The ongoing electrification of the global transportation fleet will shorten the timeline for peak oil demand to only five years, a DNV GL analyst said on Nov. 20.

“This is different from many other forecasts,” admitted Sverre Alvik, program director for energy transition at the Oslo-based risk management firm, during a webcast sponsored by the Washington, D.C.-based Center for Strategic and International Studies. “Most others see oil peak between 2030 and 2040. We see it earlier. The role of the global transport sector is the main reason for that.”

IHS Markit forecasts oil’s peak demand to be around 2035. Wood Mac forecasts 2036. The International Energy Agency predicts the peak will be around 2025.

Alvik did not dismiss the world’s continued reliance on fossil fuels, though he noted that global coal use peaked in 2014 and is expected to remain flat for the next decade. But he did stress that even a bump in the use of petrochemicals, for example, would not favor the oil and gas industry because factors including the recycling of plastics would likely negate any growth in the use of oil in that area.

“The use of virgin feedstock to the petrochemical sector might not increase and be a rescue for oil,” Alvik said.

Transport Electrification

Of the three primary areas of energy consumption—transport, industry/manufacturing and buildings—transport will experience the most dramatic changes between now and 2050, the time period for DNV GL’s forecast.

“We have a very strong belief in the role of electrification in the global transport sector,” Alvik said, adding that the engine efficiency of an electric vehicle is 90%, compared to 25% for an internal combustion engine.

“Yes, you have to take into account how the electricity is generated,” he said, “and if it is gas, then you lose the efficiency gain by about half. But still, there is a difference.”

Alvik expects rapid growth in this area, though he acknowledged challenges that need to be overcome, among them:

  • Range anxiety: Quartz reported that a standard electric vehicle can run from 150 miles for the Nissan Leaf to 310 miles for the Tesla Model 3—more powerful battery packs are reducing buyer fears;
  • Charging stations: A Consumer Reports survey found that 20% of drivers were leaning toward purchasing an electric vehicle but want a robust charging infrastructure in place to feel comfortable making the decision; and
  • Battery Cost: Even the relatively low-end Tesla Model 3 has an MSRP of $42,900, or 19% higher than the U.S. average for a new car.

When those problems are solved, Alvik said, “we find it almost impossible for the combustion engines to compete,” adding that DNV GL projects electric vehicles to account for half of the world’s vehicle sales in 2032. As zero-emission technology become competitive, government subsidies for those vehicles will no longer be necessary.

Still Need Oil And Gas

By 2050, global oil use will have declined to only 55% of what it is today, he said, but while the decline is fast, “it’s less steep than the depletion of the fields so at this juncture, you do need some new oil.”

Not all producers buy into this scenario. Alvik said oil executives in the UAE were not worried about the projections when he met with them recently, confident of their position because of the low cost of their product.

The findings on the future for coal also received pushback. Alvik said that officials at the U.S. Energy Information Administration assured him that even at lower utilization from reduced demand, coal plants would still be able to operate profitably.

Assumptions about the phaseout of coal and its replacement by natural gas lead to a changed price dynamic for U.S. consumers.

“Gas in North America is probably going to be more expensive as we have more of it liquefied and sent abroad and get a more global gas price,” Alvik said.

Tellurian’s daily market commentary for Nov. 21 showed the Henry Hub U.S. benchmark price for gas at $2.567 per million British thermal units (MMBtu) for December delivery. By contrast, the price on the JKM (Japan Korea Marker) was $5.95/MMBtu for January delivery and the January price on the Dutch TTF (Title Transfer Facility) was $5.067/MMBtu.

We’ll Never Have Paris?

“We are in the midst of a rapid energy transition,” Alvik said. “The energy world of 2050 will look very different from today. However fast, it’s not fast enough to reach Paris emissions, if that’s what we are striving towards.”

Global energy use is on the verge of peaking in spite of economic growth, population growth and successful efforts to bring more than 1 billion people out of energy poverty, he said. That’s because of efficiencies and the shift toward electrification that will allow more people to use the same amount of energy produced now, but accounting for a reduced share of global GDP.

“We don’t need fusion or any other dream today in order to achieve a Paris future,” Alvik insisted. “We can do this with a scale-up of [photovoltaic], of wind, of carbon capture and storage, electric vehicles and other things that already exist. But if this is to happen, it needs much more policy help than it does today.”

In some sectors, lower emissions may not be likely. In coal, carbon capture and storage lacks both investment and government policy mandates to spur development of commercially viable products.

DNV GL serves clients across the energy spectrum, so Alvik stressed that his study was as objective as possible without any effort to favor customers in either the oil and gas or renewables sectors.

“This is not the future we want,” he said. “This is the future we see as most likely unfolding with the momentum that is currently in the energy world.”