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Decarbonization, Transportation and theChanging Oil Market: The Role of Politics
and Policies in the Peak Demand Debate
Robert Johnston
CEO, Director, Global Energy & Natural Resources

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Table of contents
Exploring key drivers of changes in theoil/transportation system: are thesestructural changes to global oil demand?
•Role of public policy•Headwinds for policymakers•What other factors should be explored?

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Role of public policy: ambitious or unrealistic?

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Political intervention can accelerate “peak demand” scenarios that would
otherwise evolve more slowly based on market forces and technology
BP’s demand and supply of liquid fuels forecast
120

Evolving Transition scenario,
109.4

110

ICE ban scenario, 99.6

Million barrels per day

100

Faster Transitionscenario, 95

90

Even Faster Transition scenario,
84.2

80

70

60

50

Supply with no reinvestment(3% decline rate), 46.5

40
2010

2011

2012

2013

Source: BP2014

2015

2020

2025

2030

2035

2040

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Ambitious transportation sector polices could have importantconsequences for oil demand destruction
Liquids demand forecast
120

Non‐transportation

Transportation

100

Million barrels per day

80

60

40

200
2000

2005

2010

2015

2020

2025

Source: BP
Note: Non‐transportation includes industry, non‐combusted, buildings, andpower. Transportation includes non‐road (aviation, marine, rail), trucks(most SUVs in North America), cars (includes 2‐and‐3‐wheelers)

2030

2035

2040

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Clean transportation policies likely to be more effective when
accounting for and influenced by a “national interest approach”
Major drivers of decarbonization in the transportation sector include:

Stronger political imperative on climate change

Rising air‐quality problems from diesel

Industrial policy to motivate advanced domestic manufacturing ofEnergy security

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Popular transportation sector policy options fall into four broad
categories
The types, strengths, underlying motivations, and enforcement timelines of these transportation policies allplay an important role in the outlook for oil demand

Portfolio approach1

Efficiency mandates

2

Lower‐zero carbon fuels

3

Replacing the international combustion engine (ICE)4“Social engineering”

Passengervehicles

Commercialvehicles

Aviation

RailMarine

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Policies that promote electric vehicles (EVs) are getting the mostattention
Number of new EV registrations
400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0
2010

2011

2012

2013

Source: IEA, Clean Technica, FleetCarma, Quartz

2014

2015

2016

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Europe is pushing the envelope on electric and hybrid vehicles
Share of diesel in new passenger cars in Western Europe
6050%

4030201001990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: European Automobile Manufacturers Association (ACEA)

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But European market alone is not large enough to pose significant
headwind for global oil demand growth
Important to watch developments in key consumption growth markets such as China and India
Oil demand by region
120000100000Thousand barrels per dayEuropeAsia PacificTotal World

80000

60000

40000

20000

‐1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Source: BP

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The Chinese government’s generous EV incentives have proveneffective in driving sales—how much more upside is there?
EV and PHEV sales in select markets in 2017
2.5%

120%Share of national market (% change year‐on‐year)

108%
100%
2.0%

80%
1.5%

75%

72%

60%
1.0%
33%

40%
33%

0.5%
20%

0%

0.0%
ChinaEuropeUSEVPHEVJapan

CanadaTotal sales YoY

Source: CEIA, hybrid cars.com, EAFO, Macquarie Research, Business Insider
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More attention needs to be paid to the broader transportation sector (trucks,marine, aviation, alternative fuels and smart cities), especially in Asia
China, Japan, and Korea are the world’s 1st, 4th,and 5th largest crude oil importers
Air quality concerns and climate policy“Made in China 2025” program
China‐ Bicycles, rail electrification
China Belt and Road Initiative‐ Super‐gridIndustrial policy and government coordination

Japanese zero‐emissions and hydrogen fuel cell
program
Korean National Green Growth Strategy
Energy insecurity and import dependence
Smart Cities for emerging Asia‐ India, ASEAN
Ride‐sharing and fleet utilization

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The role of transportation is shifting owing to developments in “micro‐mobility”
Autonomous vehicles, ride‐sharing, and “micro‐mobility” developments continue to demonstratetechnological progress and declining costs in addition to being the subject of rising government interest
The future of fleet ownership and the influence of market design on how consumers own, rent, or lease vehicles
is also an important dynamic
Light‐duty vehicle cost per mile (USD per mile)

Total miles (p.a.)
70,000Ride‐hailing autonomous vehicle

70,000Ride‐hailing EVEV13,500ICE

13,500
00.2

0.4

2030

0.6

0.8

11.2

1.4

2017

Source: Bain, World Economic Forum
Note: Cost per mile based on compact ICE and compact EV in the US,
the figures exclude upfront cost

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All of these factors pose a threat to oil’s supreme role intransportation—key question is by how much and when?
Within the clean transportation and peak oil demand debate there is little consensus about the exact recipe ofpolicy measures and implementation timeframes
There remains a significant level of uncertainty in the analysis and forecasting on this issue particularly outsideof the electric passenger vehicle domain.
Decarbonization scenarios and transportation sector policies
ScenarioPeak demand forecast

IEA’s Sustainable Development Scenario

Around 2020

IEA’s Faster Transition Scenario

Around 2020 (and falls thereafter at a faster rate
than SDS)IEEJ Peak Oil Demand Case

Around 2030

Rocky Mountain Institute’s Reinventing Fire
Scenario

China’s oil demand peaks by 2030

Exxon Mobil’s 2D Scenarios

Doesn’t forecast exact peak date

Shell’s New Lens Scenarios

Varies by scenario

BP’s Evolving Transition scenario

Demand for oil does not plateau and peak until theend of the 2040‐outlook
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Challenges for policy makers: are they a deal breaker?

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Lawmakers face key risks and challenges that undermine thetransportation decarbonization effort
Will governments be willing to put more political capital behind expensive initiatives that encourage EV sales
or implement politically tricky ICE bans/limit sales of fossil‐fueled power vehicles? What about broader carbon
policies like economy‐wide carbon taxes?

Infrastructure constraintsHigher costs (esp. for EVs compared to ICEs or retrofitting to cleaner fuels formarine shipping)

Political constraints including elections and legal challenges
Questions about the regulation of emerging technologies
Resource availability and environmental concerns for critical minerals
Resistance from politically important groups such as domestic auto industry inIndia or agriculture/farm lobby in the United States

Overly ambitious EV targets
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Do governments instead prefer a more cautious approach that wouldsignal a less disruptive outlook for global oil demand?
In US, EVs remain very small share of total auto sales: At the federal level, Trump administration’s attempt toweaken fuel efficiency standards will deal a setback to EV uptake
In India, officials have walked back on ambitious EV target
There is a risk that overly ambitious or unrealistic policies could have a “snap‐back” effect and unintentionallyharm the development of a clean transportation sector
India’s domestic automobile market share (2017‐2018)
Passenger vehicles, 13%Commercial vehicles,3%

Three wheelers, 3%

Two wheelers, 81%

Source: US Energy Information Administration, Society of Indian Automobile Manufacturers

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Conclusions and Discussion

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Climate policies remain patchwork and therefore limited
Level of patchwork policymaking and continued examples of governments not willing or sufficiently able toput their weight beyond these measures signals that a more significant effort will be needed to ensure major
headwinds for oil demand that would inform a peak demand scenario for the foreseeable future
Key risk is whether governments will act even more aggressively in the future to make up for the current
gaps of policy making
Global CO2 emissions

18,000Million tonnes of carbon dioxide

16,00014,00012,00010,000
8,000
6,000
4,000
2,000
0
2000

2001

2002

2003

2004

Total North America
Total CIS
Total Asia PacificSource: BP

2005

2006

2007

2008

2009

2010

Total South and Central America
Total Middle East

2011

2012

2013

2014

2015

2016

2017

Total Europe
Total Africa

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However, the peak demand debate is already complicating investment
outlook for long‐cycle upstream projects
Varying long‐term oil demand forecasts
140

IEA Current Policies Scenario
IEEJ Reference Scenario
OPEC Reference Case

120

100

IEA New Policies Scenario
IEEJ Peak Oil Demand Scenario

80

IEA Sustainable Development
Scenario

60

40200Source: International Energy Agency, the Institute for Energy Economics, OPEC
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In the short‐term, a shift to short‐cycle plays such as US shale isunderway
Companies and investors are looking to minimize risk in this environment (US shale is the big initial winner)
Upstream oil and gas investment (2017 vs. 2016)
60%

50%

40%

30%

20%

10%

0%

‐10%

‐20%
AfricaLatin America

Source: International Energy Agency

Middle East

RussiaUS Shale

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What do governments do with stranded assets?
Stranded assets could add financial strain to government and company budgets, as well as logisticalchallenges from issues such as restructuring

Photo credit: Carbon Tracker report

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Investors are paying attention to this debate
Key question: Why do asset managers see “inevitability” in peak demand/transportation decarbonization?

Divestment from fossil fuels by institutions in 2016
For‐Profit, 3

Healthcare, 3

Philanthropic, 9Pension Funds, 12

Educational, 40

Faith, 22

Government, 26

Source: 350.org

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Geopolitics of peak demand: High cost/long‐cycle sources of supply andenergy‐sector political risk will also be challenged
The next round of geopolitical shockwaves in the form of ‘peak demand’ (or at least slowing oil demand
combined with increased availability of low‐cost resources) will have greatest impact on high political risk,
high production cost countries

Yellow: At risk in the long‐term: Russia, Saudi Arabia, Iran
Blue: At risk in the medium‐term (due to lost investment): Mexico, Brazil, Colombia, CanadaRed: Immediate destabilizing impact: Nigeria, Venezuela, Libya, Iraq, Yemen
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