Recently the Guardian newspaper in the UK launched into that much discussed topic of peak oil  in response to a recent report Heads in the Sand issued by Global Witness. I will pass on the topic of peak oil, but look more at the energy use solutions that we should be thinking about to better manage demand for oil. The Guardian article concludes with a discussion about the need to “go hell for leather for renewable energy sources”. Whilst this may well be needed as part of the overall global need to meet growing energy demand, it won’t necessarily address the issue of oil demand.

In my view, the key to oil demand  lies with transport, not really with overall energy demand. Over the past 35 years the percentage of the usable barrel of oil (oil less processing energy less bitumen/asphalt demand) going to transport has risen from 41% to 61%  and continues to increase (see figure). Increasing amounts of the heavy end of the barrel are being upgraded to transport fuels even as heavier and more difficult crudes make up more of the overall oil supply available. The only real transport fuel that “leaks” out of the system and into the broader energy arena is gasoil. It’s use is split between residential, commercial and agricultural sectors for heating, small generators, construction equipment and so on. Some gasoil is also used for electricity generation but with pressure from the transport sector this will slowly be returned, although it only represents about 5%  of global demand for gasoil in transport.

Source: IEA & BP Statistical Review of World Energy Use

Source: IEA & BP Statistical Review of World Energy Use

Some 20 years ago when I first worked in Shell Trading and was involved in the trading of Far East crudes, I remember that quite a bit of heavy Indonesian crude went to Japan for burning in power generation. This type of activity just doesn’t happen today – it is predominantly used for transport.

Oil and transport are inextricably linked. To manage oil demand we have to get a grip on the transport system.

In the short term the answer must lie with energy efficiency in transport, particularly road transport. Although electrification will start to shift transport energy demand across into another sector, the rate at which this will happen is limited (see earlier posting). But efficiency, both in the vehicles we use and the way in which we use transport is available today. In addition, we can also supplement the transport fuel pool with biofuels and although this is happening faster than electrification, it will also have its short term limits as well, at least until some more advanced bio technologies arrive on the scene.

Right now there is a unique opportunity at hand to address energy efficiency in transport. Vehicle production has suffered dramatically as a result of the financial crisis so that could well mean a surge in demand over the coming few years as those who put off a car purchase catch up. If government policy encourages a more efficient choice of vehicle, we will all ultimately benefit.