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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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Will EVs Really Crush All Oil And Gas Demand?

  • There’s no denying that rapid adoption of EVs is bad news for global oil demand, the reality is probably nowhere near as dire as some analysts have claimed.
  • Energy Intelligence Group has predicted that not only will oil demand grow in 2023 but it will continue doing so till the end of the decade.
  • Demand growth will come mostly from petrochemicals, and transportation demand for fuels isn’t’ likely to fall off a cliff either.
EV charger

 

 

  Last year, the electric vehicle sector crossed a global milestone, with one out of ten vehicles sold being electric for the first time ever. While that slice of the market might not seem like much in the grand scheme of things, another alarming trend for legacy ICE vehicle makers like Ford Motor Co. (NYSE:F), Mercedes-Benz Group AG and BMW is that their total vehicle sales declined despite EV sales more than doubling.

Obviously, oil and gas investors are receiving these developments with a bit of trepidation considering that EVs are seen as the arch-nemesis of the sector. And, this is no longer all about Tesla Inc. (NASDAQ:TSLA) alone, with pundits saying stiff competition from the likes of GM and Ford is coming its way.

GM is one of the legacy automakers with the biggest clean energy investments, particularly  in the EV sector. In 2022, GM delivered 39,096 all-electric vehicles in the U.S., up 57% year-over-year. While that figure accounts for just 1.7% of GM's total volume sold and cannot handle a candle to Tesla’s 1.3M EV sales, GM might turn the tables on Tesla a few years down the line. 

GM Ceo Mary Barra has revealed that the company plans to produce ~400,000 electric vehicles from 2022 through the first half of 2024, and that the company will  be capable of annual EV production of more than one million in North America in 2025. Indeed, GM could overtake Tesla in just two to three years: a 2022 "Car Wars" report has forecasts that GM and Ford Motors (NYSE:F) each will have roughly 15% EV market share in 2025 while Tesla will plummet from 70% to 11% with new products like the F-150 Lightning and Silverado EV electric pickups driving the robust growth. Tesla appears set to lose its dominant EV market share because both legacy automakers are expanding their portfolios and lineups at a much faster clip.

GM has found a new life as an ESG play. We do have a sustainability fund that owns it in part because of their commitment to electrification. Mary Barra has been pretty vocal about that obviously, and it looks like it’s for real,” Christopher Marangi, Gamco’s value co-chief investment officer, told Bloomberg TV’s Surveillance.

Implications On Oil Demand

Over the years, there’s been no shortage of blue-sky forecasts from EV enthusiasts who have predicted an apocalypse for the oil industry that will be dished out by the EV revolution. 

That includes Stanford University economist Tony Seba who has declared that EVs will obliterate the global oil industry by 2030 while Bloomberg News’ Akshat Rathi is on record claiming that ‘every F-150 Lightning destroys 50+ barrels of oil demand forever.’ The F-150 Lightning is Ford Motors’ (NYSE:F) electric equivalent of the marquee Ford-150 truck. Meanwhile, back in 2016, Bloomberg itself predicted EVs will trigger a global oil crisis.

It’s not hard to see why these EV punters have been going ballistic. The transportation sector is responsible for nearly 60% of global oil demand, with passenger vehicles and trucks guzzling the lion’s share. EV sales are surging thanks to a combination of new compelling models from automakers, improvements in battery technology, policy support and more charging infrastructure. Electrification is also beginning to spread to new segments of road transport.

While there’s no denying that rapid adoption of EVs is bad news for global oil demand, the reality is probably nowhere near as dire as analysts like Seba have claimed. BNEF estimates EVs are currently displacing 1.5 million barrels of oil demand per day, good for 3% of total road fuel demand. But projections of the EV growth trajectory are all over the place, making it difficult to estimate how much impact the sector will have on future oil demand.

According to BNEF, just over half of passenger cars sold in the U.S. will be electric vehicles by 2030. Forecasts for the penetration of EV to total passenger car sales by 2030 range from 11% at the low end to 63% at the high end while projections for 2050 range from 31% to nearly 100%. The lower end of these forecasts suggests minimal to gradual displacement of oil demand while the higher end suggests quite severe oil demand destruction. 

Related: U.S. Drilling Activity Slips Following Price Slump

In carbon-constrained forecasts, passenger vehicle oil demand is expected to fall from about 25 million barrels per day today to 3–6 million barrels per day by 2050. However, most other forecasts see passenger vehicle oil demand ranging from 10 million to 20 million barrels per day by 2050.

Petrochemicals To Drive Oil Demand

Energy expert Energy Intelligence Group has predicted that not only will oil demand grow in 2023 but it will continue doing so till the end of the decade. According to the analyst, global oil demand is expected to grow by 1.5 mb/d in 2023, with China accounting for 650,000 b/d after the country abandoned its rigorous zero-Covid policy. Global oil demand will hit 101.2 million barrels per day in the current year and will continue growing to hit 106 mb/d by 2030. Indeed, this year’s average is expected to exceed the previous high of 100.6 mb/d set in 2019. 

While this is great news for the oil bulls, the expert says that growth will primarily be driven by petrochemicals rather than transport fuels. Energy Intelligence Group has also said that its base case is a plateau rather than a decline. Actually,  Energy Intelligence is not the only bull here. Below is a table that compares oil demand predictions by 28 organizations including a handful of Big Oil companies.

Oil Demand to 2050

(million b/d)

Peak

2030

2040

2050

2021-50

Energy Watch Group (0 Gt)

<2021

72

31

0

-100%

UNPRI 1.5 (2 Gt)

2025

88

46

20

-79

IEA Net-Zero (0 Gt)

<2021

72

43

24

-74

BP Net-Zero (2 Gt)

<2021

90

55

24

-74

UNPRI Forecast Policy (9 Gt)

2026

99

63

37

-61

IPCC 1.5°C Low Overshoot (1 Gt)

<2021

86

63

41

-56

Total Rupture

<2021

88

59

41

-56

Equinor Rebalance (9 Gt)

<2021

88

61

46

-51

BP Accelerated (10 Gt)

2025

96

72

47

-50

IPCC 1.5°C High Overshoot (6 Gt)

<2021

99

78

53

-44

DNV (19 Gt)

2024

85

69

49

-48

IEA Sustainable Development (8 Gt)

<2021

88

65

57

-39

Total Momentum

<2021

94

74

63

-33

IPCC 2°C (14 Gt)

2030

100

88

70

-26

IEA Announced Pledges (21 Gt)

2030

96

84

77

-18

BP New Momentum (31 Gt)

2030

101

92

81

-14

Equinor Reform (24 Gt)

2030

100

92

84

-11

Shell Sky 1.5 (18 Gt)

2025

100

94

85

-10

IPCC 2.5°C (29 Gt)

2040

105

ADVERTISEMENT

107

99

+5

Shell Islands (34 Gt)

2040

102

104

102

+8

IEA Base (34 Gt)

2040

103

104

103

+9

IPCC 3°C (38 Gt)

2040

104

108

106

+13

Exxon

>2040

104

107

107

+14

Opec (34 Gt)

>2045

107

108

108

+15

Equinor Rivalry (32 Gt)

>2050

107

110

110

+17

IPCC 4°C (52 Gt)

2040

107

111

111

+18

Shell Waves (35 Gt)

2040

111

119

111

+18

US EIA (43 Gt)

>2050

109

117

126

+34%

Projected oil demand to 2030-50 in million barrels per day in a range of scenarios. When available, projected CO2 emissions in billion tons are shown in parenthesis (2021: 34 Gt). Source: BP, DNV, Equinor, EWG, Exxon Mobil, IEA, IPCC, Shell, TotalEnergies, UNPRI, US DOE


Source: Energy Intelligence Group

You will notice that no less than 10 organizations, including OPEC, Exxon Mobil (NYSE: XOM) and the Energy Information Administration (EIA), have predicted that global oil demand will actually grow as we go along and not shrink as most analysts have forecast.

To be fair, it’s hard to be bullish about the long-term oil demand trend given that climate mandates are unlikely to ease, which coupled with the EV explosion as well as rapidly improving efficiency for gas-powered vehicles, are sure to limit oil consumption. Indeed, the Intergovernmental Panel on Climate Change's (IPCC) recently warned that keeping a 1.5ºC or even 2ºC warming limit in sight will require a big strengthening of current policies. In fact, Paris-compliant energy scenarios assume oil and gas demand will fall by respectively 40%-80% and 20%-60% between now and 2050 while gas demand needs to peak from 2025-2030.

Meanwhile, a plethora of innovations, such as gasoline direct fuel injection, turbocharged engines, automatic transmissions with more gear ratios, and stop/start systems that shut off the engine instead of allowing it to idle has improved fuel efficiency of new vehicles quite dramatically. New U.S. cars now travel nearly twice as far per gallon as they did at the start of the Obama administration, while light trucks and SUVs have increased efficiency by a more modest 59%. About 26% of crude production is consumed by the transport sector.

The big takeaway here is that EVs are likely to pose a substantial threat to the fossil fuel industry over the long-term. 

By Alex Kimani for Oilprice.com

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Leave a comment
  • john tucker on April 02 2023 said:
    As time goes on and on, the prophesies of the global warming crisis prophets keep on failing and failing and failing, and as a result fewer and fewer rank and file consumers can be persuaded to keep on believing in them.
    The most realistic scenario is that by 2040, the entire meme about global warming will have fallen off of the earth into total obscurity.
  • Rick Kargaard on April 03 2023 said:
    I wonder how many of the oil demand estimates take into account the future availability of sufficient and affordable electricity. It could be argued that green sources of electricity are nearing saturation without the inclusion of nuclear. Nuclear however requires long build times and still faces much onerous political regulation. At what electricity price point do EVs become unreasonable as an alternative.
  • Mamdouh Salameh on April 03 2023 said:
    Even Stanford University economist Tony Seba who has declared that EVs will obliterate the global oil industry by 2030 could get carried away with wishful thinking and fanciful projections.

    However, the global oil market and EV’s penetration into the global transport market are governed by the following realities.

    1- There could never be a post-oil era throughout the 21st century and probably far beyond because it is extremely unlikely that an alternative to oil as versatile and practicable as oil itself could be discovered or developed in the next 100 years.

    2- The notion of peak oil demand by 2030 or 2050 or even 2100 is an illusion. Global oil demand is projected to continue growing albeit at a slightly decelerating rate for the next 100 years if not longer.

    3- And while a deeper penetration of EVs into the global transport system could very slightly reduce the global demand for oil, EVs will never prevail ever over the internal combustion engines (ICEs).

    4- Motor technology is enabling ICEs to become extremely environmentally-friendly with emissions virtually at par with those associated with the manufacturing and decommissioning EVs batteries at their shelf life. To that could be added the other advantages like range, price and ease of fuelling with gas stations virtually available in every street corner.

    There were 1.4 billion ICEs on the roads globally in 2022 compared with 16.5 million EVs or 1.18%. Moreover, 1.61 million vehicles were sold worldwide in 2022 of which 267203 EVs were sold or 16.6%.

    Furthermore, 101.3 million barrels of oil (mbd) were consumed in 2022 60% of which or 60.78 mbd were used for transport. This means that EVs only displaced 716,336 barrels a day (b/d) of oil or 1.18% and not 1.5 mbd as claimed by BNEF.

    BNEF forecasts that over half of passenger cars sold in the U.S. will be electric vehicles by 2030 and that EVs could range from 11% at the low end of global sales by 2030 to 63% at the high end while projections for 2050 range from 31%-100% are no more that wishful thinking without any substantiation.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert
  • George Doolittle on April 03 2023 said:
    In the USA absolutely especially diesel fuel demand. Ford Truck sales that aren't pure BEV have completely collapse to start 2023 in point of fact.

    I have yet to see a breakdown of Tesla sales upon all of North America but I personally use the ratio of 1 Tesla equals 10 ICE Platforms for personal transportation going on forever as Tesla still wholly dominates the pure BEV market in every way to include retail sales of more than just electricity but as a "life style Brand" as well. How Tesla works as an employer to include SpaceX, the Boring Company, Solar City, PowerWall, Solar Controller, the Boring Company, Twitter you name it Tesla is doing all of that at the moment.

    Ford Motor Company stock has hardly collapsed today on news of an epic sales collapse tho. ICE Platform vehicles have *HUGE* margins far larger than pure play BEV ever will have.
  • Kay Uwe Boehm on April 04 2023 said:
    Most boring was Tesla EPS development with 2 new factories Q1 0.95 Q2 0.65 Q3 0.95 Q4 also only 1.07$/share
    not enough for high share price
    and now lithium price is down because of china subsidy cuts leading to 52% demand drop in world biggest market 64% but also tesla car price down.

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