As the global energy transition moves beyond its nascent stages, it will fundamentally change the way parts of the world interact with one another. Countries and companies will be forced to adapt to the changing world, whether by adjusting portfolios or by developing economic diversification plans.
The global transition from fossil fuels may be further along than expected. In client reports distributed in May, the energy consultancy Wood Mackenzie asserted that the world will reach peak oil demand in less than 20 years. The forecast emphasizes the role of fuel efficiency in decreasing oil demand growth, taking into account both the increasing adoption of electric vehicles and the use of fully autonomous vehicles, which it anticipates being in wide use by 2035.
Why It Matters
Recognition is growing, even among major oil companies, that the world is in the midst of an energy transition. Even so, Wood Mackenzie's timeline is more aggressive than many previous projections, highlighting several technologies that are working, perhaps faster than first predicted, to change global oil use. Improved fuel efficiency, proliferating electric vehicles, and enhanced automation will all play important roles in reducing the world's dependence on oil in the transportation sector. In the process, they will force companies and countries alike to adapt their strategies and goals.
As the Wood Mackenzie report suggests, these trends are already playing out worldwide. Electric vehicles are quickly becoming more commonplace, largely thanks to soaring demand in China. Plans in the country and in states across Europe to phase out internal combustion engines entirely in the next 20 years will give battery-powered cars and buses an even more prominent role in transportation. At the same time, major oil-producing countries, such as the Gulf states, are implementing plans to diversify their economies away from fossil fuels. And although former U.S. Environmental Protection Agency Administrator Scott Pruitt worked to dismantle some of the fuel efficiency standards effected under the previous administration, several states, including California and Colorado, have continued to follow the higher standards. A court decision may finally end the battle between state and federal government on this front, but, in the meantime, carmakers will also likely keep abiding by the higher standards to maintain access to California's huge auto market.
Along with regulations, the rise of automated vehicles will help improve efficiency, regardless of fuel type. The technology not only will optimize fuel use for gasoline-powered vehicles but also may extend battery life for electric vehicles. Whether they are in widespread use by 2035 as Wood Mackenzie suggests, however, is still an open question. Social acceptance of automated vehicles — especially in the light of numerous recent accidents involving them — is still iffy, as are the regulations over their use. Either way, the global energy market is in flux, as the Wood Mackenzie report attests.