Unfortunately, peak oil is not at hand

A Citi Research report on so-called peak oil demand has been drawing a lot of attention lately. Understandably: what could be bigger news for anyone concerned with climate change, energy security, etc.? The report comes out hot right from the start, suggesting “The End is Nigh” and we are “Approaching a Tipping Point” on global oil demand.

Unfortunately, though, it’s less than persuasive. The first thing that ought to raise an eyebrow or two is how wildly Citi’s analysis diverges from that of established data information centers like the International Energy Agency and the US Energy Information Administration—not to mention our own Roadmap Model, or Exxon Mobil, or really anyone else at all—on the demand for oil from transportation and other global activity, based on known business-as-usual practices, vehicle ownership and activity, technology trends, and adopted policies.

One explanation for that divergence is that the Citi report relies on questionable assumptions about known changes in the transportation sector. In particular, Citi’s assumption that fuel efficiency will trend upward at 3–4% per year is highly misleading. The vehicle efficiency policies currently in place around the world will not provide a 3–4% annual efficiency gain in the global auto fleet as suggested in the report. Summing up the efficiency requirements over the global fleet (see table) only nets a 1.7%/year improvement in 2010–2015. And there is only a 1.2%/year improvement from 2016 to 2020, when about two-thirds of the world auto market does not have standards for increased efficiency. So a 3–4%/year efficiency trajectory would better be viewed not as a given, but as a policy goal upon which to construct the necessary fuel and vehicle policies needed impact the efficiency of the fleet. Although a mere percentage point or two separates Citi’s and ICCT’s accounting of efficiency standards, the difference amounts to over 1 million barrels of oil per day in 2020, and over 100 million tons per year of CO2.

Required reduction in new light-duty vehicle fuel consumption from adopted efficiency and carbon dioxide regulations

    Annual %/year fuel consumption reduction for new vehicles
Region % World auto sales, 2012 New vehicles 2010–2015 New vehicles 2016–2020
China 25% 1.9% None
United States 22% 3.0% 3.7%
Europe 22% 1.5% None
Japan 7% 0.4% 3.5%
Russia 5% None None
Brazil 5% 1.5% 1.1%
India 3% None None
Canada 2% 1.6% 3.3%
S Korea 2% 2.0% None
Mexico 1% 2.9% 0.5%
Australia 1% None None
Other 7% None None
Total sales
(and weighted average)*
100% 1.7% 1.2%

Sources: ICCT passenger vehicle global standards * Weighted averages based on 2012 sales; percents would be lower if relatively higher growth in Asia Pacific, Middle East, and Latin America were estimated.

The heavy-duty efficiency story is similar. There are initial standards in Japan, US, Canada, and China. In addition, many voluntary “green freight” programs (e.g., US EPA SmartWay, Mexico Transporte Limpio) are making progress in accelerating technology into the market. The current US/Canada, China, and Japan regulations will approximately reduce fuel consumption across major truck classes by 1–2% per year through 2015. The rest of the world – over two-thirds of global truck sales – has not adopted heavy-duty vehicle efficiency standards, so the projected efficiency gains are less than 1% annually, based on current technology and policy.

Lastly, Citi’s assumptions on the uptake of natural gas could also gain from a closer examination. The idea that the US heavy-duty vehicle fleet could consume 0.5 million barrels of oil equivalent per day in 2020 of natural gas stretches credulity. This would imply that about 15% of the US heavy-duty fleet energy use, meaning over 1.5 million trucks, would be natural gas. Natural gas for trucks is making major inroads, to be sure, but this level of penetration into the heavy-duty fleet would require a dramatic inroads for natural gas among more diverse, long-distance truck types. The vehicle technology, the commitment by manufacturers to bring mass-market products to market, the infrastructure, and the policy are simply not in place to make this natural gas vehicle scenario happen.

As always, it is important to examine assumptions. Citi’s assumptions surely need some vetting and some context. World oil demand doesn’t appear on track to peak in analyses that are based on known technology and policy trends. If only wishing made it so. The peaking of world oil demand is indeed achievable in the 2020–2030 timeframe. The indicated 3–4%/year efficiency goals are achievable; in fact, efficiency technology could go even further if long-term policies are enacted. But getting there will require the adoption of many dozens of new efficiency and fuel policies around the world, as well as billions of dollars of investments by leading automakers, suppliers, and fuel providers. Even if conventional oil supplies will peak, far more technology and policy action will be needed to stabilize the demand for oil use in the 2020 or even 2030 timeframe.