even more than that because the demand picture sketched out in this report is a little sobering,” he said.

The IEO2014 report released yesterday focused solely on liquid fuels markets. A full edition of the report that includes projections on supply and demand for all energy sources will be released in 2015.