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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