By Julian Lee/Bloomberg, London
Electric vehicles aren’t going to destroy the fossil fuel industry any time soon, but they don’t need to in order to disrupt it. And that could happen within a decade, when EVs begin to tip annual growth in gasoline demand into structural decline.
The sceptics argue that the barriers to mass take-up of electric vehicles are insurmountable and that recent enthusiasm among proponents of the technology — and some European governments — is misplaced. High costs of ownership, limited range, lack of refuelling infrastructure are among many drawbacks that will limit their adoption, and thus the power of electricity to replace gasoline. So refiners like Valero Energy, Marathon Oil and Exxon Mobil can breathe easy.
Personally, an electric car with a range of 150-200 miles would suit me perfectly. Drive in almost any direction for 200 miles from my home and I would fall off the edge of the country. I also doubt that the UK or French governments will ban the sale of cars with internal combustion engines in 2040.
More likely they will follow the lead of manufacturer Volvo, which will offer only hybrid or full-electric motors on every new model launched from 2019. And don’t forget, there are at least four general elections due in the UK before that policy is due to come into effect, so there’s plenty of opportunity for it to change.
The transport sector has long been seen as the last bastion of oil, with airplanes, cars and trucks supporting the light end of the barrel (gasoline and diesel) and ships the heavy end (fuel oil). Refineries, particularly in the US, have been designed — or re-designed, as they have been upgraded and expanded — to maximise their output of transport fuels.
The Energy Information Administration reports that every 42-gallon barrel of oil refined in the US produces 45 gallons of products, of which 35 are either gasoline, diesel or jet fuel.
Almost 70% of the liquid fuels consumed in the US last year were gasoline or diesel/gasoil, according to data published in the BP Statistical Review of World Energy.
The fleet of electric vehicles in use worldwide is on track to displace around 100,000 barrels a day of road transport fuel this year — most of it gasoline — according to a report published last month by Bloomberg New Energy Finance. They expect that volume to rise to 155,000 barrels a day next year.
To be sure, that is a tiny volume compared with global gasoline consumption that was reported by BP Plc at more than 25mn barrels a day in 2016, but that misses the point. It is at the margin where the growing fleet of electric vehicles will make its presence felt.
Take Tesla’s Model 3 as an example. Once delivered, the current order book of 455,000 cars will displace some 18,000 barrels a day of gasoline demand, based on vehicle miles travelled and fuel consumption data from the US Department of Transportation.
That is not far off the EIA’s latest forecast of US gasoline demand growth in 2018 of 25,000 barrels a day. That forecast may already factor in all those new Teslas. If not, growth could be close to zero.
The tipping point is a little further away at a global level. The International Energy Agency sees gasoline demand increasing by around 240,000 barrels a day in 2018. But by the end of the decade electric vehicles could displace more than 290,000 barrels of gasoline and diesel, according to BNEF. And by 2025 year-on-year increases in the volume of fuel displaced could be enough to tip demand growth into contraction.
What happens then? Not the end of the world as we know it, for sure. But gasoline refiners should brace for profits to be steadily undermined.
* This column does not necessarily reflect the opinion of Bloomberg and its owners.
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