Transportation allows people and ideas to move from place to place and is the backbone for advancing society. Unfortunately, the global pandemic has hindered the movement of people in the first half of 2020. As individuals begin to venture back out into the world, the transportation sector, and by association the consumption of hydrocarbons that fuel these vehicles, will be completely changed. Fear and social distancing guidelines will force individuals away from mass transit. Reduced options and capacity will force individuals away from air travel. Both will result in increased personal vehicle travel well into the future. Part three of our four part series on post-COVID oil demand will investigate the change in global oil demand for fuel used in personal transportation.
The impact of COVID-19 around the globe in 2020 has had resounding implications on how people travel. Travel restrictions tied with a transition to working from home due to stay-at-home orders caused all forms of personal transportation to stagnate. This paradigm shift in the personal and business world will cause several changes in the methods people move around, both in the short term and the long term. With these changes, there may be new problems and adjustments that must be made to ensure the safe transit of individuals. Will working from home become a long term alternative to offices? Is it safe to take public transportation? How often should high-use surfaces be cleaned to maintain safety? In what ways will the landscape of ride-sharing services evolve? Will commuter traffic become worse, better, or stay the same? Can airplanes and airports maintain social distancing requirements? Major changes have already happened, but as the world slowly opens back up additional modifications to daily travel will also occur. These trends are most easily seen in transportation through personal vehicles, air travel, and public transit. The question most relevant to the energy industry is: what will oil demand look like as the world transitions to this new normal?
Throughout this global transition, the news team at RARE PETRO is releasing a four part series investigating the demand for oil and gas in a post-COVID society. This third installment will explore how demand for hydrocarbons used to fuel personal transportation will likely change in the future.
Personal Transportation Definition and Uses
When it comes to personal transportation, there are truly only three options for people to move from place to place over long distances. Traveling by public transit, personal vehicle, or air travel. Everything done in daily life like travelling to and from work, school, shopping, restaurants, appointments, arts and culture, entertainment, celebrations, and errands are accessed through various transportation networks. Many of these networks have now been restricted or banned due to the coronavirus. Recognizing that transportation can be a key vector of transmission, it comes as no surprise that as a result of COVID-19, the transportation sector has been facing significant restrictions. In the months to come, this sector will slowly recover and evolve in the new post-COVID world.
The transportation sector takes up the lion’s share of global petroleum consumption. In the United States in 2018, the transportation sector (both personal and freight transportation) accounted for a staggering 69% of daily petroleum consumption . Looking solely at finished motor gasoline used in personal vehicles, this single petroleum product accounted for 45% of total daily petroleum consumption and over half of all petroleum products used in the transportation industry . While a further breakdown of personal transportation begins to become more difficult since a large portion of airfreight is flown in passenger jets and diesel fuel is used in freight trucks, personal trucks, and busses, etc., it is safe to say personal transportation accounts for the largest majority of petroleum consumption worldwide.
As a result of the pandemic, the way people move from place to place has dramatically changed. Lockdown orders initially forced entire societies to abandon most forms of transportation causing a remarkable crash in petroleum consumption worldwide. But as societies begin to reopen and people feel more and more comfortable traveling, petroleum consumption in the transportation industry is quickly returning with a different breakdown than before. Prior to the pandemic, billions of people worldwide utilized airplanes as a quick and economic way to reach far destinations. For safety reasons related to the virus, those numbers have crumbled. Additionally, millions of people utilized public transportation systems to get to and from various places day to day. This area too has been forced to change because most of these systems are unable to incorporate safe social distancing guidelines. The result has initially been fewer people traveling outside their homes, but going forward this may change to a preference for personal vehicles as the sole mode of transportation.
Public Transit Post-COVID Demand
As coronavirus-related restrictions are lifted around the world and economies reopen, authorities face a new challenge: how to enforce social distancing and prevent new outbreaks while allowing people to return to public transit. Asian cities like Hong Kong and Seoul have decided against imposing strict social-distancing measures to facilitate a return to pre-pandemic passenger traffic, but leaders in most other parts of the world have done the opposite. The issue at hand is how to ensure public safety while allowing society to resume.
Many individuals do not yet feel safe returning to work and rejoining society, especially if the only option to do so is utilizing public transportation systems. That number is especially high for individuals in densely populated cities where it may be their only option for travel. In fact, according to a June 11 survey by Elcud, a data-research group, two-thirds of New Yorkers feel uncomfortable riding trains and busses before the end of the pandemic . For New York City workers, the commute is a big obstacle in returning to their daily lives. Unlike other more car-dependent cities, a large share of Manhattan workers take the bus or subway to work on a daily basis . Crowded subway cars and cramped busses raise the risk of infection, and keeping a minimum distance between commuters could make it much harder to get to work on time. In a recent study, real-estate services firm Savills Inc. found that if more people switch to cars, traffic jams could worsen significantly. Since 76% of Manhattan commuters used public transit before the pandemic, if just 1-in-7 of these people switch to cars the number of people driving to work would double . As most social distancing guidelines currently suggest a 50% capacity in any given space, the number of people driving to work would theoretically rise exponentially in the coming months.
Countries around the world are experiencing similar problems. In France, leaders have acknowledged the need to allow more people to use public transportation again but the government has decreed that there can be no more than one passenger per square meter on trains or busses and commuters risk fines of €135 ($151) if they aren’t wearing a face mask . Without social distancing, a typical french commuter train during rush hour can hold a maximum of 2,600 people but with strict social distancing imposed, the total maximum capacity would be reduced to 700 people, a difference of 1,900 possible riders per train . Furthermore, at the peak of rush hour 51 trains typically passed through Châtelet-Les Halles on a single commuter line each hour before the pandemic. It is one of the largest underground stations in the world and hub to five subway lines and three major commuter-rail arteries. Under current social distancing rules, total capacity for these trains is reduced by 96,900 people each hour . The immense reduction in capacity can be seen in Figure 3 below.
Luckily the situation in France (and worldwide) was not a problem during the pandemic as remote working and learning became the new normal. Fewer bus routes were needed to take essential personnel from place to place, but thousands of riders will need to find alternatives to public transportation as society begins to return to normal. Most likely, many individuals will use personal modes of transportation to ensure their safety until it is safe for mass gatherings to resume on all modes of public transit.
Ridership during the pandemic was dramatically reduced, but public transportation systems never fully shut down. It was necessary to get essential workers to and from jobs and people to essential activities like doctor appointments or grocery store runs. The demand for fuel to operate public transportation systems was down during the pandemic, and hopes for dramatically increased demand into the future seems bleak. Although many individuals do not feel safe traveling by way of public transportation, for some it is essential to their day to day lives. The end result is a continued need for public transportation although the future will see reduced demand for this sector until the public feels safer congregating again.
Personal Vehicle Transportation Post-COVID Demand
With many individuals shying away from public transportation, some may choose to walk or bike, but that may not always be a feasible option. Instead, people will need to drive or carpool to and from work, school, the grocery store, or social events when they would normally take a bus or a train. It should be no surprise that the number of cars on the road, especially in large cities, was down significantly during the pandemic due to stay at home orders. While some of the workers were still permitted to commute every day, a large majority of the population remained home. A recent study performed by C2Smart Research seen in Figure 4 highlights that vehicle traffic was down nearly 75% at the height of the pandemic in New York City.
As New York enters phase 2 of reopening, about 10% of white-collar workers, or 130,000 people, could be back by mid-August . As discussed earlier, many of these individuals are not comfortable utilizing mass transit and will be forced to commute in personal vehicles into the city. While parking garages are hoping for a surge in business as tens of thousands of office employees return to Manhattan during New York City’s reopening, many workers are struggling with the question of financial security over safety. Since the average price of a monthly parking space in Manhattan’s central business district, between 60th Street and the southern tip of Manhattan, is about $500, low income riders are faced with a very difficult decision .
Before the pandemic, about 2.9 million people took mass transit into Manhattan’s central business district on an average weekday, according to state data. About 2.2 million of them arrived by subway, 340,000 people rode commuter and intercity trains, while about 280,000 people, mostly from New Jersey, rode the bus . Even if only one-sixth of individuals interviewed fearing mass transit choose to commute to work in the near future, it is an additional one million people on the road. Additionally, in a study performed by American University in 2019 as seen in Figure 5, if over half of commuters choose to ride alone it would result in several hundred thousand additional vehicles on the roads consuming gasoline in comparison to pre-pandemic levels. This number could easily rise due to fear and safety concerns.
These numbers represent a single metropolitan city. When expanded to a global level it becomes clear that gasoline demand to fuel commuter vehicles will skyrocket in the ensuing weeks and remain elevated into the foreseeable future.
Air Transportation Post-COVID Demand
One of the industries hit hardest by the global pandemic has been passenger airlines. The Canadian Air Transport bureau reported a 97% drop in worldwide passengers traveling internationally via airplane and an 87% drop in worldwide passengers traveling domestically from the start of the pandemic in January through April, 2020 . These are unprecedented declines on a global scale, and unfortunately the future does not look too bright for the airline industry. Due to restrictions enacted by various countries, international travel is severely limited and even banned in many cases. Additionally, domestic flights in many places have not seen much of a demand boost due to public fear of the virus as well as limited travel destination offerings.
As seen in Figure 6, even with a quick, V-shaped pandemic recovery, international passenger traffic is expected to be down nearly 50% on average throughout 2020 and down over 60% if there is a U-shaped recovery. This is clearly bad news for airlines, but a drop-off in air travel has also reduced jet fuel demand. After falling by 3 million barrels during 2020, the IEA expects demand for jet fuel and kerosene – both used in aviation – to recover by just 1 million barrels a day in 2021, leaving it well below pre-crisis levels . The International Energy Agency further noted that demand for petrol and diesel is set to heal by the end of the year, but the coronavirus crisis is likely to leave scars on the airline industry and the oil market . Demand for jet fuel during the global pandemic was nearly non-existent as demand fell over 90%. It seems clear that jet fuel usage will continue to suffer as a result of the pandemic, and the impact will be felt on a global scale for years to come.
Miscellaneous Personal Transportation
Another small segment of personal transportation are the “sport” or “toy” vehicles that are made from and consume oil and gas products. This would include recreational boats, golf carts, dirt bikes, ATVs, and other devices with a gas powered engine. While they don’t have a very large impact on the big picture of global oil demand, they do represent a piece of the pie. Marine outboard engine sales in 2018 for the United States finally recovered to levels seen prior to the Great Recession, rising back to 278.5 thousand units sold . Fallout from the COVID outbreak expects these sales in 2020 to decline below the 2009 Great Recession level of 180.7 thousand units sold before quickly rebounding into long-term growth by 2022 . As people continue spending less on vacations and travel expenses following virus lockdown orders, the future market for these types of vehicles, and their fuel consumption, will skyrocket. In fact, globally the recreational boat market is anticipating an 11% compound annual growth rate (CAGR) between 2019 and 2025 . While this may not have a major influence on total oil demand, continued growth in these markets will only increase incremental gasoline demand.
With the worst effects of lockdown now behind many major economies, the world can begin to navigate a new way of life in post-pandemic society. The pandemic will change how every person lives their life in one form or another. From wearing a face covering in public to virtual birthday parties, life must adjust in this new age. One result will be a change in hydrocarbon consumption. Since the transportation sector accounts for the largest portion of hydrocarbon consumption, it seems only fitting that this will be the area changing the most in the future.
Public transportation has been a life saver for many cities and citizens. It alleviates traffic, reduces emissions, and allows people who do not own a car to easily cover distances when walking is not an option. Fortunately during the pandemic, these services were still provided with reduced hours and route options due to diminished demand. As more and more people begin to need public transportation again, logistics issues will also rise. It will be impossible to enforce social distancing guidelines at peak hours in crowded cities when individuals pack trains and busses like sardines. Due to already stressed budgets and a reduced rider capacity, municipal support in the public transportation sector will begin to decline and fuel demand to run fleet vehicles will fall as well. While it is highly unlikely mass transportation will completely disappear in the future, it will decline until a safer viable alternative can be reached.
A majority of individuals displaced by reduced rider capacity and route options for public transportation will resort to travel by personal vehicle. Whether it be by car, truck, SUV, or motorcycle; as the world moves out of the pandemic more and more people will begin to prioritize this method of transportation. Remote working and learning might become the new normal, resulting in fewer cars on the road for individuals that used to commute. This decrease caused by remote workers will be dwarfed in comparison to the number of individuals no longer using public transportation. Furthermore, some people might fear carpooling and choose to drive alone. Taking into account the inevitable increase in global population, more personal vehicles will be on the streets compounding an increase in gasoline consumption worldwide well into the future.
The airline industry has been through many ups and downs, but the current level of reduced demand for air travel is unprecedented. Globally airlines were forced to cut over half of their flight options during the peak of the pandemic in April as a result of nearly zero demand for passenger air travel. While demand is slowly on the rise, experts do not expect a full recovery in air travel for several years. Even though it is not the largest petroleum consuming sector, the result will leave millions of barrels of daily oil demand off the table for years to come.
Transportation is the enabler of society. It allows people and ideas to move from place to place and is the backbone to advancing the human race. While the coronavirus pandemic may have slowed the movement of people in the short term, it will not eliminate transportation into the future. Certain aspects of life will need to change as the world adjusts to a post-COVID society, but the vehicles necessary to move people around to ensure a properly functioning society will continue to be a necessity. Table 1 shows the three major types of personal transportation discussed, an estimate for demand change during the pandemic, and projected demand change into the future. The projections are based on logical assumptions for changes in society causing an increase or decrease in supply needs. The fuels needed to move humanity all around the world are created from oil and natural gas, and as a result the overall aggregate demand for personal transportation will remain neutral on a global scale into the future. Life may change after the pandemic, but the energy used to transport people in order to spread their ideas around the world will continue to be a staple of modern society.