Commentary: OPEC Takes a Backward View of the Future 

The Organization of the Petroleum Exporting Countries has seen the future and — you may want to sit down for this — it involves more cars. Just not as many cars as it was expecting.

In its latest World Oil Outlook, published last month, the oil exporters’ club foresees 1.98 billion passenger vehicles clogging up the roads of 2040, up from about 1.1 billion today. If that’s your idea of dystopia, take comfort in the fact that it’s a bit less dystopian than what was projected in last year’s World Oil Outlook: 2.03 billion. In fact, that 2040 figure has fallen by 187 million vehicles since 2015.

That might not seem like much of a drop; we’re still talking almost 2 billion vehicles. And those 187 million missing vehicles are largely a function of OPEC trimming its long-term economic growth forecasts. That tweak to a number compounding over decades means even a small change becomes significant over time. It’s less of a statement about the future of automobility than it is an economist’s exercise — but it still has consequences for oil in particular.

Assume those missing 187 million vehicles drove 10,000 miles a year at an average of 45 miles per gallon (this is the future, after all), though, and that’s 2.7 million barrels a day of notional demand that’s gone up in notional smoke since 2015.

Meanwhile, OPEC’s projection of how many of those vehicles will be electric (including plug-in hybrids) is about 304 million, or 15 percent of the fleet. That’s a big jump from 2017’s forecast — 235 million — but still much lower than, say, Bloomberg NEF’s projection of almost 560 million, or one-third of the fleet. Moreover, OPEC sees oil-friendlier plug-ins forming the bigger part of the electrified fleet, the reverse of BNEF’s position.

Who is right? Ask us in 2040, if we’re still around. But OPEC certainly errs toward a gradual shift rather than real disruption. Leaving aside any conflict of interest, this is partly just because, as Spencer Dale, chief economist of BP Plc, once put it: “Economists don’t do cool.”

Dale’s point, however, was that cool — or hard-to-model shifts in behavior — has a habit of intervening. For example, a decade ago, OPEC was enjoying triple-digit oil prices, fracking was a weird thing gas drillers were doing, and Tesla Inc., still unlisted, had only just started selling the Roadster. Global oil demand is almost 13 million barrels a day higher, but the world has changed somewhat since then, or at least revealed intimations of change.

These can actually be found within OPEC’s own outlook. In the numbers, the organization has clearly reset its view on the U.S. tight-oil boom (OPEC now thinks shale is a thing). More intriguing, it’s there in the words, too. We counted up the instances of several phrases linked to electric vehicles or tight oil. Here are the counts for each report since 2007:

There’s a pleasing symmetry about both sets of phrases coming in at 174 in this year’s outlook. But the more pertinent observation is the cyclicality of OPEC’s focus on tight oil — coinciding with prices — versus the structural increase for electric vehicles.

We may well be reading too much into this. Still, the chart does rather neatly depict the challenge facing organizations such as OPEC that remain wedded to the idea of an orderly energy transition defined less by the S-curve of disruption and more by the sine wave of commodity cycles.

As an illustration of how OPEC seemingly gets that forces like climate change exist but doesn’t seem to consider them as potentially disruptive, consider this clinical little gem from page 292 on current batteries’ inherent disadvantage versus internal combustion engines:

The difference between batteries and fuel tanks will remain as long as batteries – even solid-state batteries – carry the oxidizer within the battery. Combustion engines do not have this disadvantage because they are taking the oxidizer – oxygen in this case – from the surrounding air and releasing the reaction product into the environment.

See? Conventional cars have an edge because they … release their “reaction product” into the environment.

This approach affects not just electrification, but also OPEC’s entire view about transportation, oil’s biggest customer by far.

“Car sharing” appears just five times in this year’s outlook; autonomous vehicles are mentioned three times. This is not a criticism: No one can accurately predict what changing the fundamental model of road transportation — buy car, fill with gasoline or diesel, drive — could mean for Big Oil, Big Tech, Detroit, our urban environments, our lifestyles. Yet to consider the panorama of climate change, artificial intelligence, falling battery costs and ride sharing and conclude that it looks like a slightly tweaked version of the landscape behind you just sounds wrong.