P ERS PECTIV E Winning the race for new fuel technologies: China or the US?
By Arthur Hanna, Managing Director, Energy Industry Group, Accenture
T
he recent rise in oil prices reminds us that volatility will remain a core fea- ture of the global hydrocarbon
market. But what are the more funda- mental changes we can expect over the next decade? In my 30 years in the energy business, I have witnessed several major periods of change. The rise of OPEC’s power marked the early 1980s, the rise of the supermajors then followed the discov- eries of oil outside OPEC’s sphere of influ- ence. More recently, we have seen the impact of emerging market demand and the rise of national oil companies. New sources of hydrocarbons and
related technologies are now helping to reshape the industry in new ways over the next few years. However, we will also see a significant disruption thanks to outside forces – the rise of renewable energy and alternative transport fuels. At Accenture, we have been taking a
closer look at the emergence of new transport fuels, given that transport accounts for about 60% of global oil consumption. Our research led us to explore an interesting dichotomy – the race between the US and China in the pursuit for alternative transport fuels and the impacts on their respective economies. Both countries aim to reduce dependence on petroleum and this goal is driving their investment in new technologies. Apretty realistic scenario for the US is
the implementation of a fuel-efficiency standard to 40 miles/gallon by 2030 and the blending of 30bn gallons of bio- fuels. We calculate that this would replace more than 30% of gasoline and diesel demand by 2030 relative to 2010. As a result, US crude imports would be reduced by approximately 1bn barrels of oil by 2030 compared to the volume imported in 2009. China’s goal is to have alternative
energy make up 30% of transport fuels by 2020. Today, it imports more than half its total petroleum consumption and, with the decline in domestic oil field production and the rise in demand for hydrocarbon fuel, the country’s
worst effects will be felt by those refineries currently configured to max- imise gasoline production. Meanwhile, in China there will be no losers, not least because we estimate that car own- ership will almost triple between now and 2020 to approximately 200mn, creating growth for all forms of fuel – biofuels, electric and hydrocarbons. For the US, we can expect to see
dependence on oil imports is growing. According to our analysis, the alterna- tive energy industry could substitute traditional transport fuels to reduce oil imports by 21% in China by 2020. It is, however, the differences in the
nature of each country’s investments that strike me as most telling. We con- clude that China could enjoy a competi- tive advantage over the US in electric vehicles thanks to its state-backed focus on this area of technology, its domestic supplies of lithium and its current battery production capability. The US’ market led-approach will result in a more gradual development of new technolo- gies and disparate federal funding could place it at a disadvantage. That said, the US will be better placed to create new innovations across many platforms that can be integrated into the existing fuel supply infrastructure. These cover advanced combustion engines, electric technologies and advanced biofuels. In short, China’s decisiveness will
allow it to scale out and achieve its tar- gets faster, but in a narrower field of technologies. While the US may be slower in its development, its openness to new and disruptive technologies is more likely to generate breakthrough technologies.
Winners and losers
And what of the impact on the com- petitiveness of the two countries? The rise of new fuels and the reduction in gasoline demand will have major nega- tive consequences on US refining. The
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PETROLEUMREVIEW APRIL 2011
smaller refineries close or be disposed of, while larger, more flexible facilities respond by adjusting their gasoline/ diesel mix. And, clearly, oil companies will have to create closer links with agriculture to secure supply of biofuel feedstock. Meanwhile, China has supply chain
problems of its own. It could be con- strained by bottlenecks, such as feed- stock availability for cellulosic ethanol and high battery costs. Policymakers will have to target financial incentives to relieve these bottlenecks. Although China’s top down approach will serve the country’s large scale implementation well in the medium term, the country will also have to supplement this invest- ment and policy-driven direction with more consumer oriented business models and an improved understanding of consumer demand. And if China is to go beyond rapid implementation towards genuine innovation, it will require more transparent intellectual property processes, talent strategies and incentives to attract funding to new fuel industries. Unlike some of the other major dis-
ruptions to the sector, the rise of new transport fuels comes from outside rather than from within. The industry has responded to equally large chal- lenges in the past and I am optimistic that itwill be able to do so this time. As the world’s two largest markets for road vehicles and oil, China and the US will feel the consequences of these new changes. But the industry in other parts of the world will have to take careful note of how these two economies square up to the challenge.
The opinions expressed here are not necessarily endorsed by the EI.
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