David Hone

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

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.

One of the most important moments at the recent Bangkok UNFCCC meeting was the release by the IEA of its Climate Change Excerpt to the World Energy Outlook 2009. The full World Energy Outlook will be released in November as usual, but the pre-release was done to coordinate with the talks in Bangkok.

The excerpt lays out a possible 450 ppm energy scenario, built in part on the fact that the recession has given us something of an emissions break, with the IEA estimating that global emissions have fallen some 3% as a result. Whilst emissions will start growing again (and probably already have), the drop is akin to at least a 3 year reprieve, which means that the window of opportunity for 450 ppm is slightly open. But this is no easy scenario and in fact doesn’t plateau at 450 ppm, but overshoots it and reaches some 510 ppm in 2035 before beginning a gradual decline from about 2045. Global energy emissions must peak just before 2020. By contrast, the reference scenario sees atmospheric levels of CO2 eventually rising to over 1000 ppm and 2030 emissions some 14 GT greater than the 450 ppm scenario.

Key mitigation approaches are shown in the chart, but energy efficiency is clearly a major part of the pathway forward. The assumptions are very challenging and will really test our capacity for change.

But the evidence we can do this is starting to appear. Whilst in Abu Dhabi this week I was taken on a short tour of the construction site that will become Masdar City. This will be the worlds first carbon neutral, zero-waste city. It will have a working population of 90,000 of whom 40,000 are residents and be powered entirely by renwable energy. The city is being built in traditional Arabic style, with narrow streets and natural shading and with a number of features to improve the circulation of air and therefore energy efficiency of the buildings.

Masdar City CO2 compared to a conventional city.

The transport infrastructure of Masdar City is also different to every other city in the world. There are no cars, just light rail and personal rail transport (PRT) – in effect small capsules on a rail system for individual and family use. The railway system is starting to appear on the construction site and a test PRT capsule has been delivered.

Masdar still faces challenges, particularly water supply. There is none, so pretty much all the water comes from desalination plants, which also means that the water has a high energy footprint. But tremendous efforts are being made to conserve and recycle, so net use will be low.

Masdar represents a truly large scale working demonstration of what is possible if we are prepared to invest in infrastructure and push technologies and design well beyond business as usual. Demonstration is also a vital step in the commercialisation of new technologies and approaches and Abu Dhabi Future Energy Company know this – I am sure they will build a flourishing business on the back of the techniques they develop in Masdar City. A truly remarkable transformation is taking place in this arid region.

A final interesting observation (at least to me) from the excerpt is that IEA have started showing total cumulative emissions since 1890 and national shares of the accumulation. This is important as the real measure should not be the particular level of emissions in any given year but the total cummulative emissions compared to the carrying capacity of the atmosphere, which is about 1 trillion tonnes of carbon (3.7 trillion tonnes of CO2). The figures shown are of course energy emissions and do not account for other gases, forestry and agriculture.
 
Photos and charts: Abu Dhabi Future Energy Company & International Energy Agency

Late last week a significant development came from an equally significant slice of the global shipping community – support for action to reduce CO2 emissions from international shipping in the form of a global cap-and-trade system. International marine and aviation bunkers were excluded from the Kyoto Protocol, but if there is one thing I can be sure of seeing from Copenhagen is that this exclusion will no longer be the case. Shipping emissions will almost certainly be included and the shipping community will either grasp the opportunity to shape its future in terms of policy or it will have its future shaped for it by national governments and the UNFCCC.

The announcement comes in the form of a discussion document released by the British, Australian, Belgian, Norwegian and Swedish ship owners associations. The document clearly outlines the issue and challenges, spells out the advantages of a trading approach and then outlines two different constructions for a possible system. At this stage the document doesn’t discuss the scale of reductions, but I don’t think that is important right at this moment. Rather, the industry is taking a major step into the policy arena with a view to charting its own course foward (pun intended, sorry).

What really differentiates the two models in the document is the flow of money. In the “sectoral” approach, the industry pretty much creates its own allowances (although they originally come from the UNFCCC in the form of AAUs), auctions them, manages the revenue from the auctions and establishes registries and compliance mechanisms. Revenue management is not discussed in great detail, but it is clear that some portion is directed towards technology development. By contrast, the “distibuted” approach sees national governments being issued additonal AAUs to cover international marine bunkers (but only those governments with national targets also underpinned by AAUs)  and the shipping market buying either CERs from developing country projects or AAUs from government auctions. The industry maintains its important role in the compliance process but has little control over the money flow. That rests largely with governments.

The flow of money is bound to be a divisive issue, with many shippers, as with big emitters in land based systems, arguing that they should be in control of the auction revenue raised. It is difficult not to be sympathetic with this, but the reality of our world is that governments control the money flow, not sectors or industry associations or even banks. This is almost certainly a subject for further postings.

I will certainly write more about shipping in the weeks ahead, but in the meantime I would recommend reading this document. The shipping community that put it together deserves a round of applause for taking on a difficult subject at a pivotal moment for the industry.

At a recent UK Government stakeholder meeting in London the issue of transport and electric cars came up. Based on information from an adviser on climate change to the government, there seems to be a working assumption that electric cars will take hold in the market with significant sales and that by 2020 we could have between 1 and 2 million such cars on the road in the UK.

Today the UK car population is some 28 million, so this would represent nearly 7% of the total fleet if we actually reach 2 million vehicles. We have just 10 years to 2020 and the statement really made me think about the feasibility of such an achievement.

A few years back when developing the WBCSD publication Facts and Trends to 2050, I did some calculations on vehicle fleets to illustrate the scale of change needed to turn over the entire global fleet. We assumed the following;

• An “alternative (e.g. electric) vehicle” was available for large-scale manufacture in 2010.
• Initial production would be 200,000 units per annum and production would increase by 20% per annum until the entire world’s manufacturing capacity was making this sort of vehicle.
• The global vehicle fleet would be growing at 2% p.a.
• Global manufacturing capacity would be increasing at 2% p.a.

This very simple calculation resulted in the adjacent chart, which shows that it is not until 2040 that the total traditional vehicle fleet start to decline, but then it falls very quickly. The point of this calculation was to illustrate that unless we start now, it will not be possible to achieve significant CO2 reductions by 2050 given the scale of the energy system we live with today and the lag before it really starts to change.

So getting back to the UK, what might be achievable by 2020. There are in fact two issues; the vehicles themselves and the necessary infrastructure to support an electric fleet. I will just look at the number of vehicles for this posting.

Today in the UK there really aren’t any electric cars. Although I met someone who bought a Tesla Roadster and there are a few mini-electrics in London, principally to avoid the Congestion Charge, I don’t think this really constitutes a “fleet” as such. But at least we do have a number of manufacturers showing prospective cars; the Chevrolet Volt, the Nissan Leaf, the Daimler Smart and several others talking about their plans. It looks like we might have some global manufacturing capacity by 2011.

An electric car in London today

To get to around 1.8 million by the end of 2020, the UK would have to put 10,000 cars on the road in 2011 and grow that number by some 60% per annum, such that by 2020 about a quarter of all car sales (i.e. 680,000 out of 2.5 million per annum) are electric. Assuming no cars are lost along the way, the cummulative total comes to 1.815 million.

The 2011 start won’t be easy either; this is the equivalent of the total annual UK sales of the Smart car. However, cities like London are ideal places for electric cars so there may well be the demand here, particularly with policies such as the Congestion Charge.

Globally, there are about 70 million cars produced annually. The UK takes in 2.5 million of these or less than 4%. An electric car manufacturer isn’t going to direct all its sales to one market, but let’s assume that the UK is a premium market and can attract 8% of the production of these models – i.e. double its normal market share.

If we want 10,000 cars on the road in 2011, that means global production must be 125,000. Assuming a number of manufacturers start off with modest production lines (i.e. 20,000 vehicles, similar to the initial production of the Prius), we would need at least six big launches followed by immediate production in the next 18 months. By 2020, global production would need to be nearly 10 million cars per annum, which is the equivalent of about 100 major production lines.

In 1998 annual Prius production was about 17,000 vehicles. Just prior to the recession it was close to 300,000.

Somehow I think that the UK assumption is quite a bold one.

Probably without really thinking much about it, we have pretty much engineered our entire society around the distillation curve of a barrel of crude oil – or at least the barrel that was easy to find in the 1950s or there abouts.

Most of our cars run on gasoline, largely because of the invention of the spark ignition internal combustion engine, where the fuel is a compromise between one that is volatile enough to vaporize but not too volatile to result in pre-ignition.

Rudolf Diesel originally designed his engine to run on peanut oil in the 1890’s, so it then found a home with the heavier distillates from crude oil. Since then it has become the backbone of heavier forms of transport such as trucks, ships and industrial vehicles. It is also making significant inroads into the passenger vehicle segment given its high efficiency (50% in the EU but much less in the USA).

A jet engine can run on a wide variety of fuels, but owing to the shortage of gasoline during the second world war, illuminating oil (kerosene) was the chosen product. Since then we have optimised this engine for this type of fuel and built a wealth of infrastructure at airports to support its use. Even its flashpoint specification was in part due to the need for safe handling on an aircarft carrier.

We have also optimised at the bottom of the barrel, using heavy fuels in ships and putting bitumen on our roads.

So as we seek lower carbon emission fuels for transport, do we try to replicate the exisiting approach or develop alternatives? Picking and choosing may not be an option here. For example, if we were to move away from deisel and gasoline for personal road tranport but decide to retain kerosene for aviation it unbalances the product slate that is produced by refineries. But the aviation sector is pretty much locked into kerosene, with no immediate developments on the horizon for alternative fuels. That then points to a solution which replicates kerosene from bio-sources, thereby utilising all the existing infrastructure. Alternatively, we continue to extract kerosene from crude oil and use the remaining products in gasifiers, combined with CCS, to make hydrogen and electricity. Interestingly, the very early use of crude oil also focussed on this cut of the barrel. The illuminating oil was extracted as an alternative to whale oil and the remaining distillates were “disposed” of.

Just looking at road transport alone, the future could well become quite complex. As other forms of transport are included it is not difficult to see that the relatively simple energy supply route we enjoy for transport today is going to change.

On a shopping trip in London’s West End on Saturday I came across the first real signs of the dawn of the electric car – charging poles. These have been installed by EDF, look a bit like parking meters and are available, with a free dedicated parking spot, for electric car owners needing a recharge. Then on Sunday at a BBQ I met someone who is about to take UK delivery (the 7th in the country) of a Tesla Roadster from Tesla Motors. Tesla now market two electric cars, the aforementioned Roadster which is available today and a small Sedan, the Model S which is targeted for 2012. Both seem to have excellent performance and reasonable range (some 400 km). Tesla is a US company.

So has the electric car now arrived?

Certainly there are now some real models startring to appear in the showrooms and judging by the announcements by many manufacturers, quite a few more models could appear in the near future. In London today there are also a number of very small electric cars which people use for local commuting and avoiding the £8 per day congestion charge. The most popular of these is the G-Wiz car, now available with a Lithium Ion Battery. These cars are manufactured by the REVA Electric Car Company in Bangalore (India), currently the world’s leading electric car manufacturing company.

We might therefore imagine that electric cars will be everywhere in just a few years and that the days of the internal combustion engine are over. I remember getting my first digital camera in 1995, a model from Apple (who don’t even make them now). At that time I was incredibly impressed by the 1 million pixel images and imagined that within 10 years film cameras would be well and truly on the way out. Today it is hard to even find one in a camera store. But electric cars will be different. Hybrid technology has been around for over 10 years now and whilst Toyota and Honda have been incredibly successful with them, less than 2 million have been sold globally. In the same 10 years global auto production was some 700 million units.

Back in 2005 I did some work for WBCSD for an upcoming publication. We looked at how rapidly new vehicle technology might deploy throughout the world. We assumed a zero emission (at the vehicle itself) vehicle would be available in 2010 and that production would commence at some 200,000 units globally. We then assumed this would grow at 20% per annum until all produciton globally was this type of vehicle. Meanwhile, global vehicle numbers were also growing at 2% per annum. The end result is shown below – it is not until about 2040 that the number of internal combustion vehicles peaks and then begins a sharp decline. Certainly by 2050 they are well on their way out.

Despite very ambitious assumptions on deployment, the size of the industry today and the reality of turnover of both the vehicles themselves and the production facilities means that the lag in the system is huge. The simple study strongly underlined the need for action to start early if there is any chance of meeting the very ambitious 2050 emission targets now being tabled. It also highlighted that we are not about to see the end of the internal combustion engine, despite our love/hate relationship with it.

But on a national level some markets may move faster.  A recent study by The Center for Entrepreneurship & Technology at UCal/Berkeley has a baseline forecast showing 64% of US LV sales to be electric by 2030, at which time the e-car will have a share of 24% in the US LV fleet. Decoupling of battery ownership (to keep upfront cost for the customer low) is seen as crucial. We certainly live in interesting times!!