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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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Peak Gasoline Demand Forecasts Aren't Scaring Big Oil

Last week, President Joe Biden came out with an executive order aimed at making half of all new vehicles sold in 2030 electric (battery electric, fuel cell, and plug-in hybrid vehicles). The move is the latest in Biden's plan to fight climate change, in this case by targeting emissions from cars and trucks. Surprisingly, the three leading Detroit automakers General Motors (NYSE:GM), Ford (NYSE:F),  and Chrysler parent Stellantis N.V. (NYSE:STLA) issued a joint statement supporting Biden's ambitious plan. The three have announced their shared aspiration to achieve sales of 40-50% of annual U.S. volumes of electric vehicles by 2030.

Biden has already called for $174 billion in government spending to boost EVs, including $100 billion in consumer incentives. A bipartisan Senate infrastructure bill includes $7.5 billion for EV charging stations. Consulting firm AlixPartners says investments in EVs could total $330 billion by 2025 with EVs likely to reach 24% of total sales by 2030.

But what do these developments actually mean for oil demand?

ICE Dominance

A report from IHS Markit shows that last year, light plug-in and fuel-cell vehicles, as well as electric city buses and two-wheelers, collectively displaced about 370,000 barrels per day of global oil consumption, a figure that is projected to grow to 1.5 million barrels per day by 2025, equal to about 1.4% of the projected level of total world oil demand. Certainly not enough to lose sleep over by long-term oil investors.

Source: IHS Markit

Electrifying America's vehicles is a critical part of combating climate change, considering that the transport sector accounts for 21% of total GHG emissions. But this is just not happening fast enough. According to Bloomberg New Energy Finance (BNEF), just 2.7 out of 100 vehicles sold last year were EVs, with EVs expected to account for just 8% of the global fleet by 2030. However, EVs could reach 31% of the global fleet by 2040, as per BNEF estimates.

As Dean Foreman, chief economist at the American Petroleum Institute, has quipped: "EVs can "eat into traditional market share for liquid fuels, but that's largely a developed economy, or rich country issue at this point."

Related: Chinese Oil Demand To Crash By 1 Million Bpd On Covid Surge

Bloomberg New Energy Finance estimates that road fuel oil demand will peak in 2027, but it will take a decade later for the impact of advancements to be materially felt. Emissions will almost halve by 2050, but the sector will still be nowhere near net zero. In the best scenario, by the 2050s, fossil-derived road fuel demand will fall below levels last seen in the early 1970s. In this case, oil-related emissions will drop to 3.4 gigatons CO2 by 2050, down from almost 6.5Gt in 2019.

Source: Bloomberg

EV stocks retreat 

That said, BNEF warns that fuel producers with exposure to markets like the U.S. or Europe, like BP Inc.(NYSE:BP) and Shell (NYSE:RDS.A), may experience falling sales over the next decade while major markets like India and China might see demand growth fail to materialize.

After enjoying a torrid run in 2020, stocks of electric vehicle manufactures have gone into deep correction mode. 

The leader of the space, Tesla Inc. (NASDAQ:TSLA), is only up 1.2% so far this year; NIO Inc. (NYSE:NIO) is down 7.2%, while Vision Marine (NASDAQ:VMAR), has cratered 44.6%. 

That's in stark contrast to the oil and gas sector as legacy vehicle manufacturers, which are mostly enjoying a banner year.

General Motors (NYSE:GM) has rallied 29.6% YTD, red-hot Ford Motors (NYSE:F) is up a roaring 56.4%, while the oil and gas sector's favorite benchmark, the Energy Select Sector SPDR ETF (XLE), has gained 28.8%.

That said, the long-term EV outlook remains bright. 

BNEF says 58% of all new vehicle sales will be the electric kind two decades down the line. 

That might have appeared like a bad case of blue-sky thinking just a few years ago, but not anymore: The Biden administration has proposed spending heavily on EV infrastructure while the UK wants to ban gas-powered vehicles on its roads after 2030.

By Alex Kimani for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on August 12 2021 said:
    The tipping point for EVs, light plug-in and fuel-cell vehicles is so far into the future that I wonder whether it will ever happen throughout the 21st century and far beyond.

    Therefore, the claim that this will affect global oil demand is more of a hype than true. Whatever demand reduction is achieved in the US and the EU will be more than offset by rising demand in the rest of the world and also rising world population and global GDP.

    ICEs will continue to prevail well into the next 100 years

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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