The global transport industry is on the verge of massive changes, unprecedented for the last seventy or even one hundred years. The transport sector is now emerging with exciting new technologies including electric vehicles, autonomous driving, and ride-hailing. Led by a mix of entrepreneurs, and state enterprises, the emerging transformational change in the transport industry is also driven by fuel efficiency standards, carbon management, bans on conventional vehicles and other environmental initiatives.
In the Al-Attiyah Foundation’s report entitled “Getting Around: Future Transport to 2040,” the non-profit think tank explored in detail what transport will look like in the future, what market sectors will remain for hydrocarbons and how major oil and gas producers can respond and even benefit from these changes.
Such transformational changes go alongside steady shifts in demographics (ageing Western populations, rising Asian travellers), new transport infrastructure, and improving vehicle efficiency. These changes are driven by the availability and improvement of new technologies, environmental pressures to reduce greenhouse gases and other pollution, economic drivers (primarily lower costs), and changing consumer tastes. As transport accounts for 21% of primary energy demand and 57% of oil demand, emerging changes in transportation have huge implications for the energy business. In addition to direct impact, transformation in transport will have wider knock-on effects for society and geopolitics, which themselves affect the broader energy industry.
Final energy use in transport is set to peak, then gradually start falling in the 2020s, driven by the major increase in efficiency with electrification. By 2040, oil use in transport is predicted to be about 67% of the 2018 level, and the use of gas in transport will increase but is still likely to be much less than oil. Changes in the energy mix that lead to a world of declining coal and oil demand, with consequential reduced demand for tankers and bulk carriers, would have significant impact on the transportation sector. Demand for oil tankers is expected to be flat from about 2025 and falling after 2030. Currently, the connectivity between the broader energy sector and the transport sector is limited to energy use for vehicle manufacturing and for movement of people and goods, including energy materials (coal, oil and gas).
Increasing electrification, rise of hydrogen and advances in carbon capture and storage, have the potential to couple the energy and transport sectors much more closely. In particular, electric vehicles may act as a collective giant battery, charging at times of surplus electricity (such as daytime in sunny places), and partly discharging at night to support the grid.
Surplus renewable energy may be used to produce hydrogen from synthetic methane, which can then be stored for eventual use as a transport fuel. Battery charging demand will alter daytime patterns of electricity demand to a degree, and in particular, may require strengthening of distribution networks for high-demand concentrations of charging points, such as workplaces and malls.
Moreover, changes in the transportation sector have far-reaching and unpredictable social, economic and even geopolitical consequences. For instance, autonomous vehicles could lead to safer and quicker, less congested and cheaper travel. They would have fewer accidents, would drive more efficiently, and eliminate the time wasted searching for parking. Being safer, they could also be lighter, reducing fuel consumption. Such improvements in the transport system would make travel more popular, improve access to remote communities, and allow new users (for instance the young and elderly). Whilst good things in themselves, this could encourage urban sprawl, reduce the demand for public transport, and cause widespread job losses among taxi drivers, chauffeurs, delivery drivers, truckers, sailors and pilots.
The shift in future transport presents some opportunities, but also challenges, to major oil and gas exporters.
These radical changes in transport are at their early stages. They may be easy to dismiss at the moment, with just 2.1% of new car sales in 2018 being electric. But leading oil and gas producers, companies and consumers have to watch out for the following signals: The increasing competitiveness of electric vehicles on cost and performance, their growth in early-adopter markets such as Norway, and the increasing trend by governments to mandate their use. The same goes for other emerging technologies.
However, not all possible or promising technologies are expected to develop to full maturity, and those that do will take time to become fully operational.
Some tasks, such as reaching full automation of driving, appear more challenging than first thought. Infrastructural, operational and regulatory barriers; coupled with consumer familiarity and reluctance to change; are some impediments that could hold back the adoption of new technologies, even when they prove to be commercially viable.
The implications of new transformational changes in transportation reach well beyond the energy sphere, extending into widespread ramifications for industry, society, the environment and geopolitics.
Major oil and gas exporters will have to watch developments carefully, invest at strategic points, and make robust economic decisions that take into account the new emergent transport options.
* This article was supplied by the Abdullah bin Hamad Al-Attiyah International Foundation for Energy and Sustainable Development.
