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Greater product awareness and technological changes could fast track the adoption of electric vehicles (EVs) that could plausibly lead to a peak oil demand before 2030, Fitch Ratings said on Tuesday.
Although this is not the rating agency’s core scenario for EVs growth and market penetration, Fitch warned that EVs adoption is nevertheless “an increasing threat to oil demand.”
Continued decline in battery costs, government policies, and consumer preferences led to a flurry of EV announcements last year, and car manufacturers and governments set ambitious EV targets, Fitch said.
As early as in October 2016, Fitch said that “A leap forward in technology could transform the viability of electric vehicles (EVs) as an alternative to the internal combustion engine. This would be resoundingly credit negative for the oil sector, as transport accounts for 55% of oil consumption.”
Now Fitch has revisited the October 2016 scenarios and incorporated both conservative and more aggressive EV sales estimates based on car companies’ announcements.
The EV sales growth will depend on how far public goals and consumer behavior will support the hefty investment needed to meet the bullish EV estimates, Fitch said. But it also noted that “by considering a scenario where EVs’ cost and range are comparable to ICEs, consumers prefer driving EVs, policymakers mandate and support electrification, and carmakers see cost benefits of focusing on one drivetrain, it is not unreasonable to expect global EV stock by 2040 of over 1 billion, or more than half the vehicles on the road.”
Although this is not Fitch’s core expectation, the rating agency believes that the new bullish scenario for EVs has become more plausible over the past year. The new extreme scenario shows oil demand peaking in 2029.
Even if oil demand were to peak at that time, the peak would be shallow and oil demand in 2040 would be broadly unchanged from today, Fitch said.
“However, the absence of rising demand would be a significant structural change for the oil market and could make prices more volatile and, on average, lower,” Fitch said.
Fitch is not alone in predicting oil demand peaking by 2030. Last month, Bank of America Merrill Lynch said that EVs would account for 40 percent of all car sales in 2030, thus eating away at the demand for oil as a transportation fuel.
“Electric vehicles will likely start to erode this last major bastion of oil demand growth in the early 2020s and cause global oil demand to peak by 2030,” Bank of America said in January.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.