The Global Oil Demand Driver that Is Being Ignored

When looking at oil demand, oil market analysts focus overwhelmingly on passenger vehicles.  One of the hottest debates today is over the prospect of peak oil demand:  whether or not electric vehicles along with general trends towards more fuel efficiency will ultimately lead to a peak and decline of total oil demand worldwide.  No doubt the upcoming release of Tesla’s Model 3 will spark more than a few columns on how it could be the beginning of the end for oil.

But the conversation often overlooks the role that heavy trucks and freight play in driving demand.  The International Energy Agency just published a report arguing that the world needs to get a handle on fuel efficiency for freight, or else oil demand will continue to rise, regardless of how many Tesla’s are on the road.  (Tesla trucks coming soon).

Freight transit is crucial for economic growth, and indeed, it tends to be correlated with GDP. The IEA says that only four countries – Canada, the U.S., China and Japan – have fuel efficiency standards for heavy trucks, one-tenth of the 40 countries that have rules for passenger vehicles.

“For far too long there has been a lack of policy focus on truck fuel efficiency.  Given they are now the dominant driver of global oil demand, the issue can no longer be ignored if we are to meet our energy and environmental objectives” Dr. Fatih Birol, the IEA’s Executive Director, said in a press release.

Since 2000, heavy trucks have accounted for 40 percent of the total growth in oil demand, on par with the share for passenger vehicles.  Trucks burn about 17 million barrels of oil per day (mb/d), or about one-fifth of total global demand.

Crucially, demand is still growing…rapidly.  By 2040, road freight will be responsible for 5 mb/d of demand growth, or about 40 percent of total additional demand over that time frame.  If that occurs, any chance at putting a dent in global greenhouse gas emissions would be significantly undercut by the large increase in emissions from trucking.

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