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The EV Revolution Is Threatening Long-Term Oil Demand Growth

The growth in electric vehicle adoption, especially in emerging markets, could threaten long-term oil demand growth, Carbon Tracker has reported, citing these markets’ dependency on imports that could be relieved by a switch to electric vehicles.

“Emerging market oil importers spend 2% of GDP on oil imports, have a high and rising dependency on imported oil, and suffer premature deaths of 285,000 people a year from pollution linked to transport,” the authors of the report wrote.

They also argued emerging economies were having to import increasingly expensive oil, deepening their dependency on the foreign commodity. Right now, this argument is rather weak, with oil prices in the $40s and China, the world’s biggest oil importer, shaping up as the one single country that is capable of driving demand for crude. At the same time, China is the biggest EV market in the world and likely to continue growing as such thanks to ambitious emissions goals set by Beijing.

Meanwhile, Carbon Tracker said, battery prices are falling, and EVs are becoming increasingly competitive with internal combustion engine cars. This argument is also questionable: if EVs were competitive with ICE cars, we would have seen a much faster switch from ICE cars to EVs in the world’s biggest markets such as Europe and, again, China. Yet cheap EVs have their limitations: it is no accident that Tesla has been reporting especially strong sales in China.

Related: Climate Targets Could Slash Natural Gas Investment By $1 Trillion

On the other hand, the switch to electric transport will reduce emissions from that segment of the economy significantly, and this, in turn, will reduce the number of pollution-related deaths. The question here is how to align these benefits with consumers’ preferences.

“The electrification of transport and falling battery prices enable electric vehicles to compete directly on the purchase price with ICE vehicles whilst reducing the cost of energy imports per vehicle by at least 90%, cutting the number of premature deaths from air pollution linked to transport by at least 75%, and lowering the cost to consumers by at least two thirds,” Carbon Tracker wrote.

By Irina Slav for Oilprice.com

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  • Bill Simpson on November 23 2020 said:
    Oil demand is probably near its peak, because governments in rich countries want to lower carbon dioxide production. Americans hold on to gasoline vehicles because many commute long distances, and electric cars were much more expensive than gasoline powered ones.
    As the price of electric vehicles begins to fall, and eventually becomes cheaper than gasoline powered ones, demand for ICE engine powered cars will begin to drop at an accelerating rate.
    The trend to electric cars will eventually spread even to less developed countries, after batteries get cheaper and cheaper.
    The beauty of an electric car is its very low maintenance, when compared to an ICE powered vehicle. A well made electric car could last for decades where salt is not frequently spread on the roads during the winter.
    Petroleum will always be valuable for powering jets, and big things like railroad locomotives, farm machines, ships, and construction equipment. Batteries will never match the energy density and convenience of diesel fuel, gasoline, and kerosene. There will never be electric rockets launching satellites. No lumberjack would chose an electric chain saw over a gasoline powered one. And as long as gasoline cars and trucks are available and legal, some people will purchase them, because they can be refueled instantly.
    Hydrogen fuel cell vehicles might become popular. But if you have a place to charge your vehicle off street, you would want to go electric, because an electric vehicle is far simpler than one containing a fuel cell. Hydrogen can cause many problems with metals, and it is explosive. I would never put high pressure hydrogen tanks in my garage. I have got a bunch of propane tanks for the generators in there, but it is stored at low pressure, compared to hydrogen in a car. And propane does not cause hydrogen embrittlement of metals. You can store propane is a steel tank inside a building for decades.
    We lucked out that lithium batteries came along well before the petroleum began to run out. Running out of oil and gas before lithium batteries were invented would have been catastrophic. Billions of people would have starved to death without some replacement for the energy in oil.
  • Peter Farley on November 21 2020 said:
    The energy transition will happen faster than the vehicle transmission, because new vehicles tend to travel further than average and EVs in turn travel further than ICE vehicles because the marginal cost of operation of the EV is lower.
    Thus the transition will be quickest in ride-share, taxis, delivery vans and high mileage service vehicles where the savings in operational costs offset the higher capital cost the quickest. So by the time half the vehicles on the road are electric some 60-65% of the miles will be electric.
    It is possibly the case that some high mileage applications like long distance trucking might take longer. However the interaction between improvements in energy density of batteries, regulations limiting driving hours and megawatt+ chargers allowing trucks to recharge during compulsory rest stops and while loading/unloading will mean little practical limit on truck range.
    The lower operating and maintenance costs combined with increased operator comfort and ever-tightening noise and exhaust pollution might see a trucking transition happen extremely rapidly just like smart phones overtook feature phones. It is not impossible to imagine that after a slow buildup, once electric trucks reach 1-2% market penetration they will transition to 50% within 5 years.
  • Mamdouh Salameh on November 20 2020 said:
    EVs will never prevail over ICEs. As a result, ICEs will continue to be the dominant means of transport throughout the 21st century and far beyond.

    A new study titled:” Electric Vehicle Penetration and Its Impact on Global Oil Demand Survey by Columbia University’s Centre for Global Energy Policy, concluded that policymakers and shareholders have been overestimating how quickly the global oil demand trajectory can flatten and decline.

    And whilst a growth in EV adoption, especially in emerging markets, could decelerate slightly long-term oil demand growth, this can’t be achieved without an extensive expansion of electricity generation costing billions dollars in investments.

    It is not the cost of oil changes and maintenance that matters most, it is ease of charging and also the availability of charging points particularly when one is embarking on a long journey of hundreds of miles.

    Furthermore, the running costs of EVs are not cheaper than ICEs given the continuous rise in electricity charges. It is claimed that charging an EV using a public charging point costs on average 8-10 pence a mile compared to 12-13 pence for a petrol or diesel car. But this doesn’t take into account the fact rises in electricity are far bigger than that of petrol or diesel.

    And whilst EVs are benefiting from evolving technologies, ICEs are equally benefiting from the evolving motor technology. As a result, ICEs are not only getting more environmentally-friendly but they are also able to outperform EVs in range, price, reliability and efficiency.

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

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