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CGEP’s Visionary Annual Circle
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(This list is updated periodically)
Jay Bernstein
Breakthrough Energy LLC
Occidental Petroleum Corporation
Executive Summary
A critical question to emerge from the oil demand crash in 2020 caused by the global pandemic is whether it marked the beginning of an inexorable decline in consumption of the fossil fuel that could significantly speed up government efforts to meet net zero carbon targets. The changes in government policy, technology, consumer behavior, and shipping during COVID-19 have been profound. Electric vehicle sales increased in a number of countries, while overall automobile sales declined. The use of digital technology accelerated with a sharp rise in telecommuting, teleshopping, and teleconferencing, cutting into transportation oil use primarily in passenger and air travel.
However, some aspects of the COVID experience increased oil use. There was significant substitution away from mass transit to greater use of personal vehicles and there is some evidence that people left large cities in the United States for the suburbs and smaller cities where there is less mass transit available and people drive more for non-commuting activities. There was also a large increase in e-commerce deliveries in the US and other nations that buoyed short-haul truck vehicle miles traveled. While unrelated to transportation, there was also an increase during COVID in petrochemicals used for personal protection equipment and packaging for take-out food and e-commerce deliveries.
Because of fossil fuels’ greenhouse gas emissions, understanding how oil demand might return and when it could peak will be factors in governments’ strategies for addressing climate change. In the summer and fall of 2020, Columbia University’s Center on Global Energy Policy and the University of California, Davis Institute for Transportation Studies (ITS-Davis) conducted an oil demand scenario study out to 2030. The goal was to understand how COVID, in combination with other political, economic, social, and technological drivers, may impact long-term transportation activity and global oil demand and to try to determine whether oil demand has already peaked.
Forty-four leading energy and transportation experts developed four scenarios that varied by the pace of economic recovery, the level of government intervention in energy markets, and the stickiness in the mobility trends that were set in motion during the 2020 pandemic lockdowns. ITS-Davis then modeled the impacts of these scenarios on transportation energy and oil use. Other sectors less impacted by COVID were modeled with lesser detail.
Global oil demand grows through 2030 in three out of the report’s four scenarios, which is generally in line with forecasts by agencies such as the International Energy Agency and others for that period. The one scenario that bucks the trend, named Forced Revitalization, is characterized by strong government intervention in green stimulus, acceleration of digital mobility technologies, and a slower economic recovery—the result being oil demand falling after 2025. The greater competitiveness of alternative fuels and the weaker economy in that scenario contribute to lower oil use overall.
The study finds that while great uncertainty remains about the speed and strength of the world’s recovery from COVID, the current state of government climate policies and technology innovation are unlikely to reduce global oil demand fast enough to help the world keep within a 1.5°C temperature rise along the net zero carbon trajectory. Both government climate policies and technology innovation would need to move well beyond what was contemplated in this study’s scenarios.
Other key takeaways include:
- COVID could drive a structural downshift in oil demand, even if economic growth in the short term brings about a recovery in oil use.
- In some major markets, there appears to be a sense of fragility and greater acceptance of government policies that reduce greenhouse gas and air emissions, such as electrification of vehicles.
- COVID accelerated digitalization via telecommuting, teleconferencing, teleshopping, 3D printing, etc., thereby cutting the need for oil to fuel as much mobility, which could permanently reduce oil demand.
- Despite relatively aggressive government policies aimed at reducing oil demand, such as within green stimulus packages enacted in several countries during the pandemic, global oil demand may not peak before 2030. This is primarily due to the time it takes to turn over large transportation fleets, growth in petrochemicals use, and the aspects of COVID that could drive an increase in vehicle miles traveled (VMT), such as greater use of personal vehicles over mass transit, migration outside large cities requiring people to drive more for non-commuting activities, and increasing truck delivery miles for e-commerce.
- The scenario analysis highlights the possibility that global light-duty-vehicle passenger oil demand may peak by 2025 or earlier. The combination of alternative vehicles and fuels as well as efficiency improvements tend to offset the increases in VMT.
- There are significant differences in trends between mature and developing countries. Across the four scenarios, all of the growth in transportation oil use occurs in China and other developing countries while there are declines in the US and Europe.
