Current perspectives The recent (2011) OFT Off-Grid Energy Study assessed that approximately four million UK households were not connected to the gas grid, of which around 1.6 million use kerosene for domestic heating, representing 6% of the total heating fuel market. LPG use as domestic fuel accounted for a further circa 200,000 households. In comparison, natural gas is used by almost 20 million households and accounts for just over 80% of the heating fuel market. In addition to its use in the domestic sector, there are estimated to be between 200,000 and 250,000 commercial heating oil users. A snapshot of the trend in total UK domestic regular kerosene demand since the start of the millennium shows the following: Source: DECC Energy Trends: Oil & oil products, Supply & use of petroleum products. So, it appears that the market has moved from the range of 2.2-2.5 million tonnes/year (2.7 to 3.0 billion litres/year) to one of slightly under two million tonnes( 2.5 billion litres) in the past couple of years – although the exceptional, extended winter of 2013 is likely to result in this year’s total demand climbing back towards 2.2 million tonnes. Against this backdrop, it was encouraging to learn that oil boiler sales were 22% higher in Q1 2013 vs. Q1 2012, and that overall 2012 sales were up on those in 2011. What might the future hold? To gauge future market prospects, we will consider a range of ‘what if’ possibilities, as a way of mapping out the boundaries that may define the future for the sector. To do this, an approach from probability and decision analysis will be used, which identifies three possible cases or scenarios: → best possible outcome, known as the P10 case- where there is only a 10% probability of things being better → an average outcome, known as the P50 case- where there is a 50% probability of things being better. → a worst possible outcome, known as the P90 case- where there is a 90% probability of things being better. In looking at these possible outcomes, there are three underlying assumptions which are common to each case: • that the requirements in the Code for Sustainable Homes will result in negligible new build potential for oil fired systems, so enabling little/no scope for market expansion. • that B30K (bio kerosene) will not qualify for incentives under the Renewable Heat Incentive (RHI), given that it comprises 70% fossil fuel and so could raise questions, at least from a PR standpoint, about the true credentials of the green agenda that underlies the scheme. • that oil boilers will be capable of meeting the maximum permissible NOX emissions’ limit of 120 milligrams per kilowatt hour set by the EU for 2018. The future state of the market is taken to be that in 2020, the key milestone date for achievement of the GHG (greenhouse gas) emissions’ target and contribution of renewable energy sources.   Three possible scenarios for kerosene Best Case (P10) This is one where the sector, through initiatives such as Oilsave, is able to mount effective efforts, through promotion of improved fuel efficiencies of boilers, better insulation and lower emissions etc., that enable it to retain the lion’s share of its existing outlets. However, these fuel saving initiatives result in reductions in consumption, which are projected to average 3% per annum over 2013-2020. From a starting point ( 2013), assumed to be circa 2.2 million tonnes ( 2.75 billion litres), this results in a decline of just over 420,000 tonnes (525 million litres) over the period, to a market of just under 1.8 million tonnes. Average Case (P50) This is one where the government’s various initiatives, such as the RHI and Green Deal etc., in pursuit of its green agenda, result in a measure of attrition of existing oil outlets. When coupled with the fuel reductions pursued by the sector in defence of its existing market, described above, this results in an average decline in oil use projected at 5% per annum over 2013-2020. The reduction in this scenario amounts to 660,000 tonnes (830 million litres) to a market of just over 1.5 million tonnes. Worst Case (P90) This is a more extreme version of the previous case (P50), the key difference being that the government decides to pursue a much more aggressive/ ambitious approach to its green agenda and provides more generous and attractive incentives to encourage transfer from oil use. As a result, consumption falls by 50% from its 2013 level i.e. by 1.1 million tonnes (1.4 billion litres), to a market of 1.1 million tonnes in 2020.   As already stated, these ‘what if’ scenarios represent no more than an attempt to map out what the future may hold for kerosene’s use as a heating fuel, generating a range of possible outcomes in terms of changes in demand and resulting market size. Their plausibility rests primarily in the exercise of being able to identify the boundaries that may define the market in 2020 – the future state. As the range is a substantial one, there is a higher likelihood that the market size will fall somewhere within the best/worst case scenarios for 2020. Food for thought and, hopefully, opportunity to consider and adapt business models, as appropriate, to ensure the future viability and success of the heating oil sector – with the P50 type scenario providing a starting framework for planning purposes. Comment on the above is invited to jane@fueloilnews.co.uk

For many years, BP, with a certain amount of supporting fanfare, has produced an annual Energy Outlook, which takes a forward looking view of future energy supply and demand, accompanied by a welter of statistics and tables. The latest publication, released in January 2013, comprised projections through to 2030. In March, with rather less fanfare but of comparable authority, substance and weight (131 pages), Exxon Mobil updated its annual review in a publication entitled Outlook for Energy: a View to 2040. Given its size and scale/spread as a supplier and presence in the global energy market, its key findings are worth capturing. Oil will remain the number one global fuel What are the key findings of this ‘window to the future?’ Oil will remain the number one global fuel. Natural gas will be the fastest growing major fuel with demand rising by 65%, overtaking coal for the number two spot. World oil demand, excluding biofuels, will rise to 105 million barrels per day by 2040 (88m bpd in 2012). Efficiency will continue to play a key role in solving energy challenges. Energy-saving practices and technologies, such as hybrid vehicles and high-efficiency natural gas power plants, will help countries in the Organisation for Economic Cooperation and Development (OECD), including those in North America and Europe, keep energy use essentially flat, even as OECD economic output grows 80%. Energy demand in developing nations (non OECD) will rise 65% by 2040 compared to 2010, reflecting growing prosperity and expanding economies. Overall, global energy demand will grow by 35%, even with significant efficiency gains, as the world’s population expands from about 7 billion people today to nearly 9 billion people by 2040, led by growth in Africa and India. CO2 emissions from OECD countries will fall by 20%. Those from non-OECD countries will rise by 50%, to represent 70% of the world’s total. Energy related CO2 emissions will plateau by 2030 and then start to fall, the main driver being the substitution of gas for coal. Transportation demand will grow by 40%, led by expanding commercial activity (trucks, aircraft, ships, trains), where growth will be 65% (of which 80% will come from developing countries) as economies and international trade grow. However, energy consumed by personal vehicles will gradually peak and then begin to fall as our cars, sports utility vehicles and small pickup trucks become much more fuel-efficient. Diesel will account for 70% of fuel demand growth, with gasoline remaining relatively static in spite of the number of personally owned vehicles doubling. Aviation – demand for fuels will rise by 75%. Shipping – demand will increase by 90%. Industry, residential and commercial sector demand will increase by 30%, with natural gas and electricity accounting for over 60% of fuel consumed in the latter. Technology is enabling the safe development of once hard-to-produce energy resources; significantly expanding available supplies to meet the world’s changing energy needs. Electricity generation – with this growth comes a greater demand for electricity. Today, and over the next few decades, this represents the largest driver of demand for energy. Through 2040, it will account for more than half of the increase in global energy demand, growing by almost 80% over 2010-2040. Nuclear power and renewable energy will grow, while demand for coal peaks and then begins a gradual decline. Evolving demand and supply patterns will open the door for increased global trade opportunities. Around 2030, the nations of North America will likely transition from a net importer to a net exporter of oil and oil-based products. The changing energy landscape and the resulting trade opportunities it affords will continue to provide consumers with more choices, more value, more wealth and more good jobs. Plentiful energy supplies but no mention of price  The Outlook is seen as providing ‘a window to the future’, helping to guide the company’s strategies and investments. Over the next five years, ExxonMobil expects to invest an eye-watering sum of approximately $185 billion in energy projects. A key premise underlying the forecasts is that they are based on current technology, so by not allowing for future technological advances, it could be considered to err on the cautious side. A significant omission from the Outlook is any projection, or commentary, around future price levels. With an underlying theme suggesting plentiful energy supplies over the period considered, this points to any upward price pressures being suppressed? On the basis that we often struggle to forecast with any high degree of confidence price levels merely in the weeks/months ahead, the omission is probably a sensible one! www.exxonmobil.com/energyoutlook