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A couple of weeks ago, the International Energy Agency reported that global oil demand reached an all-time high of 103mn barrels a day in June. According to the global energy watchdog, robust demand was driven by better than expected economic growth in OECD countries, surging oil consumption in China, particularly for petrochemical production and strong summer air travel. The IEA has predicted that demand could hit another peak in August and remains on track to average 102.2mn b/d for the whole year, the highest ever annual level.
Well, it appears the oil bonanza’s days are numbered. Bloomberg has predicted that global demand for road fuel will continue to grow for only four more years, with demand peaking in 2027 at 49 million barrels per day before entering terminal decline. According to Bloomberg, electric vehicles, ever-improving fuel efficiency and shared mobility are the oil sector’s biggest nemesis, with EVs expected to displace a staggering 20 million barrels per day in oil demand by 2040, up from 2 million barrels per day currently.
Bloomberg reckons that demand for gasoline and diesel for road transport has already peaked in the U.S. and Europe, while demand in China is set to peak in 2024. Demand in other major consuming countries like India will go into a tailspin in the 2030s.
Implications For The Oil & Gas Industry
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., 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. And, this is no longer all about Tesla Inc. alone, with pundits saying stiff competition from the likes of General Motors and Ford is coming its way.
GM is one of the legacy automakers with the biggest clean energy investments, particularly in the EV sector. 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 “Car Wars” report has forecasts that GM and Ford Motors each will have roughly 15% EV market share in 2025 while Tesla’s 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’s 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 with their predictions. 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.
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.
