The transport economy weakened by energy tensions
March 2024
In the current context of ecological transition and potential energy supply difficulties, all sectors of the economy are concerned by the challenge of energy sobriety, encouraged in particular by the ‘energy sobriety plan’ launched by the French government in October 2022. The transport sector is particularly hard hit, and its dependence on fossil fuels is having a heavy financial impact on households. The figures suggest that we need to consider low-energy and environmentally-friendly solutions.
Geopolitical and macro-economic context The energy crisis of winter 2023 has been described by the International Energy Agency (IEA) as the first global energy crisis of the 21st century. It is the result of a combination of economic and geopolitical factors on a global scale, which have led to tensions on the oil, gas and electricity markets in particular. These tensions have resulted in an unprecedented rise in the price of energy products, which in turn has led to a substantial increase in the price of raw materials. By spilling over, the rise in commodity prices generates inflation on finished products, particularly in the Eurozone. In January 2022, the rate of change in the Harmonised Index of Consumer Prices (HICP) was 6.2% in Spain, 5.1% in Germany and Italy, and 3.3% in France. A year later, in January 2023, these rates were 5.9%, 9.2%, 10.7% and 7% respectively. For the sake of clarity, this section will focus on the diagnosis of the oil crisis and its impact on the petroleum-based energy products that are essential for transport.
First of all, it should be remembered that the price of crude oil is determined by the interconnection between several factors. These factors may be cyclical. They relate mainly to the match between world demand for oil and production in oil-producing countries, but also to geopolitical tensions in oil-producing regions, OPEC (Organisation of Petroleum Exporting Countries) policies, natural or climatic phenomena and currency exchange rate fluctuations, since crude oil is denominated in US dollars on the 3 major world markets: West Texas Intermediate (WTI) for North American oil, Brent for North Sea oil, and Dubai for Asian oil. However, other, more structural factors also need to be taken into account, and are more a matter of physical and geological realities, which explain why it is impossible to produce a certain quantity of barrels beyond a peak in extraction.
The first economic factor that can partly explain the energy crisis is the strong economic recovery following the health crisis. In fact, the health crisis and the travel restrictions introduced by various governments initially caused oil prices to plummet, due to a drastic fall in demand from March 2020, particularly in the transport sector. Beyond transport alone, the increase in demand for oil has also coincided with a rise in demand for raw materials in general, fuelled in part by the economic stimulus measures put in place by governments around the world. In April 2020, the average monthly price of a barrel of Brent crude oil reached a record low of $16.4, compared with $65 the previous year. The post-COVID economic recovery has led to renewed demand for oil products, resulting in a mechanical increase in price.
From transport’s dependence on fossil fuels to the financial consequences
France, which has been particularly hard hit by these price increases, is structurally vulnerable to the economic climate. In 2019, before the health crisis, oil consumption in France stood at around 1.6 million barrels per day, 83% of which was used for transport, according to data from the International Energy Agency (IEA). In 2022, 97.7% of the 38.2 million cars in circulation in France will be combustion-powered: 22.4 million, or 59%, will run on diesel, and 14.9 million, or 39%, will run on petrol. Diesel vehicles are therefore over-represented in the French fleet. However, refineries’ net diesel production does not meet local needs: in 2019, it amounted to 13.1 Mtoe, while total national diesel consumption reached 27.7 million tonnes in the same year.
As a result, households and local authorities are being hit hard by the crisis, which is having a considerable financial impact. According to INSEE, despite measures to limit prices, energy inflation will represent an average loss of €840 per household between January 2021 and June 2022, or 1.6% of disposable income over the period. As far as local authorities are concerned, the energy bill is forcing them to dig deeper into their operating budgets, as the following graph shows. Fuel purchases (€1.1 billion for the local authority block as a whole) are the expenditure item that has seen the biggest increase between 2019 and 2022 (+29.5%).