BP says oil demand will peak in the 2030s, and that EVs will rise 100-fold to capture about a third of the car market.
BP released its annual Energy Outlook, with forecasts through 2040. Unlike in years past, this version sees more upheaval on the horizon as the energy landscape evolves rapidly. “Indeed, the continuing rapid growth of renewables is leading to the most diversified fuel mix ever seen,” BP CEO Bob Dudley said in a statement. “Abundant and diversified energy supplies will make for a challenging marketplace. Don’t be fooled by the recent firming in oil prices: the focus on efficiency, reliability and capital discipline is here to stay.”
BP believes that just about all of the growth in energy demand will come from fast-growing developing economies, with China and India alone accounting for half of the total growth in global energy demand through 2040.
BP offered several different forecasts, but all predict a peak in oil demand in the 2030s, with varying degrees of decline thereafter. Its central forecast sees peak oil demand in the mid-2030s at about 110 million barrels per day (mb/d), with consumption plateauing and declining through 2040 and beyond. In other words, demand grows for another two decades, rising by 15 mb/d, before consumption tops out.
BP sees the number of EVs on the road surging to 320 million by 2040, capturing about a third of the market in terms of miles traveled. That equates roughly to a 100-fold increase from the 3 million EVs on the road today. It is also sharply up from the 100 million EVs BP expected to be on the road in 2035 in last year’s Energy Outlook.
Yet, it doesn’t equate to the total EV revolution that many hope to see. In fact, BP still sees carbon emissions rising by 10 percent through 2040, a scenario incompatible with what scientists say are needed to hit climate targets. And in BP’s most aggressive scenario for EVs in which many more governments follow in the footsteps of France and the UK and put in place a ban on gasoline and diesel vehicles by 2040, BP still only sees EVs eliminating about 10 mb/d worth of demand, which would be about 10 percent of the current market. “It’s a big number,” BP’s chief economist Spencer Dale says, but “even in that scenario, oil demand in 2040 is still higher than it is today.” BP says carbon pricing is needed to drive down emissions.
Dale argues that cars will be used more in the future, traveling longer distances, but that autonomous vehicles, electricity and efficiency will offset the increase in oil consumption from more vehicles on the road. “The suggestion that rapid growth in electric cars will cause oil demand to collapse just isn’t supported by the basic numbers — even with really rapid growth,” Dale said, according to the FT.
Dale predicts the average EV in the future will be used to travel about two and a half times more than the current internal combustion vehicle. “What we expect to see in the 2030s is a huge growth in shared mobility autonomous cars...Once you don’t have to pay for a driver, the cost of taking one of those share mobility fleets services will fall by about 40 or 50 percent,” Dale told reporters. The upshot is that demand for crude oil used in cars remains largely flat at 18.6 mb/d in 2040, down just a hair from 18.7 mb/d in 2016.
Another interesting prediction was the expected impact of regulations on plastics. BP sees taxes and regulations on things like plastic bags will help eat into crude oil demand by about 2 mb/d. Still, petrochemicals grow in importance over time, taking a greater share of the demand pie as EVs keep demand flat in transportation.
The opinions of other oil majors vary on this hotly contested subject. Officials from Royal Dutch Shell have said that a peak could come as soon as 2025, whereas ExxonMobil and Chevron see demand rising steadily for the foreseeable future, with no peak in sight.
In that sense, there is a bit of difference between the European and American oil majors. Shell, BP and Total have begun stepping up their investments into natural gas, utilities and renewable energy. Royal Dutch Shell recently bought First Utility, a UK-based utility. It also purchased a U.S. solar company last month. Total purchased SunPower years ago and is now looking to building up generating assets in France to rival incumbents. BP recently announced plans to jump back into the solar sector after pulling out years ago.
To be sure, these are marginal forays into clean energy; the majors are still overwhelmingly invested in oil and gas, and will continue to be for years. Yet, they mark a small but significant pivot away from oil.
“The outlook here shows that the world is going to need all forms of energy,” BP Chief Executive Bob Dudley said at a news conference Tuesday, according to the WSJ. “Gas has to be part of the transition, if not a destination fuel” for lowering carbon emissions.
By Nick Cunningham of Oilprice.com
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