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Fitch: EVs Growth Could Lead To Peak Oil Demand By 2030

Tesla Model 3

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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  • Tim Turley on February 20 2018 said:
    EV has a long way to go. EV market share is currently < 3% and in California, Ford 150 trucks outsell all EV’s combined.
  • Mamdouh G Salameh on February 20 2018 said:
    I consider that the projections by Fitch Ratings that adoption of electric vehicles (EVs) could plausibly lead to a peak oil demand by 2030 and Bank of America Merrill Lynch that EVs would account for 40% of all car sales in 2030 very far-fetched if not bordering on wishful thinking.

    Let us analyse the available facts. Currently, electric and hybrid cars combined number under 2 million cars out of 1.477 billion internal combustion engines (ICEs) on the roads worldwide in 2015, or a negligible 0.14%.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.

    Some experts are now saying that widespread electric vehicle use could spell the end of oil. The tipping point, they reckon, is 50 million electric cars on the roads. This they believe could be reached by 2024. However, 50 million EVs on the roads could hardly make a dent on the global demand for oil let alone replace it.

    In 2017 the world used 36 bn barrels of oil (bb) of which 66% or 24 bb were used to power 1.477 billion ICEs around the world. Bringing 50 million EVs on the roads will reduce the global oil demand by only 1.1 bb, or 3.4%. This will neither be the peaking of oil demand nor a tipping point.

    A tipping point for oil could only be reached once 739 million EVs (50% of the current ICEs) are on the roads worldwide within the next fifty years. 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 fleet of ICEs is replaced by electric cars.

    Current worldwide production of EVs doesn’t exceed 500,000 cars annually. So it will take many decades to manufacture 50 million EVs. And whilst EVs are very welcome addition to global transport and the environment, they will not pose a threat to oil throughout the 21st century and maybe far beyond.

    Moreover, there will be a need for trillions of dollars of investment to expand the global electricity generation capacity in order to accommodate the extra electricity needed to recharge 50 million electric cars.

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

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