The Case forTransport Electrification:A View from the Finance Sector

Dr Gary Kendall16 October 2014

Situation

• Transport determines the shape and size of the economy

• Shape: societies and economies develop around the primary modes of transport

• Size: real economic activity is underpinned by the physical movement of goods and people

• Today, transport is extremely reliant on a single source of primary energy – crude oil

• For more than a century, supplies of relatively cheap oil have increased to support economic growth

12th - 18th CenturyEconomic Development

19th CenturyEconomic Development

20th CenturyEconomic Development

GDP is closely correlatedto oil consumption

10000000000 100000000000 1000000000000 10000000000000 10000000000000010000000

100000000

1000000000

10000000000

R² = 0.826130429443945

Oil consumption vs GDP

2012 GDP for various countries in US$

Oil

con

sum

ptio

n, m

illio

n b

arre

ls p

.a.

Saudi-ArabiaIndia

Switzerland

USA

China

South Africa

World Bank; BP Statistical Review 2014

GDP and Transport

0

50

100

150

200

250

300

350

400

450

500

World oil consumption

World GDP (constant $)

World oil consumption on transport

Ind

exed

to

100

52% of oil demand is for transport; 95% of transport energy from oil

World Bank; BP Statistical Review 2014

Problem

• There are real constraints to continuing this pattern of economic development:

1. Geography

2. Geology

3. GHGs

4. Growth (in demand)

5. Gridlock

1. GeographyConcentration riskTop oil producers Current

productionProved

reservesState of security

Middle East 32,7% 47,9% Multiple, regional conflicts

Russia, Azerbaijan, Kazakhstan

15,5% 7,7% Russia-Ukraine conflict; possible expansion?

Algeria, Egypt, Libya, Nigeria, South Sudan, Tunisia

6,6% 6,2% Multiple civil wars and political instability

China 4,8% 1,1% Increasing demand and military assertiveness

Venezuela 3% 17,7% Political instability

SUB-TOTAL 62,6% 80,6%

USA, Canada, Mexico 19,4% 13,6%

Rest of World 18% 5,8%

TOTAL 86,7m bbl/d 1688bn bbl

BP Statistical Review, 2014

Miller R G , and Sorrell S R Phil. Trans. R. Soc. A 2014;372:20130179

2. GeologyAmple resources, production declines

Production profiles for three UK North Sea oil fields,with indicative exponential decline curves

Mean decline curve of tight oil wells in theBakken play in North America

2. GeologyShale oil production declines faster

Miller R G , and Sorrell S R Phil. Trans. R. Soc. A 2014;372:20130179

2. GeologySize of tap versus size of tank

US oil production back to 1987 levels on the back of 400% rig count increase

…Saudi America?

1910 – 20102.35% / yr

3. GHG emissionsStill growing

• Transport accounts for about a quarter of global energy-related carbon emissions• GHG emissions from the transport sector have more than doubled since 1970,

rising at a faster rate than for any other energy end-use sectorCarbon Dioxide Information Analysis Centre; IEA

4. Growth in demandImplausible projections

9 rich countries 820m people

BRICS3 030m people

MINT620m people

World Bank, 2011 data

Pas

seng

er

cars

and

mot

or v

ehic

les

per

1000

pe

opl

e

5. Gridlock

• Today, 45 million paved lane-kms of road worldwide, ~30% more than a decade ago

• IEA projects a doubling of passenger cars by 2035

• Road network projected to expand by only 40%, to reach 62 million paved lane-kms

• This 40% expansion will require investment of $20 trillion over the projection period

• Congestion problems and pollution expected to worsen

IEA, World Energy Outlook, 2013

Implication

• In the prevailing development model: cars beget roads beget sprawl beget roads and cars

• The answer: grow supplies of liquid fuel for transport?

• There are no easy alternatives to cheap crude oil– Alternatives are worse from an energy, cost, risk and GHG perspective

– Shale oil, tar sands, extra-heavy oil, CTL / GTL, biofuels

– Alternatives probably can’t scale sufficiently unless very high oil price

– But, a very high oil price sinks the economy

• Implication: severe economic impacts ahead?

IEA projection of global all-liquids production to 2035

Problems with supply growth

What price can SA economy afford?

World Bank World Development Indicators; BP Statistical Review 2014

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

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

SA Oil consumption as % of GDP

Conclusion on future of oil supply

• Avoiding severe economic impacts requires prioritizing of demand-side options and far-reaching changes in global transport systems

• Climate-friendly solutions are available, but they will not be easy, they will not be quick and they appear unlikely to allow the majority of the world’s population to achieve the levels of mobility currently enjoyed in the West

• Lower mobility, in turn, implies a very different trajectory for future economic development

• Adapting rapidly and peacefully to oil scarcity in a manner that does not destroy the global environment provides humanity with a formidable challenge

Need

Energy ConservationEnergy Efficiency

Renewable Energy

Low(er) Carbon Energy

BAU Fossil Fuels

Dem

and sideSupply side

Adapted from Institute of Mechanical Engineers

Decreasing Priority

Conservation / Efficiency / Renewable Energy

• Without high energy density provided by oil, how can we provide citizens the means of access?– Opportunity density → more proximate services

– Spatial density → more citizens per km2

– Mobility density → higher load factors

• In which future the mobility system must enhance economic activity without undermining it long-term, therefore will be:– Resource efficient

– Zero carbon

– Affordable

– Inclusive

Why Electric Vehicles (EVs)?

• Typically 4x more energy efficient (than conventional ICEV)

• Enhanced energy security (diversify primary energy inputs)– And: improve balance of payments

• Low-to-zero emissions– Shell Scenarios: “[Avoiding dangerous climate change will require] a

zero-emission power sector by 2050 and a near zero-emission transport sector in the same time period.”

• System integration benefits– Batteries can assist with balancing of a ‘smart grid’ and thereby

accelerate decarbonisation of energy system

• New business opportunities

Future Mobility= Convergence & Integration

NEW INFRASTRUCTURE (Energy, ICT)

NE

WT

EC

HN

OL

OG

Y(V

ehic

les,

IC

T)

NE

W B

US

INE

SS

MO

DE

LS

(Ser

vice

s)

FUTURE MOBILITY SYSTEM(Convenient, Affordable, Secure, Efficient)

Lower Opex enables service model

Service model enables higher Capex

Enabled by information flow

21st CenturyEconomic Development?

21st CenturyEconomic Development?

Electric Bicycles: Africa’s Killer App?

• Energy efficient (low kWh/km, load factor ≥ 1)

• Resource efficient (materials in manufacture)

• Space efficient (tiny physical footprint)

• Cheap (to buy, to run, to maintain)

• Clean (zero-emissions in operation)

• Convenient (flexible, no timetables, any route)

• Compatible (current and future infrastructure)

• Gentle (lightweight → limited wear & tear)

• Multi-modal (carry on other vehicles)

• Resilient (remains functional during energy crunches)

Thank You!

garyke@nedbank.co.za