To what extent will electric vehicles impact the demand for conventional fuels?
André C Tipping
Introduction
With all the attention given to the rise of electric vehicles (EVs) by the media, the assumption is that the demand for conventional fuels (for use in internal combustion engines) is drastically falling. Demand can then be divided into consumer and corporate. Most of the attention has been on passenger road vehicles, which mainly falls under consumer. This analysis/thought-piece will look at the extent demand of conventional fuels are affected by EVs.
Analysis
As shown in the pie-chart1, the share of global oil in 2017 that goes to the road sector is 45%, which equates to 43.6 million barrel per day. This can further be divided into passenger vehicles and freight. The implication being that an increase in the uptake of EVs will see a significant impact on global demand.
Source: OPEC World Oil Outlook 2018
The table2 below shows the registrations of new passenger vehicles and the type of drivetrain, in the EU from 2016. Diesel sticks out because it is the only one which has seen a fall in the number of registrations during 2016-18. There was a steady increase of over 30% in the number of petrol vehicles. EVs and hybird electric vehicles (HEVs) saw the most growth, however, combined they only make up 6.5% of new vehicles in 2018.
| Type | 2016 | 2017 | 2018 | % growth 2016-18 |
|---|---|---|---|---|
| ECV | 209550 | 285319 | 377542 | 80.17 |
| HEV | 293370 | 426769 | 578620 | 97.23 |
| Petrol | 6398267 | 7563739 | 8532104 | 33.35 |
| Diesel | 6901188 | 6617051 | 5406574 | -21.66 |
Compared to the plot3 below, which shows the demand for conventional fuels for the transport sector for Europe from 2006, it can be seen that demand for diesel has actually increased since 2013, while petrol has largely plateaued. For diesel, this can be explained by the increase in the number of those vehicles on the road, not necessarily passenger vehicles. While for petrol, the reason there has not been an increase in demand despite an increased number of passenger vehicles is improvements in the efficiency of these engines, counterbalancing a rise.
Source: Eurostat
OPEC predicts that there will be a 1.2% annual growth in the global oil demand for oil for the road sector until 2023. This can be explained by economic and population growth, especially in developing countries.
By looking into the oil demand per region, plot4 below, the predicted global oil demand can be seen to increase because the growth is concentrated in Developing countries, which see over 60% growth. This can be attributed to rising prosperity that will no doubt increase the demand for both the quantity and quality of transport services. In the more economically developed regions such as the US and Europe, the demand can be seen to fall after 2020. This can be assumed to be because of a greater uptake of EVs and the eventual removal of ICE vehicles from circulation.
Source: OPEC World Oil Outlook 2018
Conclusion
The extent to which demand of conventional fuels will be impacted is linked to the question of EV penetration, and whether EVs will be attractive enough to convince consumers to commit. Cost can be considered a main factor: the cost of the car itself, cost of electricity to charge it. EV costs are dropping rapidly year-on-year hence the uptake in ownership however, EVs are dependent on complex supply chains. Any disruption can thus affect price reductions, e.g. reduction of lithium/cobalt supply for batteries (these metals come from select, often geopolitically unstable, mines around the world like DRC). It is important to also realise how the price of barrel of oil will also speed up or slow down EV uptake: high oil prices will encourage further development in EVs which in turn will reduce demand for conventional fuels in the long term.