Oil from consumption to growth

Oil in transports

More than half of the world oil consumption is for transportation as shown in the graph below. When industry uses oil, it is mainly in boilers to heat materials (e.g. in glass furnace, cement plant, steel mill). Oil is also needed for petrochemicals-derived products.

These are now pervasive in our lives: plastics, lubricants for machines and vehicles, waxes, solvents, fertilisers and bitumen. Some buildings use oil for heating, and a small fraction of the world’s electricity is produced with oil (3.5% [1BP Statistical Review. 2018]). The category “other” may include for example oil use for agriculture, construction vehicles and gardening tools.

The main role of transports in the economy is to connect producers to consumers and people to their workplace. In other words, the first role of oil is to maintain all the physical flux that constitute our economy. Besides, in the period 2010-2016, transports accounted for almost 85% of the growth in the oil demand [2].

Conversely, the transportation sector relies heavily on oil despite growth in biofuels and electric vehicles as per the graph below [3].

Oil has left its mark in the shape of the modern world. For instance, urban sprawling is a consequence of efficient transport systems that allow residential areas to move further away from workplaces.

When oil is abundant and cheap, long-distances are no longer a problem and the structure of the economy optimises to connect the demand to regions where production is the most economical. This is a reason why oil is sometimes considered as the flagship energy of globalisation [4].

Because the world economy is structured in a way that it is dependent on oil [5], there is an inherent correlation between oil consumption and the amount of wealth we can have.

The following graph shows the annual relative change in world oil consumption and GDP per capita averaged over three years [6]. Averaging time series over several years allows to smooth out high variability and to better reveal structural trends.

Hardly anyone doubts that there is a strong correlation between these two metrics, but the direction of the causality remains unclear among experts. Some would argue that oil consumption decreases because economic growth (i.e. GDP) is sluggish whereas some would argue the opposite: economic growth is sluggish because there is less oil to consume.

What is certain though is that without oil, modern societies would not have gone through such a tremendous increase in their living standards. In the case of the global financial crisis in 2008, the average growth rate in the world oil consumption began to slow in 2005, three years before the growth rate in the GDP per capita started its decline.

Why is oil so sticky to transports?

Oil is simply the cheapest and most efficient fuel to power a vehicle which makes other alternative energy sources such as electricity, hydrogen or biofuels very hard to compete against it. Alternative fuels generally require larger capital investments in distribution facilities.

They also have lower energy densities than conventional fuels and therefore need greater storage capacities onboard for equivalent vehicle performance [4]. The fact that oil naturally occurs as a liquid makes it easier to transport and to use in an internal combustion engine than natural gas or hydrogen. If it cannot be sent through a pipeline, gas is harder to transport than oil as it needs to be compressed and liquified to be shipped in large quantities.

Overall, gas is preferred for generating electricity, heat (for buildings and industries) and also as a petrochemical feedstock for the industry. Transports represent only about 3% of the natural gas demand [7].

The main issue with electricity, hydrogen and biofuels is that these forms of energy do not occur naturally and they need to be produced from other sources of primary energy. In the case of oil, natural geology has already done the hard work for free: it has formed and concentrated a liquid with high energy density in large reservoirs for dozens of millions of years.

The work that remains for us is the extraction, the refining and the transport. It takes less than $10 to produce a barrel of oil in Saudi Arabia [8]. Ironically, most of the electricity, biofuels and hydrogen produced today and sold as alternative fuels are made from fossil fuels. For instance, 96% of the hydrogen produced today is made from fossil fuels, 30% of which is oil [9].

Elliot MARI

Energy Researcher at Sustainable Energy Network Solutions