Decomposing oil use per vehicle in modelling oil demand in the US road transportation

• DOI: http://doi.org/10.1111/opec.12002
• Date: 01 June 2013
• Published date: 01 June 2013

Decomposing oil use per vehicle in

modelling oil demand in the US road

transportation

Mohammad Mazraati

Research Vice President and faculty member, Energy Economist and Member of the Scientific Board of

IIES, Institute for International Energy Studies (IIES), Tehran,Iran. Email: mo_mazraati@yahoo.com

Abstract

Oil demand growth, driven by transportation sector,were affected by many variables including the

number of vehicle on road,average vehicle mile travelled,average fuel economy of the vehicle stock

and alternative fuels in the transportation sector.The amount of oil either avoided due to penetration

of advanced technologiesor replaced by consumption of alternative fuels will affect the so-called oil

consumption per vehicle (OPV) variable. This is a vital variable in forecasting oil demand in large

models through vehicle stock model.This paper tries to show that by decomposing the OPV variable,

the impact of alternative fuels and advanced technologies on oil demand in road transportation can

be better traced. Decomposition of the US road fuel consumption shows that more than 2.5 million

barrels of oil equivalent per day will be avoidedor replaced by 2035 due to the penetration of alter-

native fuels and advanced technology vehicles.The annual average decline rate of OPV in United

States could be -1.5 per cent, -1.3 per cent and -1.1 per cent, in the high, lowand medium scenarios,

respectively, in the period from 2009 to 2035 depending on the past alternative and advanced tech-

nologies are penetrating. It illustrates the huge uncertainty that facing future oil demand forecast

in road transportation even in the case of OPV decomposition.

1. Introduction

Road transportation has been the dominant contributor to incremental oil demand.

New policy measures taken by different countries, such as the Corporate Average Fuel

Economy (CAFE) standard and introduction of renewable energies in the United States,

emission targets in European countries, and other efficiency and fuel economy targets

in other countries of the world, would lead to lower growth in oil demand for road

transportation.

In the United States, for example, the introduction of the national fuel efficiencypolicy

in 2009 initiated tougher targets on fuel economy and greenhouse gas (GHG) emissions.

The plan to increase CAFE from the current 27.5 miles per gallon (mpg) for light-duty

vehicles (LDVs) and 20.7 mpg for light trucks to a combined fleet average of at least

194

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35 mpg in 2020, and the initiative for the introduction of renewable energies for road

transportation would certainly destroy the current growth rate for oil demand in the road

transportation sector.

In Europe, the pollutant emission regulations have been tougher in the course of suc-

cessive regulation settings from Euro 4 (2005), Euro 5 (2009) to Euro 6 (2014).Tightened

regulations and pertinent penalties lead to penetration of lighter and much more efficient

vehicle penetration which, in turn, pushes down the pressure on oil demand. The same

downward pressure on oil demand could come from the mandatory target of 20 per cent

share of renewablesources in total energy demand by 2020. It is mandated that 10 per cent

of transportation energy demand should be from renewable sources by2020.

Japan, as a pioneer in fuel economy improvement, has announced a new standard

that will enter into force in 2015 with the intention of bringing down the average fleet

fuel economy from the current 6.61 L/100 km driven to 6 L/100 km. This policy is

accompanied by the CO2emission targets and reduction in oil dependence on oil road

transport policy.

China, as a populated and fast growing country, has policies to improve fleet fuel

economy.The plan was implemented in two phases, and a third phase will enter into force

by 2015.The first and second phases have reduced the fuel economy from 9.1 L/100 km in

2002 to 7.8 L/100 km for model year 2009. The target for the third phase is expected to be

7 L/100 km. Although China would lag behind Europe and other pioneer countries,

they have already established their serious intention for fuel efficiency in transportation.

It is also expected that biofuels production and consumption in road transportation will

increase by 2020. The share of oil substitutes in the Chinese transportation sector has

gradually increased from the early 1990s and reached 9.5 per cent of China’s gasoline

demand and 1.7 per cent of diesel demand (IHS CERA, 2011). This would bring uncer-

tainty to the level of oil demand in transportation and certainly to the level of future oil

consumption per vehicle (OPV).

A review of policies and recent achievements clearly delineates a different fuel effi-

ciency trend in the road transportation sector.The introduction of alter nativefuels, on the

other hand, exacerbates the downward pressure on oil demand in road transportation.

These stylised facts have implications for oil demand modelling in the road trans-

portation sector for large-scale models that includes vehicle ownership and OPV variables

to forecast oil demand in the future. Although the vehicle ownershipis estimated through

S-shape types of model, the OPV is generally estimated for each country and region

exogenously. The OPV is affected by fuel efficiency improvement in new vehicles

and advanced technology vehicles (ATV) entering the fleet. Moreover, the alternative

fuel vehicles (AFV) that consume ethanol, biodiesel, electricity, compressed natural gas

(CNG), etc., reduce the demand for oil in road transportation and, in turn, affect OPV

downwardly.

OPV decomposition 195

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