Navigant Research Blog

EIA Foresees Fossil-Fueled Future for Transportation

— December 20, 2013

The U.S. Energy Information Administration (EIA) released an early version of its Annual Energy Outlook (AEO) for 2014, depicting an energy future overwhelmingly shaped by the development of new oil and natural gas reserves.  Cumulative production of natural gas from 2012 to 2040 in the AEO2014 report is about 11% higher than in AEO2013, reflecting the continued growth in shale gas production from increased horizontal drilling and hydraulic fracturing.

Some of the highlights for transportation-specific forecasts from AEO2014 include:

  • Light-duty vehicle (LDV) energy consumption will decline sharply through 2040, due to slow growth in vehicle miles traveled (VMT) and accelerated improvement in fuel efficiency.
  • Energy consumption in the transportation sector overall will decline from 26.7 quadrillion Btu in 2012 to 25.5 quadrillion Btu in 2040.
  • Electric vehicles, including battery electric vehicles (BEVs), plug-in hybrid electric vehicles (PHEVs), and hybrid electric vehicles (HEVs), will account for just 7% of total vehicle sales in 2040 (This sharply contrasts with Navigant Research’s report, Electric Vehicle Market Forecasts, which forecasts the same 7% penetration being reached by 2020).
  • LDVs powered by gasoline will remain the dominant vehicle type, retaining a 78% share of new LDV sales in 2040, down just 4% from an 82% share in 2012.

It is important to note that this reference case scenario released by the EIA is limited because it assumes current laws and regulations will remain generally unchanged through 2040, which is a shortsighted assumption.  For example, even major U.S. oil companies, such as ExxonMobil and ConocoPhillips, are already including a price on carbon emissions in current business planning.  Exxon reported that it anticipates a cost of $60 per metric ton of carbon by 2030.

Additionally, we have seen the rapid development of California’s zero-emission vehicles (ZEVs) mandates in recent years, which is pushing the automotive market toward 1.5 million ZEVs in California by 2025.  With nine other states expected to follow California’s lead, there’s no telling how much these mandates and a potential carbon tax will increase the market for electric vehicles – but there’s no doubt that it will have a significant impact that is largely unaccounted for in the EIA’s Outlook.

Finally, the EIA’s less than bullish outlook for clean transportation technologies is based largely on its assessment of future gasoline prices.  The EIA predicts that the real end-use price of motor gasoline in the United States will decline to $3.03 per gallon (2012 dollars) in 2017, then will rise to just $3.90 per gallon in 2040.  This conservative forecast may be underestimating the increasing difficulty and financial cost of drilling for unconventional oil sources, such as oil sands and extra heavy oil, as conventional oil reserves, which are generally easier and cheaper to produce, continue to diminish.  While the world is certainly not running out of oil, it is running out of oil that can be produced easily and cheaply.


SUVs: The Next Hybrid Market Segment

— December 10, 2013

Plagued by declining market share, Suzuki exited the U.S. market in 2012 to focus on the growing vehicle market in India.  A number of other domestic and international legacy vehicle brands including Saturn, Saab, Pontiac, Isuzu, Mercury, Oldsmobile, and Hummer have vanished from dealer lots.  The exodus is due to the recession as well as an evolving U.S. light duty vehicle (LDV) market that is increasingly competitive as annual new vehicle sales have failed to return to pre-recession levels of 16 million to 17 million.  Early in 2013, industry analysts predicted that the next makers to back out of the U.S. market would likely be Mitsubishi and Volvo, as both have market shares hovering around a 0.5%.  Despite no significant sales improvements by either automaker since 2012, though, both appear to be committed to the United States through next year and are planning to launch new plug-in hybrid (PHEV) SUVs in late 2014 or 2015.

Mitsubishi was one of the first automakers to deploy a plug-in electric vehicle (PEV) to the United States with the 2012 launch of the i-MiEV.  U.S. market acceptance of the small PEV has been tepid with around 70 i-MiEVs sold monthly.  Though Mitsubishi will continue to produce the i-MiEV, much of the company’s survival strategy centers on its crossover, the Outlander.

Mitsubishi’s 2013 LA Auto Show exhibit was thick with variations of the Outlander.  Noticeably absent, however, was the company’s PHEV version of the vehicle.  The Outlander PHEV was first introduced to the Japanese market at the beginning of 2013 and was the market leader among PEVs until problems with the vehicle’s battery pack put a hold on vehicle sales.  Despite the battery issues, as of last month the vehicle has made first sales in the robust European PHEV markets of the Netherlands and Sweden.  An introduction to the United States is expected in 2015.

O Pioneers

The United States remains Volvo’s largest market, despite the company’s focus on the growing Chinese market.  The luxury automaker introduced the V-60 diesel PHEV to European markets in 2012 and sold out before the vehicle went on sale.  Volvo has since scaled up production from 1,000 in 2012 to over 7,000 in 2013, and is targeting 10,000 in 2014.  This first diesel PHEV will not make its way to U.S. shores, as the V-60 is anticipated to end production after 2014.  The vehicle’s drivetrain will be placed on the gasoline-powered XC90 SUV, which will be sold globally.

In Navigant Research’s upcoming Electric Vehicle Market Forecast report, the United States is estimated to account for around 19% of the global LDV market, second only to China.  Though the U.S. market has declined, it’s still a fundamental market for many of the surviving legacy brands.  Sales of PHEVs grew over 80% from 2011 to 2012, while the total LDV market grew 13%.  Year to date PHEV sales are up 28%, while Navigant Research estimates the total vehicle market will grow 9% over 2012.  Automakers have yet to introduce a mass-market PHEV in the crossover, SUV, and truck segments, which account for nearly 50% of the U.S. market.  The yet untapped market will serve its pioneers well.


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