Peak oil demand might be delayed as the U.S. and China scale back support for fuel efficiency and electric vehicles.
Once thought of as far off into the future, forecasts of peak oil demand have steadily crept closer to the present over the last few years, although depending on who you ask, estimates run the gamut. The International Energy Agency has staked out a more conservative position, saying that demand still has another 20 years of (slower) growth ahead. Others have said that peak demand could happen before 2025.
The debate largely hinges around the degree and pace at which electric vehicles and efficiency overtake the transportation sector. EVs are growing quickly, though from a small base. Moreover, automakers are set to roll out a few hundred additional EV models in the next few years, which could really kick adoption into overdrive.
However, oil demand may prove more durable than some think, particularly if the U.S. and China trim support for EVs and stricter fuel economy standards, as they are in the process of doing.
According to Rapidan Energy, changes to policies in these two key countries, plus others, "may prompt reexamination of oil demand forecasts from IEA and EIA." The consultancy is drawing upon its database that tracks 71 policies across 37 countries, which collectively account for 62.4 million barrels per day of oil demand.
In the U.S., the Trump administration is in the process of watering-down national fuel economy standards for cars and light-duty trucks. The proposal would freeze corporate average fuel economy (CAFE) standards at 39 miles per gallon by 2020, rather than letting them rise to 55 mpg as the Obama-era rules require. California has vowed to use its unique authority to maintain tighter fuel economy standards, but the Trump administration is also seeking to strip the state of its ability to set independent rules. Related: Hedge Funds Unexpectedly Set The Stage For An Oil Rally
Meanwhile, in China, subsidies for longer-range EVs will be slashed by 50 percent later this year while also easing restrictions on purchases of vehicles using the internal combustion engine, "a combination that is likely to slow or reverse the country's rapid electric vehicle sales growth," Rapidan Energy said in its new report. "China has invested over $60 billion in electric vehicle subsidies since 2009, but the country is phasing down subsidies because of cost and widespread fraud."
China has also aggressively deployed electric buses, which may garner less attention but are very effective at displacing oil. A single e-bus removes as much oil from the transportation sector as 33-light duty vehicles, according to Rapidan. In fact, China's e-buses are erasing more oil demand than the world's electric car fleet. By 2021, China hopes to replace all of its buses in urban areas with electric versions. However, Rapidan says that by the end of next year, subsidies for e-buses will be phased out, which could slow deployment.
"Because of the changes occurring in the U.S. and Chinese vehicle markets, Rapidan Energy Group sees the following 6-12 months as a period during which projections of peak oil demand may be adjusted by the major forecasting agencies," Rapidan concluded in its analysis.
Still, it's not all bad news for EVs. For one, the Trump administration's efforts at gutting fuel-economy standards will surely face litigation. In June, 17 automakers pleaded with the federal government to reach a compromise on the standards with California, rather than seeking to roll back the state's authority. The automakers fear years of legal hassling as well as different sets of fuel economy rules. The car companies warned that the Trump administration's strategy could lead to "an extended period of litigation and instability." A change of administration could lead to a return to the Obama-era standards, although that too could take time and legal fighting.
In China, EVs have been climbing steadily this year even amidst a contracting market overall. In June, nearly 147,000 plug-in electric vehicles were sold in China, up 72 percent from a year earlier. At the same time, total car sales in China fell 8 percent. Rising EV sales in shrinking market accentuates the market share gains for EVs.
But, as Rapidan notes, the EV industry will face a difficult test with subsidies being pared back.
By Nick Cunningham of Oilprice.com
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Nick Cunningham is an independent journalist, covering oil and gas, energy and environmental policy, and international politics. He is based in Portland, Oregon. More
Comments
Global investors in renewable energy and electric vehicles (EVs) should heed three pivotal principles.
The first is that there will be no post-oil era throughout the 21st century and probably far beyond. Oil will continue to reign supreme all through.
The second principle is that there will be no peak oil demand either. While an increasing number of EVs on the roads coupled with government environmental legislations could decelerate the demand for oil, EVs could never replace oil in global transport throughout the 21st century and far beyond.
The third principle is business opportunities. Global investment in renewables and EVs pales in size when compared with that in oil and gas exploration and production, refining and petrochemicals. The reason is that financial returns from renewables and EVs are nothing compared to the huge bonanzas oil firms are accustomed to rake in when oil prices rise.
And with global oil consumption exceeding 100 million barrels a day (mbd), the notion of an imminent energy transition looks like an illusion.
In fact, the percentage of oil in the world’s energy mix is still lingering around 33%, a figure that has changed little in 30 years. In fact oil accounted for 33.6% of the global primary energy consumption in 2018. Moreover, oil is projected to account for 33% of the global primary energy consumption in 2040 according to ExxonMobil’s 2017 “Outlook for Energy: A View to 2040. This is despite being challenged by serious environmental policies and despite a global expenditure of $ 3.0 trillion on renewable energy during the last decade. This is a hefty price to pay just to gain only a percentage point of market share from coal.
Some experts are now saying that a widespread EV use could spell the end of oil. The tipping point, they reckon, is 50 million EVs on the roads. This they believe could be reached by 2024. However, 50 million EVs could hardly make a dent on the global demand for oil let alone replace it.
Currently, electric and hybrid cars combined number under 4 million cars out of 1.477 bn (internal combustion engines (ICEs) on the roads worldwide in 2015, or a negligible 0.27%. The total number of ICEs is projected to reach 2.0 bn by 2025 rising to 2.79 bn by 2040 according to US Research.
In 2018 the world used 36.4 bn barrels of oil (bb) of which 73% or 26.6 bb were used to power 1.477 billion conventional cars around the world. Bringing 50 million EVs on the roads will reduce the global oil demand by only 0.9 bb, or 3.4%. This will neither be the end of oil as some experts are suggesting nor a tipping point.
A tipping point for oil could only be reached once 739 million EVs (50% of the current global ICEs number) are on the roads worldwide. This is impossible to achieve within that time frame. One then can only guess how many decades will have to pass before the entire global car fleet of ICEs is replaced by EVs.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
In 1910 there were a half million cars in the US all totaled and by 1920 the yearly sale of cars exceeded 26 million not counting trucks. There were still people riding horses then but the price of horses and the acceptance of them in public places had faded. The automobile had played a critical part in WW1.
I doubt if we commonly will even use oil for lubricants the frequently by 2100.
Oh well . . . what's 100 million barrels a day taken to the combustion chambers, plus or minus?
All oil producers still count on appr 1% yearly demand increase and are investing accordingly. Because of that we can see oil glut already before 2025. This will change whole game in oil industry. Market capitalization of big oil will go down dramatically, money will suddenly be much more expensive for whole sector.
Meanwhile value proposition of EVs is improving every year and because of above mentioned announced investments, this trend will just accelerate. In light of this, other than some niche applications, it is hard to imagine anyone buying ICE car after 2030.