Drivers emerge from lockdown, hinting at higher emissions

Source: By Benjamin Storrow, E&E News reporter • Posted: Tuesday, May 12, 2020

Oil may have finally hit bottom.

Greenhouse gas emissions plunged with free-falling oil demand in April as much of the world sheltered in place to contain the novel coronavirus. The purchase of about 30 million barrels a day, or roughly a third of global oil demand, abruptly halted.

Signs are now emerging that the industry has begun to recover. U.S. refiners increased shipments of gasoline last week, as motorists in cities like Houston and Charlotte, N.C., returned to the road in numbers not seen since January.

The question now is how the slow recovery from the lockdown will affect the climate: Will more people drive after the virus than before? Mobility data suggests residents of cities are shunning public transportation in favor of their own vehicles, at least for now.

The recovery of oil prices remains in its infancy. A storage glut, accumulated over the last month as producers continued to send oil to market even as demand collapsed, hangs over the industry.

Petrochemical demand, once the engine behind demand growth, has been subdued thanks to a slowdown in key industries like auto manufacturing. International oil prices today are nearing $30 a barrel, about half of what they were earlier this year.

Rystad Energy, an oil consulting firm, expects average demand in 2020 to be almost 11% lower than 2019 levels.

“What it takes to come back from that is a great deal more. That’s where I worry for the oil and gas industry,” said Bill Arnold, a former Shell executive who teaches energy management at Rice University.

Pointing to previous busts in the industry, he added, “Unfortunately, it strikes me more of the 1983 situation than a 2008 and 2015, which took a really, really long time to dig out of.”

The drop in oil demand has been closely linked to steep decreases in greenhouse gas emissions observed in much of the world. The Rhodium Group estimates that emissions in the United States were 15% to 20% lower between March 15 and April 14 compared with the same time last year. Demand for jet fuel and gasoline was down 73% and 46%, respectively, over that time period.

Oil’s future is particularly important for the trajectory of America’s greenhouse gases. Emissions associated with oil consumption (2.4 metric gigatons) in the United States are more than double the emissions associated with coal (1.1 metric gigatons), according to the Global Carbon Project.

But projecting where the industry, and the emissions it produces, is headed is difficult.

On the one hand, there are elements of oil’s recovery that suggest the pandemic could help its prospects in the long term by pushing people into their cars. In New York City, driving is down 34% since January, according to Apple mobility data. But public transit use is down even more, at 85%. Transit use was down 60% in Boston and 64% in Detroit, while driving in both cities has begun to rebound. A switch from subways to personal vehicles could push oil demand and emissions higher.

“If, all of a sudden, you see growth in the transport sector, it will make a huge difference,” said Morgan Bazilian, who directs the Payne Institute for Public Policy at the Colorado School of Mines.

Most projections, he noted, had shown that demand for transportation fuels would plateau, while consumption from sectors like aviation and petrochemicals would increase.

But both those sectors now face uncertain futures. It is unclear when people will feel comfortable flying again. Petrochemicals, meanwhile, have been hit hard by the slowdown in automobile manufacturing. Between 5% and 10% of polymers are used to make plastic parts in automobiles, according to Wood Mackenzie.

The consulting firm noted that factory shutdowns in Europe have stopped production of 2 million vehicles, or the equivalent of 14% of all automobiles made in 2019. It noted that production could soon ramp up if the economy recovers.

Chris Nelder, an electric vehicle advocate who oversees the mobility program at the Rocky Mountain Institute, argued that oil’s woes will grow worse before the pandemic ends. Oil companies are unlikely to approve expensive drilling projects if they cannot firmly predict demand.

Meanwhile, competing industries will look to capitalize on temporary improvements in air quality and the potential reconfiguration of supply chains to increase their market share.

“We are definitely not going back to the way the world was in January 2020,” Nelder said. “The longer the uncertainty persists, the longer we have to stay on lockdown, the more the risk of things changing radically increases. The longer this goes on, the harder it is for incumbents to hang on.”