On the road: long-run oil demand after COVID-19?

Another devastating impact of COVID-19 may still lie ahead: a 1-2Mbpd upwards jolt in global oil demand. This could trigger disastrous under-supply in the oil markets, stifle the economic recovery and distract from energy transition. This 17-page note upgrades our 2022-30 oil demand forecasts by 1-2Mbpd above our pre-COVID forecasts. The increase is from road fuels, reflecting lower mass transit, lower load factors and resultant traffic congestion.

Upgrades to our granular 2020-2050 oil demand models, including headline numbers, are outlined on pages 2-3.

Travel demand that will never come back is described on pages 4-5, including remote work, a shift to online retail and lower business travel. Our forecasts for higher oil demand are not based on a Panglossian recovery of travel habits to pre-COVID levels.

The shift from mass transit to passenger cars is detailed on pages 6-9, covering ground-transportation (buses and train), mid-range air travel, and reverse urbanization enabled by remote working.

Load factors are lightly reduced, requiring more cars to service each passenger-mile of travel, as outlined on page 10.

Higher road traffic dents fuel economy, which we have quantified using real-world data from the City of New York, also drawing on data from prior oil downturns, on pages 11-14.

Implications for oil markets, companies and the energy transition are discussed on pages 15-17.

More dangerous than coronavirus? The safety case for digital and remote operations.

Remote working, digital de-manning, drones and robotics — all of these themes will structurally accelerate in the aftermath of the COVID crisis. Our research outlines their economics and how they can accelerate the energy transition. But this short note considers the safety consequences. They are as significant as COVID itself. And equally worthy of re-casting behaviours, policies and investments.

At the time of writing, the United States has been hardest hit by the COVID crisis out of any country in the world. It has incurred c35,000 fatalities. However, in the past five years, the US has also incurred an average of 35,000 fatalities on its roads each year (below). This is c100 deaths per day. 1 out of every 10,000 people is killed on US roads each year. There are 1.2 death for every 100M vehicle miles driven (and 3.2 trn miles are driven each year).

Likewise, at the time of writing, the US has been hit by 700,000 COVID cases. For comparison, there are 2.6M injuries on US roads each year, and 6.3M traffic accidents. This means 1 out of every 125 people is injured on US roads each year. There are 83 injuries for every 100M vehicle miles driven.

If you believe in working from home to save lives amidst the coronavirus crisis, a similar argument may justify working from home, where possible.

In addition, 5,250 US workers were killed in workplace fatalities in the most recent annual data, equivalent to 1 out of every c30,000 full-time employees. 40% of these deaths occur on roads. Of all the major job categories shown below, the most dangerous is trucking, where 1 out of every 4,000 full-time employees is killed each year.

Looking more granularly, COVID has so far killed 1 out of every 10,000 people in the United States. However, fatality rates range from 1 in 10,000 to 1 in 1,000 for workers in some of the more physically intensive industries (as shown below), which comprise 10% of all the hours worked around the US economy.

Workplace injury rates are 3% across the entire US economy. This is also 10x higher than the number of documented COVID cases so far in the United States.

If you believe in using technology to save lives amidst the coronavirus crisis, a similar argument may justifying greater deployment of autonomous technologies, digital de-manning, drones and droids, across the broader US labor market.

Our research finds that 48% of recent digitization initiatives have materially improved safety (chart below). 60% also materially lowered costs, 55% materially increased output and 24% materially lowered CO2 emissions.

To recycle an example from the note, there is no need for a worker to be placed into harm’s way — climbing a scaffold to inspect a roof or lowered on a harness to inspect the undersides of an oil platform — as remote monitoring, drone and robotics technologies become available. This is why we have recently screened which operators are among the technology leaders, including in digital technologies (chart below).

The importance of remote work, digitization technologies and robotics may sound obvious when framed in the terms above. But they are not being deployed sufficiently. The chart below shows the number of road fatalities in the US, declining at a 3.4% CAGR since 1920. But there has been no progress in the past ten years since 2009. The absolute count of road fatalities in the latest data is no better than in 1960 (below).

Likewise, workplace fatality rates deflated at 3% pa since 1992, but they have also since stalled. No net improvement has occurred since 2009.

Safety matters, during the COVID-crisis, and after the COVID crisis. Remote and digital technologies can play an enormous role, if enabled by policies and embraced by forward-thinking companies. Please contact us if we can help you screen opportunities. And sorry for the morbid tone of this short note.

Digitization after the crisis: who benefits and how much?

Digitization offers superior economics and CO2 credentials. But now it will structurally accelerate due to higher resiliency: Just 8% of digitized industrial processes will be materially disrupted due to COVID-19, compared to 80% of non-digitized processes. In this 22-page research report, we have constructed a database of digitization case studies around the energy industry: to quantify the benefits, screen the most digital operators and identify longer-term winners from the supply chain.

Pages 2 outlines our database of case studies into digitization around the energy industry.

Page 3 quantifies the percentage of the case studies that reduce costs, increase production, improve safety and lower CO2.

Pages 4-6 show how digitization will improve resiliency by 10x during the COVID-crisis, stoking further ascent of energy industry digitization.

Page 7 generalizes to other industries, arguing digitization will accelerate the theme of remote working, esepcially in physical manufacturing sectors.

Pages 8-9 screen for digital leaders among the 25 largest energy companies in the world, based on our assessment of their patents, technical papers and public disclosures.

Pages 10-11 identify leading companies from the supply chain, which may benefit from the acceleration of industrial digitization; again based on patents and technical papers.

Pages 12-22 present the full details of the digitization case studies that featured in our database, highlighting the best examples, key numbers and leading companies; plus links to delve deeper, via our other research, data and models.

Remote possibilities: working from home?

The COVID-19 crisis will structurally accelerate remote working. The opportunity is explored in our 21-page report. It can save 30% of commuter journeys by 2030, avoiding 1bn tons of CO2 per year, for a net economic benefit of $5-16k per employee. This makes remote work a materially more impactful opportunity than electric vehicles in the energy transition.

Remote work currently saves c3% of all US commuter miles, which comprise 33% of developed world gasoline demand (pages 2-4).

Remote work could save 30% of all commuter miles by 2030, structurally accelerating as the COVID-19 crisis changes habits (page 5).

Remote work, thus screens as more impactful than electric vehicles, as an economic opportunity in the energy transition (page 6).

Ecconomic benefits are $5-16k pp pa. Our numbers are conservative. They under-reflect productivity and wellbeing improvements in the technical literature (pages 7-8).

We stress test our numbers, looking profession-by-profession across the entire US labor force, and considering new technologies (pages 9-13).

Direct energy impacts save 1bn tons of annual CO2. Impacts on oil, gas and electricity demand are quantified, including evidence from the COVID crisis (pages 14-17).

Hidden consequences are more nuanced: reshaping mobility, urbanization and online retail habits (pages 18-21).

COVID-19: what have the oil markets missed?

This 15-page note outlines our top three conclusions about COVID-19, which the oil markets may have missed. First, global oil demand likely declines by -11.5Mbpd YoY in 2Q20 due to COVID-19. This is over 15x worse than the global financial crisis of 2008-9, and too large for any coordinated production cuts to offset. Second, once the worst of the crisis is over, new driving behaviours could actually increase gasoline demand, causing a very sharp oil recovery. Finally, over the longer-term, structural changes will take hold, transforming the way consumers commute, shop and travel. (Please note, our oil supply-demand numbers have subsequently been updated here).

Pages 2-7 outline our new models of global oil demand and US gasoline demand, underpinning a scenario where oil demand likely falls -11.5Mbpd in 2Q20, and -6.5Mbpd YoY in 2020. In a more extreme downside case, declines of -20Mbpd in 2Q20 and 10Mbpd in FY20 are possible.

Pages 8-10 illustrate how gasoline demand could actually increase in the aftermath of the COVID crisis, once businesses re-open and travel resumes. The largest cause is a c25% potential degradation in developed world fuel economy per passenger, as lingering fears over COVID lower the use of mass transit and vehicle load factors.

Pages 11-15 outline our top three structural trends post-COVID, which will persist for years, transforming retail, commuting, leisure travel and the airline/auto industries.

Please don’t hesitate to contact us, if you have any questions or comments…