Electric Vehicles No Threat To Oil Prices Anytime Soon

July 28, 2017: Electric Vehicles No Threat To Oil Prices Anytime Soon

EV

Hardly a day goes by without another media report about the impending demise of the Internal Combustion Engine (ICE) as petroleum powered cars and trucks are replaced by uber-clean Electric Vehicles (EV). It is just a matter of time before EVs start to materially reduce global oil demand thereby capping a meaningful oil price recovery now and creating an ever-shrinking industry in the future. EVs are yet another reason why the decline of petroleum production and consumption is inevitable.

Except it isn’t true. Your writer read dozens of articles and attended a conference on the future of EVs. The evidence overwhelming proves they pose no threat to oil prices anytime soon. Following is a summary of the major points.

• The forecasts for EV growth are all over the map. Late last year investment research outfit Morningstar figured EVs will be 10% of new vehicle sales by 2025 (only 8 years from now!) compared to 1% in 2015. Washington’s Energy Information Administration (EIA) predicted in January cumulative sales of EVs (cars and light trucks) would push 1.4 million by 2025. Last month Morgan Stanley predicted 1 billion EVs would be sold by 2050 and 70% of European vehicles would be electric. Bloomberg New Energy Finance wrote a glowing report on EVs in early July titled The Electric Car Revolution is Accelerating stating “…adoption of emission-free vehicles will happen more quickly than previously estimated because the cost of building cars is falling so fast. The seismic shift will see cars with a plug account a third of the global auto fleet by 2040 and displace about 8 million barrels a day of oil production. In just eight years, electric cars will be as cheap as gasoline vehicles, pushing the global fleet to 550 million by 2050”. When Volvo recently announced it will only produce vehicles with electric motors of some sort – pure EV or hybrid – in a couple of years made global headlines.

• EV sales forecasts don’t look intimidating once all the numbers are presented. For perspective, how many cars are there in the world? According to Automotive News, in the U.S. alone there were 18.4 million new cars and light trucks sold in 2016. A year ago, U.S. research house Alliance Bernstein reported that in 2015 there were 1.1 billion cars and 377 million trucks on the world’s roads, quantities expected to rise to 1.5 billion and 507 million respectively by 2025 and 2 billion and 790 billion by 2040. These figures are interesting because if the number of vehicles doubles but EVs are only 25% by 2050 (Bloomberg’s high case) this doesn’t equate to an 8% reduction in oil demand. If the Morningstar prediction above comes true, this would equate to 8.8 million new EVs in 2025 based on worldwide sales of 88 million units in 2016. One of the big issues now emerging is the significant petroleum consumption and emissions of transport trucks for which electrification is not currently practical. And, of course, airplanes only run on refined crude. Bernstein figures Air Revenue Passenger Kilometers, or RPK, which was 9 trillion in 2015, will rise to 12 trillion in 2025 and more than double to 20 trillion by 2040. Oil required for transportation will continue to grow. Of a 42 US gallon barrel of crude 86% ends up transportation fuel (20 gallons gasoline, 12 diesel and 4 jet fuel). And EVs will only capture a meaningful portion of the market if several problems are solved, some highlighted below.

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